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Department of Finance and Revenue Canada

For the Department of Finance and Revenue Canada, we carried out a survey of firms that have claimed either deductions or credits for Scientific Research and Development (SR&ED) expenditures. A companion survey gathered information on this tax incentive system from accounting firms and consultants who specialize in assisting firms with their SR&ED claims. These surveys generated background information for a broader study of the SR&ED tax incentive system being carried out jointly by Revenue Canada and the Department of Finance.

The survey generated information on the SR&ED spending patterns of claimant firms, the reasons for these spending patterns and how SR&ED spending patterns are influenced by the system of tax incentives. Other items assessed in the survey included an assessment of how the system was administered by Revenue Canada, audit practices and estimates of the cost of compliance for firms claiming either deductions or credits.

A major component of the study involved assessing the extent of incrementality of the system of SR&ED tax incentives, and the cost-effectiveness of the tax credits and deductions that are provided. The company, in consultation with the study clients, developed a framework for measuring incrementality and cost-effectiveness. We used multiple regression models to determine how different attributes of claimant firms were related to their incrementality responses. This econometric analysis provided the basis for a review of possible ways in which the program could be made more cost-effective.