Changes to the SR&ED tax credit will hurt Canadian manufacturing most, says coalition

Close to 50 national industry groups representing more than 100,000 companies from across Canada are calling on the federal government to step back on its proposed changes to the Scientific Research and Experimental Development (SR&ED) tax credit, citing damaging effects to the country’s manufacturing sector and its overall innovation performance.

In a letter to Finance Minister Jim Flaherty, the Canadian Manufacturing Coalition (CMC) said the outlined changes fail to welcome large R&D mandates, and inhibit the ability of manufacturers to successfully commercialize new products and technologies. The March budget highlighted a five per cent cut to the popular tax credit, removing $770 million from the program between 2014 and 2017, and $770 million annually thereafter.

“While the coalition applauds the government’s commitment to boost research collaboration between private, public and academic sectors, these initiatives will not offset the negative impact of proposed changes to SR&ED,” says Jayson Myers, CMC chairperson, and president and CEO of Canadian Manufacturers & Exporters. “Manufacturing is much more capital-intensive than other areas of the economy – comprising close to 60 per cent of all private sector R&D. The 1.8 million Canadians employed by CMC member companies rely on these investments and manufacturing as a whole for good jobs and a high standard of living.”

The elimination of capital expenditures from eligible SR&ED expenses will remove $95 million from the program alone through 2017, deterring the largest users of the tax credit. Without these incentives, many companies may elect to invest in more lucrative jurisdictions elsewhere.

Instead, the coalition is asking policymakers to work with industry to help shape the budget proposals into a more comprehensive innovation strategy for Canada.

“Business needs to remain a top priority for the government,” says Myers. “In our letter to Minister Flaherty, the coalition outlined a number of recommendations to promote and nurture innovation in Canada. We look forward to working alongside all stakeholders to ensure Canadian manufacturing remains globally competitive and a core driver of economic growth.”