Has $5.3 Billion Been Removed from the SR&ED Tax Credit Program?
SR&ED Tax Credit: Has there been a $5.3-billion cut in SR&ED spending between 2009 and 2016?
You may have come across a recent news item where an industry group claims that $5.3 billion was silently removed from the SR&ED program between 2009 and 2016.1 However, is this figure correct, and if so, where did it come from?
$5.3-billion? Where Did This Figure Come From?
The figures for the amounts paid by the Canada Revenue Agency (CRA) in SR&ED tax credit are usually published in the CRA’s Annual Report to Parliament between 2009 and 2016. The Canadian Advanced Technology Alliance (CATA) claim $4.1-billion was paid out in SR&ED tax credits in the 2008 to 2009 tax year.2 Subtract for each year after 2008 how much the CRA paid out in SR&ED tax credits, and then add up all of the differences for each year, and the figure comes to $5.3-billion.
| Fiscal Year Start (May 1) | Fiscal Year End (April 30) | Refund ($B) | Difference ($B)* | Difference (%)* | # of Applicants | Refund Average per Applicant* |
|---|---|---|---|---|---|---|
| 2005 | 2006 | $1.8 | ||||
| 2006 | 2007 | $3.0 | $1.2 | 66.7% | 18,000 | $166,666.67 |
| 2007 | 2008 | $4.0 | $1.0 | 33.3% | 18,000 | $222,222.22 |
| 2008 | 2009 | $4.0 | ($0) | (0%) | 18,000 | $222,222.22 |
| 2009 | 2010 | $3.3 | ($0.7) | (17.5%) | 21,000 | $157,142.86 |
| 2010 | 2011 | $3.5 | $0.2 | 6.1% | 21,000 | $166,666.67 |
| 2011 | 2012 | $3.6 | $0.1 | 2.9% | 23,000 | $156,521.74 |
| 2012 | 2013 | $3.6 | ($0) | (0%) | 28,140 | $127,931.77 |
| 2013 | 2014 | $3.3 | ($0.3) | (8.3%) | 24,794 | $133,096.72 |
| 2014 | 2015 | $3.1 | ($0.2 ) | (6.1%) | 24,302 | $127,561. 52 |
| 2015 | 2016 | $3 | ($0.1) | (3.2%) | 22,839 | $131,354.26 |
| 2016 | 2017 | $2.7 | (0.3) | (10%) | 21,000 | $128,571.43 |
| 2017 | 2018 | $3.2 | $0.5 | 18.5% | 19,855 | $160,161.17 |
| 2018 | 2019 | $3.2 | ($0) | (0%) | 19,632 | $164,017.93 |
| 2019 | 2020 | $3.1 | ($0.2) | (6.3%) | 19,595 | $155,650.00 |
| 2020 | 2021 | $4.3 | $1.3 | 43.3% | 19,783 | $216,350.00 |
| 2021 | 2022 | $3.3 | ($1) | (26.32%) | 17,000** | $194,117.65 |
As an example, in 2009-10, the CRA paid out $3.3-billion, so if you subtract $3.3-billion from $4.1-billion from the year before, it comes t0 $0.8-billion that the government “removed” from the program that year. Similarly, in 2010-11, the CRA paid out $3.5 billion in SR&ED credits, a difference of $0.6 billion from 2008-09, etcetera.
However, $4.1-billion is not the figure listed in the CRA’s annual report for 2008-09. This figure was taken from CATA’s 2009 report, SR&ED Tax Incentive Program, An Appraisal, written by Paul Daniel Muller, a consultant to the then Minister of National Revenue, Jean-Pierre Blackburn.
What Has Caused This?
Are you willing to concede that the $5.3 billion figure was calculated accurately and is the correct way of showing how much the government has removed from the SR&ED program? Is this method fair when the $4.1-billion figure comes from a different source, some years are better than others, and the numbers are not a consistent or steady drop? If you do, you may be wondering what the causes are for this precarious fall in spending.
The CRA has provided no official comment, as they do not comment on third-party reports or findings, however, the CRA did tell the Ottawa Business Journal before the $5.3 billion figure was pointed out, that legislative changes in 2012 made the program more cost-effective.3 These changes were a response to “aggressive positions taken by claimants in their credit applications” that included inflated expenditures. This led the CRA to spend more money on compliance, which, in turn, reduced the amount paid out in tax credits to support research and development (R&D) activities.
There are two reasons the $5.3-billion figure exists. The first is that policy changes in 2012 have had an effect in terms of reducing inflated expenditures (though this does not explain why the numbers started falling in the 2009-10 fiscal year). The second is that CRA compliance has mitigated any “aggressive […] applications.” This does not explain why the numbers declined prior to 2012, however, in 2005-06, $53-million and 520 full-time equivalent employees were reportedly administering the program, compared to $85 million and roughly 725 full-time equivalent employees 10 years later.4
Conclusion
Whether you agree with the $5.3-billion figure or not, something happened in the 2009-10 fiscal year that continued in the administration of the SR&ED tax credit program.
What could have caused a dip in millions of dollars not being spent on SR&ED starting in 2009? Nothing significant happened in the 2009 Federal Budget and the government is not clarifying its position, so the significant reduction in SR&ED spend is a mystery.
It may be time for the federal government to report on the state of the SR&ED program and comment on whether or not $5.3 billion has really been removed from the program silently or not.