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Harper hints at R&D tax break overhaul

Prime Minister Stephen Harper listens to questions from the media during a press conference at a Ronald McDonald House in Toronto on Friday Dec. 16.

Pawel Dwulit/Pawel Dwulit/The Canadian Press

Prime Minister Stephen Harper is hinting that Ottawa will move as soon as the next federal budget to overhaul a $3.5-billion research and development tax break for businesses.

Speaking to reporters Friday in Toronto, Mr. Harper said the government will move in 2012 on a task force report that urged a major overhaul of federal research and development programs.

"I hope we'll be moving forward with some of the recommendations from that report," he said.

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It's the government's most explicit commitment to act on the recommendations of Innovation Canada: A Call to Action – an expert panel report headed by Open Text Corp. chairman Tom Jenkins that was released in October.

The report's key proposal is that Ottawa should make the Scientific Research and Experimental Development tax credit simpler and smaller, redirecting the savings to more direct funding of business research.

The Harper government is expected to table its budget as early February.

Among suggested changes to the SR&ED program, the report said the credit should be limited to labour costs and that the generous refundable portion of the credit for smaller Canadian-owned companies should be reduced.

This flagship tax break amounts to a $5-billion transfer from Canadian taxpayers to businesses, including $3.5-billion from the feds plus another $1.5-billion from several provinces that piggyback their own tax breaks on Ottawa's plan.

Nearly 25,000 companies across Canada use the tax break. A recent Globe and Mail investigation also found widespread abuse, including bogus claims and consultants grabbing large chunks of the credits in fees.

Among the report's other recommendations, Mr. Jenkins said the government should make better use of major purchases to spur innovation, encourage more co-operation between the National Research Council and universities and businesses, plus pushing the Business Development Bank of Canada to a greater role in providing risk capital.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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