Innovation Canada: A Call to Action

Executive Summaryprovide a national “concierge” service andassociated website to help firms find andaccess the support tools they needwork with partners to develop a federalbusiness innovation talent strategy.Moreover, the IRIC could assume the followingresponsibilities: in partnership with the federalgranting agencies, joint oversight of appropriatebusiness-facing programs administered by thoseagencies; technical assessment of the innovationelement of project proposals submitted to theregional development agencies; and oversightof federal support for business-orientedcollaborative research institutes evolved fromthe current institutes of the National ResearchCouncil, as further discussed below.Scientific Research and ExperimentalDevelopment (SR&ED) Tax CreditIn line with feedback from stakeholders, we arerecommending that the SR&ED program shouldbe simplified. Specifically, for SMEs, the base forthe tax credit should be labour-related costs, andthe tax credit rate should be adjusted upward.The current base, which is wider than that usedby many other countries, includes non-labourcosts, such as materials and capital equipment,the calculation of which can be highly complex.This complexity results in excessive compliancecosts for claimants and dissipates a portion ofthe program’s benefit in fees for third-partyconsultants hired to prepare claims.Canada’s program mix is heavily weightedtoward the SR&ED program and, during ourconsultations, we heard many calls for increaseddirect expenditure support. As well, manyleading countries in innovation rely much lessthan Canada on indirect tax incentives asopposed to direct measures. That is why we arerecommending other improvements to theSR&ED program that will generate savingsfor the government. The savings should beredeployed to fund direct support measures forSMEs, as proposed in our otherrecommendations. Specifically, to ensure agreater focus on promoting the growth of firms,the portion of the credit (claimed by SMEs) thatis refundable — that is, paid regardless ofwhether the firm generates taxable income —should be reduced, such that part of the benefitwould depend on the company beingprofitable. Given the central importance of theSR&ED program to firms across the country, ourrecommended changes should be phased inover several years to allow time for adjustment.Risk CapitalInnovative, growing firms require risk capital, yettoo many innovation-based Canadian firms thathave the potential for high growth are unable toaccess the funding needed to realize theirpotential. The government can play animportant role by facilitating access by suchfirms to an increased supply of risk capital atboth the start-up and later stages of theirgrowth. We therefore recommend measures toestablish risk capital funds that target theseareas. The federal government’s contributionto the funds would be delivered through theBusiness Development Bank of Canada (BDC),with incentives and governance designed toensure strong private sector participationand leadership.Collaborative R&D InstitutesCanada needs a fundamentally new approachto building public–private researchcollaborations in areas of strategic importanceand opportunity for the economy. Accordingly,we recommend that the business-orientedinstitutes of the National Research Council(NRC) should become independent collaborativeresearch organizations, intended to be focalpoints for sectoral research and innovationstrategies with the private sector. Those NRCinstitutes that perform primarily fundamentalresearch would become affiliates of universities,E-3