Ontario Liberals pondering new tax credits to spur R&D investment

Ontario’s governing Liberals are considering new tax credits and incentives to encourage cash-rich companies to spend their money on research and development as well as new equipment, technology and training.

There could be a “play or pay” tax incentive to reward companies for making specific investments, Finance Minister Charles Sousa said ahead of his fall economic statement.

“If those companies don’t initiate those investments, don’t provide for those supports, then they pay what they’re paying now,” he said. “If they do other things, if they play, they get a better rate.”

Speaking to a crowd at the Empire Club of Canada – and as reported by the Canadian Press news agency – Sousa said that many companies are holding on to their cash as the global economy slowly recovers from the economic downturn.

“As a former banker, I recognize how important it is to have a strong balance sheet and ensure that we invest money in those things that are going to make greater returns in the long run,” he said after the speech. But businesses need to invest the money that’s sitting on their balance sheet to be more productive and to boost the province’s competitiveness, he added.

Ontario’s spending on research and development as a proportion of its gross domestic product is significantly lower than the United States, he said.

Many American states are providing R&D tax credits to encourage investment and Ontario can’t fall behind. “We recognize that we have to continue finding those stimulus initiatives for those businesses to invest in those particular areas,” Sousa said. “Other parts of the world are using incremental tax credits in a better form than Ontario has been doing.”

Asked how he would ensure that companies wouldn’t apply those tax credits to expenditures they’d have to incur anyway, Sousa said the province was reviewing all its tax credits to make sure they’re being used the way they should.

Sousa didn’t provide any details about the proposed measures, but said his fall economic statement would “speak” to it.

The statement will also repeat his promise to slay Ontario’s nearly $12-billion deficit by 2017-18, the minister said – but they won’t bring in “drastic cuts” or “business-killing taxes” to balance the books.