The lure of fully refundable R&D tax credits

Trade mission Team Canada Atlantic delegation praises N.B.'s taxation system

In an effort to entice political and industry leaders in Chicago to invest in the province, Business New Brunswick Minister Greg Byrne emphasized the province's research and development tax credits.

Delegates from the Team Canada Atlantic trade mission gather on the Grand Staircase at Chicago's historic Intercontinental Hotel Sunday, during the first day of the trade mission. Close to 60 Atlantic Canadian companies and organizations are in Chicago this week.

"The R&D credits in New Brunswick are some of the most generous in Canada," Byrne said.

In 2003, R&D tax credits in the province increased to 15 per cent from 10 per cent, more than twice the 6.5 per cent R&D tax credit available to companies in Illinois, according to the Illinois Department of Commerce and Economic Opportunity.

"But it's not only the percentage of credit we offer that's competitive," Byrne said. "The credits apply to a range of sectors."

Byrne delivered his message as part of the Team Canada Atlantic trade mission in Chicago. The delegation of nearly 60 companies and technology organizations are taking part in the mission in an effort to boost economic development across the Maritimes.

A look at the provincial tax credits for research and development in Canada reveals that although Quebec generally leads the way, Atlantic Canada follows closely behind.

"The Maritimes, with the exception of P.E.I., have an attractive refundable R&D tax credit program," said Vik Sachdev, a scientific research and experimental development tax practice leader for PricewaterhouseCoopers Canada. Prince Edward Island does not offer provincial R&D tax incentives.

While the federal government offers a scientific research and experimental development (SR&ED) tax incentive program, the perk for companies in New Brunswick is that the R&D tax credits are fully refundable, though companies have to be established in the province and incur the research and development costs there.

The federal non-refundable tax credits mean the company has to earn enough income to benefit from the credits. However, smaller businesses can benefit from a 35 per cent federal tax credit from the Canada Revenue Agency if they meet the eligibility requirements.

"They've revamped the system so companies can really start to take advantage of the tax credits and can start to invest more vigorously in research and development," said Garth Whyte, executive vice-president of the Canadian Federation of Independent Business, which has 4,500 members in New Brunswick.

In addition to R&D tax credits, Byrne lured Illinois investors with the promise of low corporate and personal income taxes, expected to be reduced in the spring as part of the province's tax reform plan.

"But also for American companies the fact that they don't have to pay health premiums for their workers is quite an advantage," Byrne said.

The minister also cited independent studies and testimonials during talks with companies and government leaders, including Chicago Mayor Richard Daley, as evidence of the benefits to doing business in the province.

"We've got Site Selection magazine ranking New Brunswick as the second best place in the country to set up business," Byrne said. "We've also got the KPMG competitive alternatives study showing that we've got the two best cities on the eastern seaboard to do business.

"And the province has two of the 21 most intelligent communities."

The Team Canada Atlantic trade mission in Chicago continues until Thursday.

Published Tuesday November 18th, 2008 - Telegraph Journal