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CME Notebook: 2012 Federal Budget Highlights

Published by Derek Lothian on March 28, 2012

SR&ED Reform:

  • Overall SR&ED expenditures reduced by $1.33 billion over the next 5 years
  • Reduction of the SR&ED general tax credit rate from 20% to 15% (starting financial year that ends after 2013)
  • The enhanced 35% investment tax credit applicable to CCPCs will remain unchanged
  • Exclusion of capital expenditures from the SR&ED deduction and investment tax credit eligibility
  • Exclusion of contract payments if this expenditure is related to a capital expenditure
  • Exclusion of overhead expenditures by reducing the rate used in the proxy method for eligible wages and salaries of a company's employees from 65% to 60% in 2013 and to 55% after 2013.
  • Exclusion of the profit element of arm's length SR&ED contract payments from the expenditure base for the investment tax credit. To simplify the process, a proxy of 80% of the cost of payers' contracts will be eligible for the SR&ED investment tax credit. In force after 2013.
  • $4 million in 2012-13 and $2 million in 2013-14 to improve administration of the program: a pilot-project to formalize the pre-approval process; enhancement of the existing on-line self-assessment eligibility tool; improve the "Notice of Objection" process to allow for a second review of scientific eligibility determinations
  • CRA will increase the number of technical reviewers and review the dispute resolution procedures
  • Contingency fees paid to tax consultants: the government will conduct a study to better understand why firms choose to hire consultants to prepare their SR&ED claims

$1 billion investment in science and technology, including:

  • $12 million per year to make the business-led centres of excellence program permanent
  • $37 million a year to enhance granting councils' support for industry-academic research and partnerships
  • $500 million over 5 years for the Canada Foundation for Innovation
  • Doubling the IRAP program - additional $110 million per year starting in 2012-13.
  • Creation of a concierge service at NRC to help SMEs make effective use of federal innovation programs
  • Creation if Western Innovation Program for SMEs- no money announced yet
  • Better collaboration between public and private sector research, including doubling the budget of the Industrial Research and Development Internship Program ($14 million over two years)
  • Refocusing the NRC: $67 million in 2012-13 to make the programs more focused on business needs and relevant to the private sector

International trade:

  • Extended domestic financing powers for EDC (one year)
  • Refresh the global commerce strategy - consultations with industry in 2012
  • Implement the Canada-U.S. Border and Regulatory Action Plans
  • Trade measures to support energy industry: duty-free status of imported fuels used in manufacturing (current duty of 5% on certain items)
  • Consolidation of Canada's trade remedy investigation functions into one organization, under the Canadian International Trade Tribunal

$500 million for start-up companies (Venture Capital), including:

  • $400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.
  • $100 million to the Business Development Bank of Canada to support its venture capital activities.

Natural resources sector:

  • Phasing out of the 10% Atlantic Investment Tax Credit -- oil and gas, and mining -- for certain investments in buildings, equipment and machinery used in the Atlantic region and the Gaspe Peninsula.
  • Phasing out of the 10% Corporate Mineral Exploration and Development Tax Credit
  • Legislative improvements to the review process for major projects (one project, one review objective)
  • Extension of the 15% Mineral Exploration tax Credit for flow-through shares for another year
  • $105 million over two years to support forestry innovation and market development.

Jobs and Employment insurance reform:

  • $205 million to extend the temporary Hiring credit for Small Businesses for one year
  • Limiting EI premium rate increases to 5 cents each year until the EI operating Account is balanced
  • $21 million over two years to better connect people to jobs
  • Removing disincentives to work: $74 million over two years to introduce a pilot program ("working while on claim program")

Immigration and foreign workers:

  • The Government will better align the Temporary Foreign Worker Program with labour market demands
  • Support further improvements to foreign credential recognition, working collaboratively with provinces



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