Innovation Canada: A Call to Action

Overview of Programs to Support Business R&Doverall conclusion about the distribution ofSR&ED claims by region. Subject to theseimportant caveats, the Panel’s analysis has shownthat, for the years 2000–07, the estimatedaverage distribution of SR&ED tax expenditure forthe firms operating in a single jurisdictionappears to correspond closely with the averageprovincial distribution of BERD — that is, mostlyin Ontario and Quebec, with moderate amountsin the four western provinces and some in theAtlantic provinces.The distribution of the direct expenditure total ismore nearly in line with provincial populationshares, 6 though with a significantly largerproportion in the Atlantic provinces (about12 percent of direct expenditure comparedwith slightly more than 7 percent of Canada’spopulation) and somewhat less than proportionalper capita in British Columbia, Alberta, Manitobaand Ontario.Envelope Expenditure by Activity SupportedThe great majority of R&D performed by businessis for “experimental development” (StatisticsCanada 2009), which the Frascati Manual definesas “systematic work, drawing on existingknowledge gained from research and/or practicalexperience, which is directed to producing newmaterials, products or devices, to installing newprocesses, systems and services, or to improvingsubstantially those already produced or installed”(OECD 2002, p. 30). Allocation of the SR&ED taxcredit, averaged over 2000–07, is estimated to bemostly in support of experimental development.Direct expenditure programs were more evenlyspread, with 38 percent of 2010–11 expenditureestimated to be in support of experimentaldevelopment, a roughly equal amount of35 percent for applied research, 13 percent forbasic research and 11 percent for“commercialization” (planning, marketing andproduction support, which are not eligible forSR&ED credits). Three percent of direct supportwas not categorized.When direct and indirect programs arecombined, it is estimated that the majority offederal support for business and commerciallyoriented R&D is directed to experimentaldevelopment. This activity is usually very close tothe market and therefore is less conducive tocollaboration and partnership with other playersin the innovation system. There also appears tobe less spillover to the economy at large fromthis “close-to-market” R&D, the benefit ofwhich is likely to be more fully appropriated bythe R&D-performing business than would be thecase for basic and applied research, which isusually more widely shared and also subject tomore wide-ranging application.6 With the exception of Ontario and Quebec, provinces have a slightly smaller share of BERD relative to their share ofCanada’s population.3-11