Following two rounds of consultations on the Scientific Research and Experimental Development (SR&ED) program, it is anticipated that the CRA will release an update on the status of the program in the coming months, with the potential introduction of changes which may significantly impact public and larger-sized companies, as well as smaller Canadian-controlled private corporations (CCPCs).

Currently, SR&ED is available to corporations of varying sizes, but is generally aimed at companies that are small or medium in size (up to 500 employees). While larger companies can access tax credits, they are only eligible for the basic rate of 15%, a significant reduction compared to the enhanced rate of 35%, which is also only available to CCPCs.

Depending on the outcome of the SR&ED review, tax rates have the potential to change significantly, with either increased rates for larger and/or public firms, or the introduction of a single rate for all company sizes and types. In the event of such changes, companies may need to reassess the level of support anticipated from the program in terms of both rate and refundability.

The consultation included several questions relevant to public and large companies:

  • To avoid any potential disincentives to growth, would entrepreneurs favour a program with one single rate accessible to all, even if it means somewhat lower support for small Canadian-controlled private corporations?
  • How should the concept of “Canadian” public corporations be defined, should the government proceed with measures to improve access to the SR&ED program’s enhanced credit for Canadian public corporations?
  • The SR&ED program currently has rules to prevent the multiplication of the expenditure limit by Canadian-controlled private corporations with common control. If enhanced support were extended to public corporations, how should relationships among legal entities be delineated?
  • Current global initiatives rely on accounting concepts of relationship and control to determine whether entities are included in a large business corporate group. Should existing international practices of this sort be adapted for determining relations for public corporations in the context of the SR&ED program?
  • What is the optimal size-based metric (e.g., taxable capital employed in Canada, revenue) to phase out enhanced support for public corporations, including those in a corporate group?

Also included in the consultation were questions related to IP retention, increasing access and supports for the program, and the potential for the inclusion of additional activities under the SR&ED definition, such as commercialization.

As of now, it’s uncertain what changes will be made to the SR&ED program, but staying up to date on the latest news will help your business prepare. Contact us to stay updated about the status of the SR&ED consultations and learn about how changes to the program may affect your business.