As the second decade of the 21st century gradually approaches its end, we find the SR&ED program’s payout funds trending in a different direction than ten years ago. Where was the trend going, and where is it today? What has happened in the CRA and the government that led to such a stunning reversal?
2007 to 2009: Plenty of SR&ED Funds To Go Around
In the last few years of the aughts, the numbers tell a bountiful story. 2007 saw over $3 billion in tax credits allowed by the CRA, and that number would increase to more than $4 billion in tax credits during 2008 and 2009 respectively.
But in the background, changes were brewing. It took these changes quite a few years to ferment, but they’re of 2005 vintage. That year, the CRA was already shifting its practices and policies in a way visible to claimants and claimant advocates, but both the CRA and the government insisted nothing was happening. When confronted about the changes after they actually happened, the reason given was to combat “abuses”—but no definition was provided for what constituted abuse.
2009-2010: The Turning Point
A report on the annual growth of SR&ED financing was performed by Paul Daniel Muller for the Minister of National Revenue. The Muller report raised concerns about an 11% growth rate per annum in CRA tax assistance; in the case of SR&ED, the 2010 projection for tax assistance was over $4.5 billion, in line with the trend set by the preceding years.
Those vague and hushed changes that had been brewing since 2005 seemed to use this report as their turning point. In 2010, the tax credits decreased to $3.3 billion, significantly below the Muller report’s projection. Since then, it seems like there’s a ceiling or cap keeping that dollar value from increasing to the previously seen levels. Some experts suggest that this means a cumulative total of $5.3 billion that would otherwise have been paid out by the SR&ED program based on previous trends has simply not happened.
Finally, in 2012, the CRA issued new policies and guidelines which purportedly outlined the changes. At this point, most of the concerning shifts in SR&ED trends could be attributed to changes in CRA activities. The federal government wouldn’t take long to have their say.
The 2012 Federal Budget
In 2012, the federal government announced with their budget new measures to reduce federal SR&ED spending beyond the restrictions already performed by the CRA. The announcement amounted to a four-year plan during which the government hoped to reduce spending a bit more each year: $35 million in 2013/14, $315 million in 2014/15, $480 million in 2015/16, and a final goal of $500 million fewer SR&ED dollars by the end of 2017.
That brings us to our current year which has just entered Q4.
2017: More Difficulty Claiming Fewer SR&ED Dollars
The projection of total SR&ED tax credits earned in 2017 is $1.8 billion, which would sound like a lot in most other contexts but isn’t even half the 2009 total. Unfortunately, neither the CRA nor the federal government seem content to stop there, or to resume supporting business innovation in Canada; nothing after the election of Trudeau’s Liberal Party that sounds like a major encouraging shift from what was going on during the Harper years.
There are many rumours about what might change next. The key point of agreement that the SR&ED legislation is still as unclear as ever, and SR&ED claimants are the last party involved to gain any possible benefit from that; it’s uncertainty the CRA can leverage when reducing or disallowing claims, or trying to paint a picture that claimants are abusing the system.
Equally unclear is whether the CRA is really floating a proposal for a 3-year review cycle instead of the current “one and done” year cycle. A good educated guess might be that the government wants to find further ways to crack down, ways which have yet to be discussed or considered here.
However, one sure thing is that claimants will have the most difficult time making claims unless they engage with consultants or firms possessing prior SR&ED experience, who make it their job to consider these uncertainties and keep track of changing trends in CRA activity.