Canadian companies must innovate to remain competitive in a global market. Even with the economic challenges after Covid lockdowns, we can’t lose sight of driving innovation and Canada’s economy forward. We can’t afford to fall behind.
Canadian Innovation on the World Stage
When the World Intellectual Property Organization (WIPO) released the annual Global Innovation Index (GII), which analyzes the innovation performance of 132 countries (tracking global trends, country-level strengths, weaknesses, and innovation ecosystem gaps) in 2021, Canada ranked a sobering 16th in the world ﹘ with Switzerland leading the pack. While Canada tends to perform well with innovation inputs, we continue to struggle with the Knowledge and Technology and Creative outputs, and as a result, rank 23rd overall in the Innovation Output Sub-Index. This means that Canada produces much fewer innovation outputs relative to its level of innovation investments. Canada is performing well below its potential.
Canada’s innovation ecosystem has often been troubled by the inability to turn research and development into an innovative product or service. Overall expenditures and investment into R&D have decreased, marring Canada’s performance to institute meaningful innovation strategies. Decreasing R&D expenditures come as other comparable nations have intensified their commitments to increasing their domestic innovation potential. Among the top 25 world economies, Canada holds last place in patent generation and many of these patents don’t make an impact on our economy. While being generated by Canadian inventors, 50% of the total number of patents have been assigned to other world economies indicating a steady drain of Canadian intellectual property. (The Canadian Innovation Index 2011-2021).
Volatile resource prices, inflation woes, ever-changing demographics, and increasing tax protectionism are exposing Canada’s business innovation weakness and generating pressure to become more innovative in the coming years. While countries with strong innovation activity see improvements in productivity, economic growth, and job creation, they also have more resources available to spend on education, health, infrastructure, and other priorities.
Step Up, Canadian Innovators!
Given the complexity and intricate nature of innovation, it’s time for Canadian technology companies to step up to the plate and establish Canada as a world-leading centre for innovation in information technologies.
The goal of most businesses is to provide products or services that make an impact, that make life better, easier, or more seamless for their customers.
Canada has a very strong homegrown technology sector. We invented Java Programming and the Blackberry. Canada-based Datex with their DataStealth technology continues to pioneer in the area of cybersecurity. Vancouver and its environs remain a hub of technological potential and a frontrunner in the budding CleanTech sector. There are over 43,200 companies in the Canadian Information and Communications Technologies sector alone, with the large majority in the software and computer services industries. In fact, our technology sector consists mainly of small companies, with approximately 35,500 employing fewer than 10 people.
Taking Chances, Making Mistakes = Getting SRED for Technology
The story the International Innovation Index doesn’t tell is why Canadian innovators have slipped behind some of its other world innovation peers. Perhaps Canadian companies are playing it too safe? Covid has certainly reshaped Canadian businesses in ways we never saw coming, and challenged many with simply keeping the lights on and focusing on essentials, rather than developing new technologies or taking strides forward.
Innovation can be a risky business. You’re investing time and money and resources in something that may or may not work, that may or may not make it to market, that may or may not bring guaranteed financial returns for your investment.
The SR&ED tax credit program can help offset the risk associated with innovation. It’s time for Canadian innovators to get back on the world stage, where we deserve to be.
The Scientific Research & Experimental Development (SR&ED) Tax Incentive Program supports innovation. SR&ED is a broadly-applicable Canadian government incentive that encourages Canadian businesses across numerous sectors to undertake technological risks, conduct R&D work, and drive Canadian technology and our economy forward. SR&ED tax credits provide innovation-focused funding to eligible CCPCs to offset the cost of expenses incurred in the process of product and process development and experimentation.
SR&ED program eligibility requirements apply to more than medical or health-related lab work and research. Information Technology, Computer Science, Software Engineering, and Telecommunications companies generate numerous and often high volumes of SR&ED-eligible projects every year without even realizing it. When your company spends time or money to develop new computer infrastructure, processes, or technologies that target non-standard demands in the information technology sector, you’re probably eligible for an SR&ED refund.
Did you know that projects don’t have to be completed within a fiscal year and a final product doesn’t have to make it to production for you to claim eligible expenses? Everyone likes to talk about projects that made it to market and received rave reviews from users, but failed projects are perfect for SR&ED! This is almost always a sign that you encountered either a non-standard problem or a problem that couldn’t be solved in a standard way. In the process of trying to solve this non-standard problem or come up with a less-than-standard solution, your team learned something which likely fuelled the innovation and development of an alternative solution. The nature of the work that you do, and the journey you took to develop your project, even if it didn’t get past the proof of concept stage, is more relevant for claiming SR&ED.
Design, brainstorming, operational research, mathematical analysis, computer programming (coding), data collection, quality assurance, and testing work that is deemed to be directly in support of direct SR&ED hours may also be claimed.
Technology companies that generate a high volume of SR&ED-eligible activities, may submit between 50 and 100 projects every year. Such companies need technological expertise not only in SR&ED but also in submitting a technology claim.
We work with some of Canada’s fastest-growing technology companies who invest thousands of hours in SR&ED development work and supportive activities in the area of Information Technology, Computer Science, Software Engineering, and Telecommunications. These high-volume SR&ED-intensive companies need monthly or quarterly follow-ups to more easily capture project progress over the course of the fiscal year, and prepare the report for submission. We accurately assess the scope of R&D projects and determine the SR&ED-eligible components, without impacting your Development Team hours.
Our goal is to make sure your employees and technologists spend their time innovating and programming and growing your business.
Our expert SR&ED consultants do all of the legwork of preparing all the project reports and claim documents for submission. We know the questions to ask to tease out details to ensure we claim as many eligible dollars as possible. We work directly with accountants and prepare T2 schedules with the most commonly used tax software. If the CRA requests more information or an audit, we help guide you through that process as well.
This unwavering support is why SRED Unlimited maintains a proven track record of long-term technology clients.