The Jenkins Report – risks for refundable SRED

Recently, the so-called Jenkins Report, “Innovation Canada: A Call to Action,” was released by the Independent Panel on Federal Support to Research and Development (R&D). Its purpose was to provide “advice in respect of the effectiveness of federal programs to support business and commercially oriented R&D, the appropriateness of the current mix and design of these programs, as well as possible gaps in the current suite of programs and what might be done to fill them.”
 
The full report is available on line and in various summaries as well as commentaries such as this one:
 
 
Of particular interest and concern to start-ups, early-stage companies and small business, is this innocently sounding recommendation of:
 
“simplifying the Scientific Research and Experimental Development (SR&ED) tax credit and redeploying funds from the credit to direct initiatives that support small and medium-sized enterprises (SMEs)”.
 
Apparently, what’s behind this recommendation is an idea of replacing or reducing the “refundable R&D tax credit” by direct “initiatives” (read: grants, investments, etc). This is a huge RED FLAG and RISK for early-stage companies which often rely on cash from SRED refunds as a substitute for the shortages of venture investment funding in the current dismal climate. We can only applaud the idea of simplifying the existing system, but reducing or replacing the “refundability” aspect of it would be a killer and the serious blow to many high-tech startups which rely on this cash to fund their R&D work.
 
Direct funding initiatives, such as the popular IRAP program, are much more finicky, uncertain, bureaucratic, and frequently run out of money. In truth, we need both programs: refundable SRED and direct initiatives.
 
In any case, we can not afford to allow for the cancellation of  the refundable SRED credit – This would really hurt innovation and the creation of knowledge-based companies.
 
We need to lobby our politicians hard to improve the existing system but with an utmost care of not hurting the cashflow of newly-born fledgling enterprises.
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