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Ripe for Innovation

13/04/2012


Innovation has become critical in the agri-food industry. With retailers demanding that processors do more with less, new regulatory demands, and increased consumer focus on health, companies must develop new ideas and processes if they want to stay in the game. In Budget 2012 the Canadian government announced a number of changes to the way it fosters innovation that could help agri-food processors deal with the challenges they face.

“Food and beverage processing is really at a crossroads. New bilateral trade agreements and negations with Asia and the EU mean more foreign products coming into Canada and companies can no longer hide behind a weaker currency. We have to produce at a par-U.S.-dollar situation and innovation is key,” says Andrew Raphael, Director, Food & Ag Processing, MNP.

Innovation is already happening across the industry, but many agri-food processors miss out on funding. “Companies will do R&D to change a product so that it meets new taste demand, for example, without looking into the Scientific Research and Experimental Development (SRED) tax credit. If we’re going to stay competitive in the global market, we need to ensure that our companies know about and access government support for innovation,” says Raphael.

If you’re doing R&D to provide the same product at a lower cost; improve packaging, environmental sustainability, or web-based customer interaction; establish traceability; or develop functional or anti-allergenic foods, you may be eligible for the SR&ED tax credit.

Act Fast

Changes announced in the budget will limit the amounts companies can claim through SR&ED in the future. As of January 1, 2013, you will only be able to claim 80% of contractor costs rather than 100%. One year later, capital expenditures will no longer be eligible. That means that if you buy a computer to do data analysis, for example, you will not be able to include the expenditure in your claim. The major change from the 2012 Federal Budget is the decrease in the value of the credits to large corporations from 20% to 15%. Furthermore, CRA’s imputed value on overheads will decrease from 65% of wages to 55%.

What’s the impact? Ryan Mackiewich, CA, SR&ED National Leader at MNP, has crunched the numbers. “For mid-market companies, there will be an approximately 7% reduction in the size of their tax credit. Over time that percentage adds up so we’re really encouraging people to see what they can do today in order to make the claims before the changes take effect,” says Mackiewich.

New Avenues of Support

SR&ED changes aren’t indicative of reduced federal support for innovation. In fact, the government commissioned the Jenkins Panel because Canada appears to be lagging in innovation and the commercialization of innovative ideas when compared to other countries; the Jenkins Panel was formed to look for ways to address these problems.

“The Jenkins Panel recommended reducing the value of SR&ED and spreading the savings into more direct funding approaches,” says Mackiewich. “Overall, these cuts will save $1.3 billion which will then be directed to fund various research and development initiatives.”

These initiatives were loosely outlined in Budget 2012 and include helping high-growth companies access risk capital, increasing direct support for innovation, supporting innovative businesses, and supporting private and public research collaborations.

“These new initiatives will continue to benefit the agri-food industry since there is an appreciation that food and beverage processing is the largest manufacturing sector in Canada – and as such requires more Government support,” says Raphael. “The government has committed $100 million to the Business Development Bank of Canada, which traditionally focuses on other sectors. We will be watching carefully to see what happens there. In the past, much of the funding has been directed to farmers and producers, so it’s good to see that that food and beverage processors will be getting the same attention.”

Working Together

Two themes run through the changes: the need to be strategic and the desire to see increased collaboration. The government is taking a strategic approach to innovation support and, with a broader range of options and a more complicated support landscape, companies are going to have to do the same to maximize SR&ED claims and access other types of funding.

“SR&ED should be part of your business plan,” says Raphael. “Integrate your R&D and innovation funding plans with other plans, including your succession plan, for the greatest impact. This approach can also help increase the value of your operation when you sell your company. What you do with SR&ED today can have wide-ranging value impacts tomorrow.”

Looking for ways to collaborate on SR&ED with your important customers and suppliers can also lead to stronger strategic relationships. This approach will strengthen the links in your supply chain, while differentiating and enhancing your relationships with those you rely on or want to build stronger connections with.

The first step is to have a coffee and chat with someone who understands the complexities of SR&ED. “Don’t assume that you aren’t eligible or that it’s too complicated, especially with the impending changes,” says Raphael. “A bit of your time today can be very lucrative in the long run.”

Armed with knowledge, you can create a plan that will maximize SR&ED funding today and help you prepare to take advantage of other funding as more information about the government’s plans is released.