The feed-in tariff, similar to the standard offer contract, advanced renewable tariff or renewable energy payments, is a system conceived to incentivize development of renewable energy-fueled distributed electrical generation projects and stimulate economic development of associated industry. Renewable energy sources include biomass, biogas, landfill gas, on-shore wind, solar photovoltaic (PV) and waterpower. The Ontario FIT program enables individuals and businesses generating electricity to sell the energy generated back to the province at a fixed rate over a 20-year contract.

Nova Scotia is the second province to introduce a feed-in tariff incentive through its Community Feed-in Tariff (COMFIT) program, and the first policy in North America to specifically pay for community-owned tidal power plants, with the initial round of approvals having been in December 2011.

In light of possible rate reductions in the OPA’s FIT program, renewable energy development costs could be offset by taking advantage of the SR&ED program as a means of funding, with the potential of receiving tax credits of up to 72% of labour and overhead costs related to eligible scientific research and experimental development endeavours. As a burgeoning, R&D-heavy industry, companies within the renewable energy sector have a prime opportunity to take advantage of the innovation federal and provincial tax incentives. NorthBridge is a board-approved Canadian Solar Industry Association (CanSIA) and Ontario Sustainable Energy Association (OSEA) member, advocating SR&ED within the renewable energy sector through workshops, webinars, and the development of industry-specific eligibility guidelines.

 If Ontario has to wait with baited breath for renewable energy policy reform – let’s hope it’s with clean air.

In light of the recent Jenkins report, there has been significant discussion over the benefits and drawbacks of direct funding.  Direct funding allows the government to “pick winners” and scrutinize where funding is allocated, according to government policy.  Because companies who receive direct funding have to present a business case for each and every funding application, it allows the government to put “checks and balances” in place to ensure that the funding will be utilized for its intended purpose.  Direct funding mechanisms were pivotal in building capabilities in what became leading sectors in Ontario.

However, the downside of direct funding models, is that, according to a research paper by Nelson and Langlois (1983), the practice of “picking winners” by the government was the least successful form of government support.  Direct funding generally creates a larger administrative burden, especially to smaller enterprises and start-up ventures, who can ill afford to have an in-house grant writing team.  A Canadian firm intent on bringing its technology to market will likely be deterred from seeing assistance through direct funding because the lengthy approval process can delay the onset of time-sensitive work.

Secondly, a move towards direct funding could threaten the global competitiveness of Canadian enterprises.  International trade agreements, such as the World Trade Organization Agreement on subsidies and Countervailing Measures, cap direct subsidies to business.  For example, the controversial US-Canada lumber dispute revolved around Canadian stumpage fees being too low, making the fees de facto subsidies.

Finally, under a direct funding model, there is no legal process to appeal or obtain redress for disagreements between the administrators and the applicants for the funding.  A direct funding approach has no legislative support, and applicants can easily be discriminated upon if their objective does not directly advance government policy.  On the other hand, the tax credit system provides legislated rules so that any dispute about eligibility or payment can be heard by the courts.

There are arguments to be made for both tax credits and direct funding.  However, at the end of the day, it is important to keep in mind that entrepreneurs (and the start-up ventures they create) are the backbone and future of our economy.  It is paramount that these start-up ventures obtain the upfront capital necessary in order to undertake risky ventures, some of which will evolve and transform the economic landscape both in our country, and around the world.  Will the next RIM please stand up?

So, as a software company, what do you need to take advantage of the SR&ED tax credit? To determine your eligibility in qualifying for SR&ED refunds from a software or high-tech perspective, consider these questions:

-          Do we possess the intellectual property of the developed product? Can we sell the original or a modified version of the software?

-          Have we deviated from routine software development to overcome a technological constraint?

-          Was the product developed by qualified software engineer(s)/developer(s)?

-          Did we do more than just “trial and error”? Did we learn anything new?

If these situations apply to software your company has produced or is currently working on, you could be eligible to receive money back. For more information, or to evaluate the eligibility of your company’s software development product, contact NorthBridge Consultants.

Canadian Prime Minister Harper reiterated possible amendments to the Canadian SR&ED program at the World Economic Forum at Davos, Switzerland on Thursday.   “We believe that Canada’s less than optimal results for those investments is a significant problem for our country,” Mr. Harper stated.

Suggested changes, as previously mentioned by the Globe and Mail, follow from the much-discussed Jenkins Report, such as potentially limiting refunds to labour-based expenditures. However, the goal of the SR&ED will remain to support innovation in Canada.

The Jenkins report also recommends redirecting the savings to more direct funding of business research.  The current program provides a level playing field for both SMEs and larger corporations, reimbursing companies equally for monies that have been spent on research and development.  Should we allow bureaucrats to “pick winners” and make decisions about which companies the funding should go towards?

Quoting a recent publication from the Mowat Centre, ”picking winners” was a term originally used in a paper by Nelson and Langlois (1983) in reference to the practice of government officials picking specific technologies to commercialize, a practice that was found to be the least successful form of government support identified in their research.  This more direct manner of investment is often disparaged as either “corporate welfare” (Taylor, 2008) or as a distortion of markets. However, such investments were pivotal in building capabilities in what became leading sectors in Ontario. While in essence it requires ‘picking winners’, it is about picking sectors and not technologies.   This is an important distinction and one that is often lost amidst the confusion surrounding the term’s use in ideological debates over industrial policy.