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Archive for the ‘Innovation’ Category

In starting to pursue my goal of “Exploring Innovation”, the first government program I wanted to learn more about was SREDs. In Canada, the SR&ED (Scientific Research and Experimental Development) program is consistently mentioned in conjunction with innovation. Understanding that “a little knowledge is a dangerous thing”, I attended the CPA’s SRED  symposium in Toronto in February for a more in-depth and intensive exposure to the world of SREDs.

The symposium was very focused on the details, intricacies and challenges of successfully filing SRED applications with Revenue Canada as opposed to the goals, and impact of the program from a policy perspective (which I was primarily interested in).

I was very surprised by a few things that I had not heard before (and am unsure if these are accurate – any experts out there, please feel free to enlighten me!) Statistics Canada uses SRED credits to determine the amount of innovation spending in Canada. This shocked me. The bureaucratic difficulties in applying for these credits are such that an ecosytem of accountants and consultants has developed whose primary focus is navigating this challenging and often lengthy process. Thus many companies don’t bother with applying, or their innovations may not exactly fit the narrow criteria needed for a successful claim.

One thing Revenue Canada/CRA focuses on is the “hypothesis” and how well documented it is before the research even begins. Hypothesis. While used in scientific and academic circles, it is a word rarely used outside these fields. The small business people in the breakout sessions I attended all found this to be a very frustrating issue as they are always trying to creatively SOLVE PROBLEMS. Rarely if ever (unless trying to apply for SREDs after unsuccessful experiences), do they use the word “HYPOTHESIS”. Yet that one word and process seems to be a key factor in determining success. (Court cases have determined that this word does not have to be used, yet all CRA speakers wanted to see the hypothesis stated.)

The larger multinational companies participating on panels consistently said that when they have a big project involving R&D that they want to pursue, they shop other locations than Canada. “The SRED program is good, but…” When compared to what other countries are offering in terms of incentives, all else being equal, Canada is increasing unlikely to win out. Not the news we as Canadians want to hear. There is tremendous competition out there in terms of incentives for an entity that is flexible as to location. Canada is perceived to be a high cost and lower incentive jurisdiction.

The timing and nature of incentives is also critical to companies. Many need direct versus indirect incentives. Small start-up companies especially need cash incentives versus non-transferable tax credits.

Listening to the discussions of the SRED filing process I was reminded of Hernando de Soto’s The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. This book discusses reasons why some countries are consistently more prosperous than others. The two key factors (simplified) are first whether favorable property rights (including intellectual property) exist and second the lack of excessive bureaucracy for doing business. From the symposium and other discussions I’ve had with SRED users, the SRED process seems to my dismay to fit into the “excessive bureaucracy” category.

On “tinkering” or “unplanned SR&ED”, CRA will not recognize that as eligible. Thus strategies to incentivize independent research, like Google’s “20 percent time” or 3M’s “15 percent time” could never lead to successful SRED claims (and thus not be counted as innovation in Canada). This does not make sense to me.

This conference was a starting point. I have much more to learn while Exploring Innovation. My intent is that this blog will initially be a spot to share what I learn, frame my thoughts on the innovation and R&D world (especially but not exclusively) in Canada and ideally figure out ways to increase the success and impact of innovation and/or R&D spending.

 

 

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These are things I have been thinking about a lot recently. To help me make sense of these thoughts, clarify them and put them to work,  I have decided to start this blog.  I am exploring innovation and I am curious to see where it leads me!

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