CAMM SR&ED committee pushes for change
T o say that moldmakers have had a tough time over the last few years would be a gross understatement. Shop closures and bankruptcies have become all too common, and issues such as low-cost competitio...
May 1, 2008 by Canadian Plastics
To say that moldmakers have had a tough time over the last few years would be a gross understatement. Shop closures and bankruptcies have become all too common, and issues such as low-cost competition and customer nonpayment continue to eat away at the sector.
It’s against this economic backdrop that Canadian moldmakers are trying to survive and innovate, and many have made use of the Scientific Research and Experimental Development (SR&ED) tax credit program to offset their investments in research and development.
AN IMPORTANT INCENTIVE
Official surveys by the Canadian Association of Mold Makers (CAMM) have found that the SR&ED incentive is the single most important government assistance program available to the industry.
“We know that it’s only through innovation that we will be able to compete globally,” noted Ed Bernard, CAMM’s SR&ED committee chairman. “This SR&ED program rewards innovation.”
But industry experts note that the program could be made more useful for Canada’s mold manufacturers. Bernard, who ran Bernard Mould before taking the position of senior SR&ED consultant with BDO Dunwoody LLP, said CAMM’s committee is improving communication with the government.
The committee has participated in training with Canada Revenue Agency (CRA) field workers. Bernard also testified before the House of Commons alongside several other industry leaders to offer sector-specific recommendations on improving the program.
One of the biggest stumbling blocks for the industry is what Bernard called “inconsistencies” with how CRA’s field agents review a claim.
“There have been a lot of criticisms of the program because it is not predictable… the field agents are judges of eligibility and the background and training of these reviewers varies, so the way they administer the program varies,” he explained. “And because of cash flow in the industry, it’s really important to be able to predict what your refunds are going to be.”
Manufacturers looking to manage their cash flow can acquire a CRA opinion on their eligibility by using the preclaim project review program, but this only serves as a useful tool if the criteria or process don’t alter.
CAMM’s November consultation report also included six recommendations on how to improve the program, setting priorities using survey data from its members. In the report, Bernard called for international SR&ED projects made eligible under the program. The most recent federal budget tweaked the system to offer up to 10 per cent allowance on Canadian resident employee labour costs undertaken outside of Canada for international collaborative research.
“We are also trying to attract more foreign investment in manufacturing, and make the Canadian SR&ED program more appealing to offshore operations,” said Bernard. “For instance, a German company that has operations in Mexico and Canada will be looking at where they get the most bang for their R&D investment.”
The recent budget also addressed some of CAMM’s other recommendations by increasing the expenditure and taxable income limits. But Bernard says there is still room to improve the program for manufacturers in the sector.
“Right now, the federal program only allows a 20 per cent tax credit to Canadian corporations reporting a net income over $600,000; we are lobbying to change that to a tax refund,” he said. “The tax credit can only be applied when a company is making a profit in a year, and a company that is not making a profit cannot take advantage of a tax credit for immediate cash flow, although they can carry these credits forward for 10 years.”
Additionally, the committee has applied to bring intellectual property costs like patents into the program.
“We are trying to make that a deduction that you claim it as a SR&ED expenditure,” Bernard said.
According to Bernard, the committee will continue to lobby the government this year. Additionally, he would like to see the return of CRA’s SR&ED Partnership Committee, which was discontinued in 2006.
“We think that if the politicians recognize that manufacturers needs help, this is the time to do their best to fast track improving the SR&ED program,” Bernard said.