Index

Spending on Dubious Research

W.K.

There is one advantage to suppressing all recognition of the most important relationship in our world economy – the key importance of human capital. Swallow that and you are left without anything that might be recognized as accountancy. On the other hand having done that, our critics are emboldened to exercise an unusual boldness in drawing attention to lesser irregularities in our accountancy.

From The Globe and Mail (12/03), we quote: "$4.7 billion, 20,000 companies. One sector's 'dirty little secret' Canada's signature research and development incentive is failing as Ottawa pays millions for questionable claims.

"What's research and development? The Income Tax Act defines eligible R&D as a 'systematic investment or search that is carried out in a field of science or technology by means of experiment or analysis.'

"Tax authorities are warning they'll start hitting companies claiming this wildly popular tax break with punitive penalties and even criminal charges to stop abuses.

This year Ottawa and the provinces will dispense $4.7 billion to more than 20,000 Canadian companies under one of the richest R&D tax regimes in the world. But a third or more of that cash is being wasted and paid to consultants because of hazy rules on what's legitimate R&D and limited government auditing resources, according to dozens of interviews with consultants, claimants and government officials.

"The program is prone to abuse because the risk of getting caught is low. Tax authorities routinely accept a significant percentage of refund claims with little or no vetting in what one CRA source called the R&D industry's 'dirty secret.'

"Senior Canada Revenue Agency (CRA) officials exposed the growing scourge of bogus claims at a series of recent meetings with industry consultants and accountants. At one of the gatherings, a CRA executive complained about unscrupulous flooding of the agency with claims for many companies that do little or no R&D.

"Money is often paid out to decidedly low tech and routine manufacturing such as baking gluten-free cake, making injection-molded auto parts or growing potted roses.

"The cost of the federal SR&ED program has climbed to an estimated $3.5 billion a year from $2.7 billion in 2005."

W.K.

– from COMER, March 2011

Index