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Canada should cut tax on income from patents, says report

R&D tax treatment
tax treatment
What should Canadian Finance Minister Jim Flaherty do about Canada’s productivity gap? A new report from the C.D. Howe Institute says Canada should lower the corporate tax rate for income derived from patents.

Canadian businesses should get less tax relief for simply performing R&D and more for implementing and commercializing it, says a new report from the C.D. Howe Institute called “Improving the Tax Treatment of Intellectual Property Income in Canada”.

This, says the institute, would remedy the puzzling fact that Canada’s R&D tax treatment is among the world’s most generous, yet we lag countries such as India and Brazil in patent registrations and in commercialization of new products and services.

C.D. Howe says Canada should introduce a tax regime known as the “patent box” or “innovation box”. This innovation, which the U.K. will introduce this year, lowers the corporate tax rate for income derived from patents.

Finn Poschmann, one of the study’s authors, says programs like the recently revised scientific research and experimental development tax credit (SR&ED) aren’t enough.

“Canada’s apparently lagging performance presents a puzzle, because the country’s federal and provincial tax systems treat business R&D spending quite generously, as compared with international peers,” he said. “To address this, Canada could adopt a new incentive model from abroad known as an innovation, or patent, box within which lower tax rates apply to income from applied innovation. This would encourage businesses to develop, apply for and hold patents in Canada.”

Despite Canada’s booming resource-based economy, many believe there are cracks forming because of a lack of attention to innovation.

A recent study from the Institute for Competitiveness and Prosperity revealed that the average U.S. worker contributes $10,000 more to national gross domestic product each year than the average Canadian worker. And its not just in comparison to our southern neighbours, workers from Germany, France, Italy and Belgium all bested us.

“For each hour we work in Canada, we generate less value from our efforts than our counterparts in the United States, said that study. “This prosperity gap is a productivity gap, and the productivity gap is an innovation gap. We are laggards in creating economic value per hour worked.”

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About The Author /

Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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