Impact of the 2013 Canadian Federal Budget on SR&ED, Innovation Funding and Entrepreneurs

Last year the Federal government announced their first budget, as a majority government, keeping innovation at the forefront.

Specifically several changes were announced to the Scientific Research & Experimental Development (SR&ED) program per recommendations of the Jenkins Panel to support a more direct funding model from the savings created. While the changes to the SR&ED program in the 2013 budget weren’t as significant as the 2012 budget, the focus still remained increasing direct funding opportunities to support innovation.

Impact on SR&ED

-$5 million over two years to the CRA to provide new SR&ED claimants with access to information about eligibility requirements, supporting documentation, and any other information needed to facilitate the filing of their SR&ED program claim.

-$15 million over two years to the CRA to focus more resources on reviews of SR&ED program claims where the risk of non-compliance is perceived to be high and eligibility for the SR&ED program unlikely.

-SR&ED claims filed on or after the later of January 1, 2014 will require more detailed information such as full and accurate disclosure of the participation of third-party tax preparers and their compensation arrangements. A penalty of $1,000 will be levied against claims where the prescribed information is missing, incomplete or inaccurate.

More direct funding to support innovation:

-$325 million over eight years to Sustainable Development Technology Canada (SDTC) to continue support for the development of new clean technologies.

-$165 million in multi-year support for genomics research through Genome Canada, including new large-scale research competitions and participation by Canadian researchers in national and international partnership initiatives.

-$225 million to be used by the Canada Foundation for Innovation to support advanced research infrastructure priorities and sustain the long-term operations of the Foundation.

-$60 million over five years to help outstanding and high-potential incubator and accelerator organizations expand their services to entrepreneurs, and a further $100 million through the Business Development Bank of Canada to invest in the graduating startups.

-$121 million over two years to the National Research Council (NRC) to help the growth of innovative businesses in Canada.

-$20 million over three years to help small and medium-sized enterprises access research and business development services at universities, colleges and other non-profit research institutions of their choice, through a new pilot program by NRC-IRAP.

-$37 million per year in new funding to support research partnerships with industry through the grant councils, including $12 million to enhance the College and Community Innovation Program.

-$18 million over two years to the Canadian Youth Business Foundation to help young entrepreneurs grow their firms.

Overall Impact of the 2013 Budget

The new changes to the SR&ED program imply more audits to create potential savings. While businesses will no longer be entitled to the previous level of funding through the SR&ED program, both the 2012 and 2013 budgets suggest reinvesting the savings to support a direct funding approach. This is good news if you are a startup or a new entrepreneur as you will have more access to capital since the SR&ED program is only beneficial to those who have claimable expenditures typically not the norm with new companies.

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