Incentives: SR&ED & other government programs - Ken Bell

Ken Bell PEng, PE (Wash), FEC

Incentive Access Group Corp.

INCENTIVES:SR&ED AND OTHER GOVERNMENT PROGRAMS

Outline

• Funding For Innovation• Direct v. Indirect Support• Canadian R&D Landscape (Jenkins Report)• Rebuttal (MacIntosh)• Budget 2012• Ken’s Top Five Picks

Direct Support

• Defined Program Objectives• Unique Application Form• ‘Peer’ Review – meet objectives?• Fixed Budget each FY• Inherent Regional or Sector Bias• Start-Up Advice: Don’t Bend Your Business

Plan Just To Get Funding

Dubious claims diminish R&D tax creditBARRIE McKENNA, OTTAWA - Sunday, Feb. 06 2011It’s Canada’s marquee innovation program. And it’s broken.

Business Spending on R&D

• One-third Canadian R&D $$ - 25 firms• One-half - 75 firms

• Most small businesses – no R&D

• Small R&D performers – 40% of revenue• Large R&D performers – 1-2% of revenue

Government Spending on R&D

Support Dimensions

2012-2013

0.630000000000001

0.98

1.3

3.53

2010-2011

(2007) $2B large4,000 claims$1.3B small20,000 claims

(2007) 1,100 IRAP grants

Program Costs

2012-2013

0.630000000000002

0.98

1.3

3.53

2010-2011

$60M

$140M

“A Bewildering Array”

Jenkins Findings

• Many tiny direct programs• Unknown to business• No way to measure effect – direct/indirect• Lots of startups, few big winners (2%)• Foreigners buy those few winners• Lack of venture capital?

Jenkins Recommendations

• Nation: Make little guys bigger• Create National Innovation Ministry• Cut everything but labor from SR&ED• Divert savings to ‘direct’ programs• Government procurement from SMEs• More risk capital• Re-focus NRC’s mission

MacIntosh on Jenkins

• Salaries-only benefits talent firms (software) • 2% Success Rate is GOOD

Silicon Valley 4% - much greater fundingFirms may license techFirms may plan sell to exit

• DIRECT: bureaucracy, bias, incompetence• INDIRECT: market discipline, way out of VOD• Sponsored Venture Funds a Boondoggle

Economic Action Plan 2012

• $400M large-scale venture capital funds• $100M to BDC venture capital• $110M to NRC to double IRAP• $95M Canadian Innovation Commercialization

Program• $14M high-quality researchers to industry

(MITACS)• Western Innovation Program• $500M to CFI• Streamline SR&ED program

Big Changes?

2012-2013

0.630000000000001

0.98

1.3

3.53

2010-2011

0.690000000000001

1.07

1.43

3.1

2012-2013

SR&ED Changes

• Lower ITC rate (20% 15%)• Still 35% for small CCPCs• Decrease in overhead proxy

(65% 60% 55%)• Equipment excluded c. 2014• 80% of contract payments• $6M (CRA) to ‘enhance’ delivery• Review of provider fees

Typical Impacts

• Small Software CCPC (salaries) ↓6.1%• Small Software CCPC (contracts) ↓20%• Large Software CCPC (salaries) ↓21%• Large Software CCPC (contracts) ↓32.8%

* includes provincial top-ups

Program Costs

2012-2013

0.690000000000001

1.07

1.43

3.1

$66M$140M

Ken’s Top FiveInnovation Programs

• SR&ED• CICP• NRC-IRAP• MITACS• NSERC

Scientific Research &Experimental Development Tax Credit

• Still the biggest game in town• Company directs research as needed• No delay for approvals• Plan and document• Reasonably fast processing• Use qualified third-party advisor• No regional or sector bias

Canadian Innovation Commercialization Program

• NEW: $95M• Public Works now test-bed for pre-commercial

innovations• Supplement to MERX• Register firm, register new product• Evaluation criteria• www.buyandsell.gc.ca

Industrial Research Assistance Plan

• Additional $110M to double NRC support• Identify R&D project• Portion of salary and contractor costs• Vetted by NRC• Funds allotted per FY, apply early• Track record $10K, $50K, $150K, $500K• SR&ED remaining portion to 75%

MITACS

• $14M over 2 years to double the program• Grad students and post-docs to industry• All industry sectors and disciplines• Apply any time, vetted within 4-6 weeks• $15,000 for each 4 months, $7,500 from

industry gets matching contribution• Your time eligible for SR&ED

Natural Sciences and Engineering Research Council (NSERC)

• Various funds• Hire a professor, specific R&D problem• Three forms, at any time• Vetted, decisions 4-6 weeks• $25K grant for $50K project• Company must match in-kind• SR&ED for related expenses

Ken’s Top FiveInnovation Programs

• SR&ED• CICP• NRC-IRAP• MITACS• NSERC

kbell@incentiveaccess.com604 572 9548 x 320

Ken Bell PEng, PE (Wash), FEC

Incentive Access Group Corp.

QUESTIONS