ICT Industry Finds Budget Support Modest

    OTTAWA, Feb. 26 /CNW Telbec/ - The Budget tabled by Finance Minister
James Flaherty today marked the conclusion of a five-month review of the
Scientific Research and Experimental Development (SR&ED) Program with a
disappointing set of minor improvements to the policy structure of the fund.
The Budget proposes to increase the expenditure limit for Canadian-controlled
private corporations from $2 million to $3 million, to increase the upper
limit for the taxable capital phase-out range from $15 to $50 million and to
increase the upper limit for the taxable income phase-out range from $600,000
to $700,000. New measures will also extend SR&ED eligibility to research and
development activity conducted outside of Canada to a maximum of 10 percent of
the Canadian SR&ED labour expenditures.
    ITAC, which represents the most R&D intensive sector in the Canadian
economy, has advocated for major reforms to the SR&ED program for nearly a
decade. For many R&D investors, the program has no impact on investment
decisions. ITAC has called for a move to full refundability to ensure that all
R&D investors in Canada, regardless of their ownership or their profit
positions, have access to the credits. "We believe the program needs more
substantive reform," said Bernard Courtois, President and CEO of ITAC. "The
changes tabled today constitute a 1.1 percent improvement on the support the
program provides. These measures simply aren't enough to incent substantial
R&D investors to keep high-value knowledge jobs in Canada.
    "Administration of the SR&ED program was also under scrutiny in the
review. The Government has pledged a $10 million commitment to allow the
Canadian Revenue Agency to undertake an action plan for administrative
improvement. The fund will cover increasing the number of technical reviewers,
improving training for technical resources and improving dispute resolution
procedures. "We were very pleased to see this commitment," Mr. Courtois said.
"The agency clearly heard the problems that SR&ED participants encountered in
accessing their credits and is prepared to make improvements in
    In its pre-Budget submission, ITAC also called for reforms to the
personal income tax regime such as raising the threshold of the highest
marginal tax bracket. This would better reflect the evolving knowledge-based
nature of our economy and better allow knowledge-based businesses to compete
for talent. The Budget expresses a commitment in the future "to implement
further broad-based tax relief - with a particular emphasis on personal income
    ITAC is a member of the Canadian Manufacturing Coalition, which has,
along with the Industry Committee of House of Commons, called for a five-year
extension of the Capital Cost Allowance acceleration on manufacturing
equipment. Budget 2008 extends CCA acceleration, on a declining basis, for
three years.
    Budget 2008 contained a number of other measures of interest to the ICT
industry. The industry faces major shortages of skilled workers and several
measures take steps to address the talent shortage. "The commitment to
modernize the immigration system is most welcome," Mr. Courtois said. "We know
that immigration is a vital contributor to the skilled workforce our industry
needs to be globally competitive. The process improvements and concrete
measures promised should help ensure better access to smart immigrants who
want to build their careers here."
    Closer to home, the Budget allocates $80 million to granting councils
including $34 million to NSERC. It also creates a $20 million fund for 20 new
research chairs in the four priority areas - including information and
communications technology - outlined in the Government's Science and
Technology Strategy.
    The Government also addressed one of the impediments to cross-border
investments. It has eliminated the tax-withholding and tax filing requirements
of non-resident investors when no tax would be owing in Canada.
    Budget 2008 also paid considerable attention to the issue of provincial
sales tax harmonization. It notes that the marginal effective tax rate in
Ontario would drop by 11.2 percentage points if sales tax was harmonized. ITAC
has advocated sales tax harmonization and reform - including the elimination
of PST on software and telecom equipment and services. "We agree with the
Government that provincial sales tax harmonization is the single most
important step provinces with RSTs can make to improve their competitiveness,"
Mr. Courtois said. "Provinces like British Columbia, Quebec and those in
Atlantic Canada are reaping the benefits of their decision to harmonize. Both
our Federal Government and the Ontario Government need to work together to
make harmonization happen in Ontario, and we hope Ontario can find ways in the
meantime to address the impact on the most competitively important types of

    The Information Technology Association of Canada (ITAC) is the voice of
the Canadian information and communications technologies (ICT) industry in all
sectors including telecommunications and Internet services, ICT consulting
services, hardware, microelectronics, software and electronic content. ITAC's
network of companies accounts for more than 70 per cent of the 589,000 jobs,
$137.6 billion in revenue, $5.2 billion in R&D investment, $22.6 billion in
exports and $11.5 billion in capital expenditures that the industry
contributes annually to the Canadian economy.

For further information:

For further information: Bernard Courtois, President and CEO, ITAC,
(613) 238-4822 ext. 231; Lynda Leonard, Senior Vice President, ITAC, (613)
238-2250 ext. 223

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Information Technology Association of Canada

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