Canadian Advanced Technology Alliance urges feds to release backlogged SR&ED funding

The Canadian Advanced Technology Alliance (CATA) is submitting an “emergency” funding proposal to the federal government to help preserve tech jobs and companies during the COVID-19 pandemic.

The organization is urging the federal government to immediately release $200 million in backlogged Scientific Research and Experimental Development (SR&ED) claims to support Canada’s tech sector and create a new fund to speed up the disbursement of capital.

“We are recommending this mechanism as a simple, fast, and auditable method to distribute funds now.”

In an open letter to Prime Minister Justin Trudeau, CATA CEO Suzanne Grant recommended measures she said would assist 12,000 Canadian-owned small tech companies and help save 85,000 jobs during the crisis. According to The Logic, the pandemic has delayed nearly $200 million in tax credits for tech companies.

SR&ED provides support in the form of tax credits or refunds to corporations, partnerships, or individuals who conduct scientific research or experimental development in Canada.

On March 18, the Canada Revenue Agency announced it was suspending most of its business auditing for four weeks in order to lessen the burden on Canadian companies during the economic slowdown. However, this means that any company scheduled to be audited is not eligible to receive money from the SR&ED incentive program, meaning companies set to receive much-needed funding would have to wait.

As part of CATA’s proposal, Grant recommended the government create a one-time $3.6 billion “Canada Emergency Resilience and Rebound Fund” to provide zero-interest loans to pre-qualified businesses that are currently receiving science and research tax credits.

“By using data from the tax credit program, we are recommending this mechanism as a simple, fast, and auditable method to distribute funds now,” Grant wrote. “The funds could be administered by Minister Bains’ Ministry [of] Innovation, Science, and Economic Development Canada, and its agencies across the country.”

Grant estimates the new fund would pay back all disbursements in two and a half years and would benefit critical sectors like agri-food, cleantech, digital industries, health, and advanced manufacturing.

“We need our most innovative tech companies to lead a rebound when we emerge from this.”

“Most importantly, the economic dividends would start immediately with continued employment,” she said. “We need our most innovative tech companies to lead a rebound when we emerge from this COVID-19 emergency.”

CATA is one of many Canadian organizations petitioning the government to do more to support startups during the pandemic. The Canadian Council of Innovators has recommended the government expand the eligibility criteria for its 75 percent wage subsidy, which currently requires businesses to have seen a 30 percent year-over-year decline in gross revenue directly related to COVID-19.

CCI vice-chairman and OMERS founder John Ruffolo recently told BetaKit that the wage subsidy program as it is currently outlined makes it difficult for startups to apply for, meet criteria, and receive government support in a timely manner.

CEOs of innovation and tech companies like Waterloo and across the country have also signed open letters to various Government of Canada departments calling for stronger supports for the sector amid COVID-19.

Others have also specifically called for the government to address the current issues around SR&ED.

Matt Roberts, partner at ScaleUP Ventures, said on BetaKit’s first Black Swan podcast that one of the government’s first priorities should be turning SR&ED back on.

“SR&ED has not sent out a cheque since mid-March to at least the VC-backed companies that I’ve been able to contact, which has led to many companies actually missing cash that they thought they would be getting and the government told them they would be getting,” Roberts said.

“Those cheques shouldn’t take this long, it’s unheard of,” he added.

CATA consulted with a number of organizations in drafting the proposal, including the Canadian Chamber of Commerce, Engineers Canada, and the Canadian Venture Capital and Private Equity Association (CVCA).

The CVCA penned its own open letter to Minister of Small Business Mary Ng last week, calling for several new federal measures, including paying SR&ED tax claims on an expedited “no review” basis. The CVCA also called for BDC to create a fund-matching program and to help investor funds close active rounds.

In the open letter, CVCA CEO Kim Furlong urged the federal government to agree to pay all SR&ED claims on an expedited basis. “Now more than ever, Canadian innovation-driven companies need a rapid response, releasing the capital available under existing programs as well as the addition of new emergency funding,” she said.

CATA also heard from Canadian startups, such as Toronto-based Biotechnology company Cyclica. Naheed Kurji, CEO of Cyclica, said the company supports the need for the proposed “Canada Emergency Resilience and Rebound Program” in order to immediately inject capital into its fight against the virus. Last month, Cyclica entered into a partnership with a Chinese medical research institution in Beijing to discover antiviral drug candidates for COVID-19 and explore opportunities to design multi-targeted antiviral compounds.

“SR&ED is imperative to small-medium size enterprises,” said Kurji. “Processing of the credits that companies are entitled to must be accelerated or the results will be catastrophic.”

Image source Wikimedia Commons.