Pre-budget submissions for 2019 seek improved R&D tax credits and stronger space policy

R&D tax credits, space investments, a bigger Strategic Innovation Fund and more support for indirect costs of research are among the more prominent recommendations made to the House of Commons Standing Committee on Finance (FINA) in advance of the next federal Budget, expected in early 2019.

The deluge of recommendations and accompanying price tags follow the 2018 Budget, which provided an historic $6.4 billion for scientific research, technology and business innovation assistance.

The submissions from industry, academia and not-for-profit organizations represent billions of dollars in proposed new research and innovation investment and reflect growing calls for a substantial yet coherent boost to federally supported research, as well as recommendations to enhance the regulatory and taxation environment under which companies operate.

RE$EARCH MONEY has collected and analyzed more than 80 innovation-related submissions of the nearly 500 submitted to FINA.

Ongoing support for the Naylor report

In presenting arguments for increased research funding, organizations frequently cited Canada's Fundamental Science Review (FSR), the 2017 report from the expert panel chaired by Dr. David Naylor. Groups as diverse as the Canadian Association of Physicists, CMC Microsystems, Evidence for Democracy, McGill Univ and the Univ of Alberta recommended implementing some or all of the report’s recommendations.

CMC Microsystems, which is currently seeking new funding sources after losing support from the Natural Sciences and Engineering Research Council — its key funding partner since 1984 — calls for adopting the FSR recommendation of increasing the Canada Foundation for Innovation’s support for major national infrastructure facilities from 40% to 60%.

The Canadian Association of Physicists is taking a broader approach, calling for all of the FSR’s 35 recommendations to be implemented to fulfil the report's objective of bringing greater coherence and financial support to the nation’s fundamental research.

Seeking results from the long-awaited SR&ED review

On the business side, companies and organizations renewed their push for the government to complete its review of the Scientific Research and Experimental Development (SR&ED) tax credit program, which was announced in the 2017 Budget. The review is intended to “ensure its continued effectiveness and efficiency” and is part of whole-of-government review of business innovation programs. In recent years, the value of indirect support provided through SR&ED credits claimed by R&D-performing businesses has dropped.

BCE Inc is arguably the most prominent Canadian firm requesting that SR&ED be revised, including restoring the tax credit to its previous level (20% for large and publicly traded firms), re-instituting capital expenditures as eligible investments and expanding the scope of eligible activities “to encourage R&D investments which will facilitate the achievement of Canada's innovation goals.”

The Canadian Advanced Technology Alliance has been most vocal in its critique of the program, calling it “broken” and requesting a redesign and administration by an independent third party rather than the Canada Revenue Agency.

READ MORE: Innovation advocates argue for makeover to Canada’s R&D tax credit program

Other organizations that filed submissions calling for the review to be completed and/or a restoration of the credits to their previous value include the Canadian Wireless Telecommunications Association, ARC Resources Ltd and 3M.

Advocating for other incentives

The Northern Alberta Institute of Technology (NAIT) went one further, requesting the government to explore the advantages of creating a Productivity Tax Credit — echoing previous calls to widen SR&ED to include other elements of innovation not currently eligible under the program’s strict criteria.

In a related recommendation, the Intellectual Property Institute of Canada is calling for the creation of a “first patent program,” to encourage inventors, startups and small firms to file patent applications for their inventions. And along with 3M, it calls for the establishment of an “intellectual property box” tax incentive for income derived from intellectual property.

For those who prefer direct support for innovative businesses, Canada Manufacturers and Exporters led the charge by expanding the size of the Strategic Innovation Fund to $2 billion per year, making it permanent, and earmarking half of those funds for innovations tied to manufacturing. CME also wants the government to create a National Manufacturing Export Accelerator Program to assist SMEs become export-ready.

At the macro level, CME calls for the government to counter the Trump administration’s corporate tax cuts by restoring Canada’s business tax advantage, augmented by a “new approach to regulatory modernization that includes a Regulatory Bill of Rights for a world-class system of regulations that are predictable and focused on achieving desired policy outcomes rather than prescribing business processes.”

Stronger space policy

Canada’s troubled space policy is also the focus of several submissions, particularly from the MDA Space Missions Group, Satellite Canada Innovation Network and the Canadian Space Society (CSS). MDA requests that the government “recognize space as a national strategic asset and a key contributor to Canada’s competitiveness” and calls for completion of a long-term space plan (LTSP), which Canada has lacked since 1994. MDA and others have long argued that a current LTSP would help to establish “the requisite funding to maintain our existing world leadership in satellite communications, robotics, Earth observation and space science; cultivate new areas of leadership; and position Canada to be competitive in the new space economy”.

MDA also requests that the 2019 Budget provide $1.2 billion over 20 years to underwrite a third generation of the Canadarm, providing a boost to the country’s robotics industry of which MDA — now part of SSL MDA Holdings and headquartered in San Francisco — is a major player.

The Satellite Canada Innovation Network’s submission calls for the Canadian Space Agency (CSA) to be restored to its original purpose and mandate, which does not include building industrial capability in the space sector. It contends that the CSA’s “investment in space and satellite(s) has lagged to (the) point of incredulity” and that its current focus “has hindered the development of multiple branches of government becoming purchasers and users of satellite capability which in turn has hindered competition and innovation in the satellite sector in Canada.” The Network argues that commercial space interests are able to directly meet the needs of government and industry, freeing up the CSA to return to its function of supporting “space exploration, space science, astronauts, international collaborations, and inspiring Canadians.”

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