Stimulating R&D and bringing it to market
By Troy Media
Editor’s note: Over the past year, the Canadian Chamber of Commerce has consulted its members – local chambers of commerce, large companies and small businesses – to identify the key barriers hindering our competitiveness. The following series will tackle the solutions.
Legislation severely limits the number of companies that can take full advantage of Canada’s Scientific Research and Experimental Development (SR&ED) tax incentive program to innovate and grow.
The program helps small, Canadian-controlled private corporations and unincorporated businesses by providing cash infusions through refundable SR&ED investment tax credits even if they don’t generate taxable income.
All other companies, including publicly-traded ones, can only tap into the credit to offset payable federal taxes. But when the economy is lagging, some large companies may not have taxable income. As a result, they can’t access the full value of their credits and billions of dollars in potential credits go unused and are carried forward.
Intellectual property rights protection is fundamental to innovation and a key element of economic success. Leading economies around the world have made IP protection a priority. Compared with the IP protection provided to our global competitors in other countries, Canadian IP laws and rules do not provide Canadian IP rights holders the same level of protection.
Also, Canadian authorities lack the tools to efficiently and effectively stop the flow of counterfeit goods and stem IP infringement in Canada.
For businesses that do not qualify for refundable tax credits, the program does not provide the financial assistance they need to weather a sustained downturn. In fact, because it discourages continued research and development (R&D) spending during an economic downturn, it puts companies at a competitive disadvantage when the business cycle rebounds.
More companies of all sizes are finding that that the SR&ED program has become increasingly difficult to navigate. The scope of eligibility has narrowed significantly and tax credits are being doled out in a much less predictable manner to successful applicants.
Meanwhile, another major barrier to Canadian innovation can be found in our country’s intellectual property protection laws, which need to be strengthened. Currently, unlike the treatment given commercial competitors in other countries (e.g. U.S.A., EU), our IP laws don’t give rights holders and regulatory authorities the tools they need to effectively protect Canadian intellectual property rights pursuant to Canada’s obligations under international trade agreements (e.g. TRIPS Agreement of the WTO) and stem patent infringement and the flow of counterfeit goods.
The way forward
It is imperative that the federal government to take the following actions to foster innovation:
1. Correcting the design flaws in the Scientific Research and Experimental Development (SR&ED) tax incentive program and ensure the program delivers incentives efficiently and cost-effectively. This will enable businesses to see SR&ED Investment Tax Credits as a reliable and predictable incentive that does not entail excessive compliance and administrative costs;
2. Stimulating R&D in the pharmaceutical and biotechnology sectors by extending data protection and implementing a five-year patent term restoration system;
3. Examining the feasibility of creating a specialized federal patent court that would enhance judicial expertise and improve timelines for patent approvals; and,
4. Streamlining the patent review system to get products to market more quickly.