The Department of Finance is currently undertaking public consultations until April 15 to modernize the $3.5 billion SR&ED program on a cost-neutral basis. Finance has also requested public input on a “patent box” regime, which would offer tax breaks to encourage companies to develop and keep IP in Canada.

Eight in 10 (81 per cent) of leaders say they would conduct more R&D if the government introduced a patent box model, which would provide a lower corporate tax rate on revenues derived from Canadian IP.

The government’s stated objective in proposing a patent box regime would be to encourage new and existing Canadian businesses to conduct their R&D in Canada by providing a preferential tax rate for the income generated from the IP resulting from that R&D. In addition to providing direct support for initial R&D activity, other countries provide incentives to help ensure that the benefits of locally-developed IP stays within their economies to create jobs and other social and economic benefits, says Brian Ernewein, Senior Advisor, National Tax Centre, KPMG in Canada.

“Generally, the income tax system should be neutral in its treatment of business income to avoid distorting the allocation of investment capital and impairing competitiveness” says Mr. Ernewein. “However, there is a case for a well-designed, preferential intellectual property tax regime, under which the qualifying income is derived from R&D conducted in Canada. The additional support for R&D performed here could ease the path toward commercialization and reduce the pressure to locate patents and other IP outside Canada in order to benefit from lower tax rates elsewhere.”

Read more about the upcoming federal budget.