Earlier in June, NorthBridge paired up with Excellence in Manufacturing Consortium (EMC) Canada to host a series manufacturing seminar in Atlantic Canada. The information sessions focused on how to best prepare for a SR&ED review and create a “culture of SR&ED” within your company to maximize success with the program. EMC also posted an account of their experience of the successful events.

The sessions proved illustrative of the diverse experiences companies encounter throughout the SR&ED process, and touched on recurring challenges the program presents for many companies, from understanding the program guidelines and changes to the program, to educating staff of the program’s value.

NorthBridge is involved with the SR&ED process from beginning to end – including providing in-depth support and background for the SR&ED review process and committing physical presence for a review. Typically, following the submission of a SR&ED claim, the applicant company will receive one of three communication forms: a Notice of Assessment (if Accepted as Filed), a request from the CRA for additional information, or a request for an on-site review. The on-site review may be either Technical or Financial, or both. The primary objective of a CRA review, conducted in person by an appointed Research and Technology Advisor (RTA), is to assess the projects’ applicability, to understand the technology and substantiation of work, to assess the cost breakdown and/or to observe proof of costs.

A well-supported SR&ED claim can be maintained through efforts including:

-  Tracking project activity on a weekly basis at minimum
-  Keeping notes of trials (purpose, metrics and results)
-  Maintaining print and digital copies of email
-  Requesting statements of work from sub-contractors
-  Taking pictures and videos
-  Maintaining version control
-  Dating all documents.

The review process ensures the validity and stability of the SR&ED program. While the CRA has been increasing the scope and robustness of the SR&ED review process, a well-prepared applicant with strong and organized documentation and a sound understanding of the SR&ED program will ensure a quick and easy proceeding. NorthBridge experts are always available to answer your SR&ED review and general queries.

The Organisation for Economic Co-operation and Development (OECD) released the June 2012 results of the OECD Economic Surveys for Canada’s macro-economic state of affairs. The report indicates that the economy is picking up, with a positive outlook for continued moderate output growth and inflation. The OECD also cites innovation as a priority on the government’s agenda.

“Boosting innovation can raise historically weak productivity growth to sustain living standards… Competitive pressures, which spur innovation, have recently intensified because of the high exchange rate, but further market opening in sheltered sectors like network industries and professional services would be beneficial.”

Currently, innovation is lagging in Canada, with limited business R&D productivity and a low patenting quota. Fostering innovation can contribute to healthy multi-factor productivity (MFP) growth; innovation thus emerged as the overarching theme of the survey, with recommendations to improving the current policy framework. The OECD calls for support focused more on “sharpening incentives and raising performance,” through SR&ED strategies like unifying the higher enhanced ITC rate with the lower general ITC rate to encourage companies to grow. The OECD further recommended reinstating capital costs in the eligible expenditure base for SR&ED.

Aside from SR&ED, the OECD recommended subjecting the Industrial Research Assistance Program (IRAP) and other R&D programs to in-depth cost-benefit analysis. One suggestion was to implement user fees as a recovery method for the high costs of expert advice, especially for companies with products on the path to commercialization.

In light of proposed changes to the SR&ED program announced in March’s federal budget, Canada retains a position as offering one of the most attractive R&D incentive programs globally.

Let’s look at a few R&D tax credit programs across the globe to see how SR&ED stacks up. Currently, Canada’s SR&ED program offers a 35-percent refundable tax credit to Canadian Controlled Private Corporations (CCPCs) on the first $3 million of R&D expenditures, and a 20-percent non-refundable Investment Tax Credit to non-CCPCs. The general 20-percent ITC is scheduled to reduce to 15 percent beginning 2014.

To the south, the United States’ Research and Experimentation (R&E) tax credit program is in a state of transition. The R&E tax credit has existed as temporary credit since 1981, extended 14 times in indeterminate durations. Since FY2010, President Obama’s administration has been proposing to re-haul the program to permanent status, and to expand and simply the credit. Currently, the R&E tax credit program exists in two formula:  the “regular” credit is worth 20 percent of qualified research expenditure above the product of the taxpayer’s “fixed base percentage”, the ratio of its research expenses to gross receipts for the years 1984 to 1988, and the average of the taxpayer’s gross receipts for the four preceding years. According to a report compiled by the Department of the Treasury last year, the regular formula is “outdated,” with “little reason to believe that the firm’s ratio of research spending to gross receipts from more than two decades ago, when multiplied by its average gross receipts over the prior four years, is an appropriate base for the taxpayer.”

The alternative simplified research credit (ASC) is equal to 14 percent of qualified research expenditure exceeding 50 percent of the average qualified research expenditure for the three preceding taxable years. The administration further proposes increasing the ASC rate from 14 to 17 percent. Both methods use an incremental expenditure method of calculation as compared to Canada’s actual benefit mechanism.

France also uses an incremental expenditure method for the basis of their R&D tax credit, Crédit Impôt Recherche (CIR), which covers 40 percent of R&D expenses in the first year, 35 percent in the second year and 30 percent in subsequent years up to €100 million (5 percent of expenses above this threshold). The CIR is deducted from the tax to be paid or refunded at the end of the third year. In certain cases, young companies are able to receive refunds immediately. CIR considers all R&D expenses. As well, expenses related to operations subcontracted to French and European public-sector research bodies are assessed at 200 percent.

In an innovation report card released by the Conference Board of Canada, Switzerland and Ireland ranked first and second followed by the U.S. in third in the broad topic of Innovation, while Canada trailed at 14. Switzerland currently does not offer an R&D tax credit incentive (yet does offer a patent box incentive to boast commercialization of research outcomes).

Ireland offers a tax credit of 20 to 25 percent for companies performing R&D; Ireland also offers a corporate tax deduction for non-capital R&D expenditures incurred by Irish trade or business companies.

Other countries that offer R&D tax credits include Australia, Austria, Belgium, Italy, Japan, Korea, Portugal and Spain.

In addition to R&D tax credits, there are additional or alternative means for incentivizing R&D and Intellectual Property. Six European Union countries have adopted “patent box” regimes to reduce the corporate tax rate on eligible intellectual property (IP) income to a nominal rate of 5 to 15 percent. Countries offering patent box regimes include Belgium, France, Hungary, Luxembourg, Netherlands, and Spain, and the UK government has committed to introducing a 10-percent patent box regime effective in 2013.

To learn more about the SR&ED program and other research and development incentives, contact Northbridge today.

The 2012 U.S. National Bioeconomy Blueprint was announced on April 26th with the purpose of assessing strategic objectives to maximise on the U.S. bioeconomy potential and to highlight ongoing efforts to meet those objectives.

However, many are concerned that the blueprint predominantly focuses on economic development while insufficiently addressing regulations to minimise social and environmental impact.

The blueprint attributes growth in the current U.S. bioeconomy sector to the development of three foundational technologies including genetic engineering, DNA sequencing, and automated high-throughput manipulations of biomolecules. It goes on to emphasise the reliance of tomorrow’s bioeconomy on the development of emerging technologies such as synthetic biology (engineering of microbes and plants), proteomics (study and manipulation of proteins in an organism), and bioinformatics (application of computational techniques to biological and related data).

The National Bioeconomy Blueprint describes five strategic objectives with the potential to generate economic growth and address societal needs.

1. Support R&D investments that will provide the foundation for the future U.S. bioeconomy in order to overcome market failures that occur when private investors are unable to collect on the full benefits of their investments and provide smaller investments in technology than the socially optimal level. This is dependent on the expansion and development of essential technologies, integration of approaches across fields and the implementation of improved funding mechanisms.

2.  Facilitate the transition of bioinventions from research lab to market, including an increased focus on translational and regulatory sciences. This relies on acceleration of progress to market to move innovation beyond the laboratory, enhancement of entrepreneurship at universities to facilitate the path from research to commercialization, and the utilization of Federal Procurement Authority to drive the creation and growth of new bioeconomy markets.

3. Develop and reform regulations to reduce barriers, increase the speed and predictability of regulatory processes, and reduce costs while protecting human and environmental health. This involves improved regulatory processes and regulations to enhance predictability and reduce uncertainty in regulatory processes and requirements as well as collaboration with stakeholders to inform efforts, stream­line processes, reduce costs and response times while simultaneously maintaining  safety and benefit to public health.

4.  Update training programs and align academic institution incentives with student training for national workforce needs at the K-12 and undergraduate levels. This will result from employer-educator partnerships and redeveloped training programs.

5. Identify and support opportunities for the development of public-private partnerships and precompetitive collaborations where competitors pool resources, knowledge, and expertise to learn from successes and failures.

In introducing the bioeconomy blueprint panel discussion that followed the blueprint announcement, panel moderator and microbiologist Dr. Bonnie Bassler describes the Obama administration as “committed to investing in biological research with the overarching goal of strengthening America’s bioeconomy”.

While the blueprint recognises that biotechnological experimentation carries inherent potential risks if applied improperly, it contends that that ethical and safety issues raised by major advances are top administrative priorities that “go beyond the scope of this [blueprint].”  Rather, the blueprint is “a guide for departments and agencies to ensure that the investments they make in the sector will be well coordinated and highly likely to generate real economic impact,” according to the White House Office of Science & Technology Policy Director John P. Holdren in his announcement of the blueprint.

Panel member Dr. Rina Singh, spoke on behalf of Biotechnology Industry Organization (BIO), which represents many of the largest oil and petrochemical producers, and discussed innovation in industrial biotechnology, or the application of life sciences to conventional manufacturing and synthetic processes, through the use of wild type or genetically enhanced microbes.  Dr. Singh paints a picture of vast manufacturing application possibilities to revolutionize the way we make and use energy, where she envisions biorefineries replacing petroleum refineries, the same way that petroleum once replaced whale oil.

However, many are concerned that the reallocation of efforts to harvest above ground sources of fuel “ignores the lessons to be learned from experiences” and that the reliance on biomass for fuel and raw materials ”will inevitably place an extremely heavy toll on food security, and further escalate forest and biodiversity destruction, land grabbing, and climate change,” according to the Global Forest Coalition 2012 report titled “Bioeconomy versus Biodiversity.”

These concerns were shared by Eric Hoffman, a campaigner with Friends of the Earth who commented that the bioeconomy blueprint “largely seems to be an endorsement for the biotechnology industry to rush ahead without any real oversight.”

A more welcomed blueprint emphasis was placed on efforts to incite collaboration among many various federal and private research agencies alongside the creation of a newly trained workforce in order to achieve novel products, processes and applications.

An example of collaborative potential for innovation was provided by panel member and cellular and molecular pharmacology expert  Dr. Keith Yamamoto who discussed the applicability of precision medicine, which builds on the collaboration of non-traditional fields in the biomedical arena such as engineering and mathematics as well as patient data to generate medical solutions for diagnoses and treatments of diseases that are tailored to individual patients rather than decisions based on statistical risk factors across large populations.

Dr Yamamoto emphasizes that the evolution of such highly specified methodologies heavily relies on a reassessment of academic process in graduate education and non Ph.D. level in order to rapidly create a much needed new work force and a collaborative continuum among discovery researchers, academia, industry entrepreneurs, foundations, government funding and regulatory agents and patients.

The reassessment of academia incentives was also discussed by the 2001 World Food Prize winner and panel member Dr. Per Pinstrup-Andersen who noted that biological science applications have contributed to yearly increases in food sources, provided food security in many parts of the world; however, he remarks that “the job is not done yet” and further research is needed to achieve what he calls “sustainable amplification” of food to ensure people eat enough and yet not too much to avoid burdening the health care system.

Dr. Per Pinstrup-Andersen believes that for progress to occur, there is a strong need to eliminate what he calls “disciplinary silos” which limit research teams by incentivizing research in narrow areas to produce publications and receive funding. He argues that collaboration requires incentives that stretch beyond money, incentives such as promotions, publication and conferences to support collaboration of interdisciplinary teams.

Similar collaborative efforts are at the forefront of Canadian innovation, with federal government incentives supporting the commercialisation of innovation from the lab by increasing its contribution to the National Research Council’s Industrial Research Assistance Program by an additional $110 million each year.  Furthermore, the Canadian federal Scientific Research and Experimental Development (SR&ED) tax incentive program is central in supporting R&D in Canada. As a world leader in health and life sciences, Canada is home to some of the top biotechnology research facilities in the world, which rely on government funding to alleviate the costs of research. In 2010, $768 million was spent on R&D by pharmaceutical and medicine manufacturers, and another $414 million on R&D relating to navigational, measuring, medical and control instruments. Such research was supported by the Canadian government who had contributed $3.47 billion between 2010 and 2011 to support innovative companies through the SR&ED program.

With so much potential innovation on the horizon, global competition is increasing the need to continue investing in research. As such, biotechnology companies conducting R&D in Canada are strongly encouraged to leverage federal and municipal incentives like the SR&ED tax credit to reinvest funds back into research and commercialization which otherwise may not be affordable, allowing them to get ahead of the competition.   

Read more about SR&ED in the biotechnology sector.

Along with the other changes that the CRA has been implementing over the past couple years, the Claim Review Manual has been updated. This is the manual that tells the CRA reviewers what processes they need to follow when reviewing an SR&ED claim. This review manual is meant to make the review process more consistent from review to review, and from reviewer to reviewer. It sets out clear guidelines as to what is to happen in a review, and what kind of timeline the reviewer should be following when working on a claim. The manual is also supposed to increase the co-ordination between the technical and financial reviewers, and to increase the communication quality between the reviewer and you (the claimant).

The CRA’s website has laid out the steps to a review, as listed in the CRA Review Manual. A brief overview follows:

1. Preparing and planning:
   • Reviewing your claim
   • Identifying issues with your claim (ie – areas they are unsure can be considered SR&ED)
   • Making first contact with you
2. Conducting a site visit:
   • Preparing for the review (the reviewer will contact you by phone or letter to discuss when the review will happen)
   • Preliminary review work (interviewing any possible staff involved with the SR&ED work, explaining the SR&ED program, etc)
   • On-site review (tour of the facilities, interviewing staff involved in the SR&ED work, reviewing supporting documentation)
   • Request for more information to be sent to the CRA reviewer
   • Communication of preliminary decisions (if possible, the reviewer will let you know what kind of results to expect from your claim submission)
3. Finalizing results:
   • SR&ED review report (prepared by the CRA for you, to allow you to review it and provide any new information if you disagree with their assessment)
   • Finalization of technical and financial reports (these reports will be sent to you by mail, be delivered in a meeting, or discussed over the phone)
   • Dispute resolution (if you disagree with the CRA’s final report)
   • Appeals process