R&D Tax Credits Under Review
> U.S. Congress debates a new formula and could add another $5B
> Canada renews commitment and promises better adminstration
R&D tax credits are one of the few “good news” topics when comparing business taxation in Canada
and the U.S.
In fact our Canadian SR&ED benefits are so much better; we often forget that the U.S. even has an
R&D tax credit program at all. But they do.
In this bulletin we report on some recent R&D tax credit initiatives by Canada and the United States.
In Washington, congress is presently considering significant changes to legislation that could start to
close the gap with Canada.
Meanwhile, at home Canadian Prime Minister Stephen Harper recently unveiled Ottawa’s latest
Science and Technology policy platform; Mobilizing Science and Technology to Canada’s Advantage.
While the rising profile of R&D tax credits in national economic policy highlights private sector
scientific innovation as a key economic growth strategy for both countries, the tactics used by
Washington and Ottawa are almost polar opposites.
The Canadian offering is skewed towards small to medium-sized companies, which receive a higher
benefit rate and can receive their credit in cash even if they pay no tax. Furthermore, since the
credit is calculated as a percentage of actual expenditures in each tax year, the cash refund
enables small companies to “bootstrap” their way through early stage growth.
The situation in the U.S. is almost the opposite. Washington’s tax credit is based on a change in
R&D spending over time as compared to a historic datum; an approach that favours very large
corporations. For example, in 2004, 54% of the $5.5 billion tax benefit paid out went to about
100 companies; the remaining 46% was shared amongst more than 10,000 companies.
David R. Hearn, Managing Director
Michael C. Cadesky, BSc, MBA, FCA
R&D Tax Credit Specialists, Canada & Abroad
NUMBER 29 | JUNE 18, 2007
Another significant difference in the Canadian and U.S. R&D tax credit re