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Released: 29 March, 1999
Seizing The Opportunities: The New And Improved Sr&Ed Program
by
Norine G. Heselton (Biography)
Director General
Scientific Research and
Experimental Development Program
Revenue Canada
to the
Canadian Tax Foundation
on March 29, 1999, in Toronto, Ontario
Introduction
Good afternoon. I am
delighted to be here to share with you the progress of Revenue Canada and its
industry partners in revitalizing the Scientific Research and Experimental
Development Program.
This is a vitally important
program. About $1.3 billion of federal assistance is delivered annually to
Canadian business through the SR&ED program. --
Indeed, it's Canada's largest
federal program that supports industrial research and development, accounting
for 27 per cent of all government support to R&D.
And companies depend on the
program. A 1996 survey of claimants found that SR&ED incentives are the most
important influence on their R&D spending.
The survey also revealed that
companies invest in R&D to gain an all-important competitive edge.
I've just embarked on this
new challenge. When my friends and colleagues from industry ask me how things
are going, the old Judy Collins' standard, "I've looked at life from both
sides now" often springs to mind.
I won't say that I knew
everything there was to know about SR&ED when I accepted this position.
However, I knew enough to know this is a wonderful opportunity. And fortunately,
I was in the right place when it came along. As Jackson Brown Jr., once said
"Opportunity dances with those who are ready on the dance floor."
And I can truthfully say that
I'm enjoying this new dance. It's rich with new steps, daring moves and twists
and turns. And the results are rewarding.
We're making real progress on
the program. It's considerably more responsive to the needs of industry than
ever before.
In essence, that's because
the Government of Canada and all the people on my team are fully committed to
dancing in step with their partners in industry.
Today, I'd like to take you
behind the scenes and show you how and what we have achieved to date with the
new, revitalized program.
I'll first touch on how we're
restructuring its management to create a more customer-centric organization.
Second, I'll outline the
major initiatives we've put in place to ensure closer co-operation and
consultation with business and industry.
Third, I'll provide an
overview of the ways we are helping our customers to better understand and
benefit from the program.
What brought about the change
But, let me begin by briefly
explaining why these new and dynamic changes are underway.
As you may know, industry's
apprehension about the effectiveness of the program surfaced with a vengeance
when the program was amended with the 1994 federal budget.
A one-time, very short,
window of opportunity opened up. More than 16,000 back claims, including many
large ones, were filed in a matter of months.
The Department was swamped.
The processing of claims slowed down. Claimants were upset, some were angry,
others backed out of the program entirely.
Skepticism continued to
blossom for the next four years. After all, it's hard to see both sides of a
problem, especially if your money is tied up in it.
It seemed industry didn't
understand the criteria and questioned the processes. There was too much red
tape, especially for small businesses. And, companies felt the processing of
claims was taking much too long.
Government responded --
streamlining the paperwork, reviewing projects before they began and expanding
service. But, it wasn't enough.
Industry continued to voice
its concerns about the increasing complexity of the program, the protracted
review process and perceived inconsistencies in claims processing.
In May 1998, the Canadian
Advanced Technology Association (CATA) and seven other industry associations --
including my alma mater, the Information Technology Association of Canada --
presented a consultation report to the Minister.
It was entitled
"Renewing the partnership through consensus, consistency and
predictability."
Government listened. It
carefully reviewed the report's recommendations. Then government did a very
brave thing.
Revenue Canada, in
partnership with several industry associations, sponsored a two-day conference
called "Building Partnerships."
This conference brought
together government officials with associations and individual companies. Its
purpose was to develop real solutions to the issues at hand.
I believe this was brave in
two fundamental ways. First, let's face it. It's not easy to get together with
unhappy customers, one-on-one, to discuss problems and challenges.
Many organizations say they
want to learn what their customers think. How many actually make a real effort
to ask?
Second and more importantly,
Revenue Canada admitted that it didn't have all the answers and it wanted
answers. It held its program up to the microscope.
That's truly courageous. As
author Nancy Anderson, once wrote, "Courage is not the absence of fear,
rather it is the ability to take action in the face of fear."
Based on the proposals
arising out of this conference, Minister Dhaliwal announced that Revenue Canada
would undertake a massive overhaul of the SR&ED program and its
administration through a comprehensive plan of action.
This action plan is already
well underway in its implementation. It will make three fundamental differences
in the way the program is planned and managed.
- First,
it will become much more customer-centric in its day-to-day operations;
- Second,
through close co-operation with industry, the program's strategies and
future direction will be driven by the needs of Canadian business; and
- Third,
with improved communications, our customers will better understand how the
program works and how they can leverage its benefits.
Now
let me tell you about our progress on all three fronts.
Customer-centric
First, the customer-centric
approach. One of the big beefs of industry was the confusion about whom to call
about what.
Through a decentralization
effort several years ago, accountabilities for the program were spread across
different areas of Revenue Canada. This clearly didn't always work very well.
To address the fundamental
disconnects, Revenue Canada is moving quickly to a central mind and management
approach -- making SR&ED's organizational structure virtually transparent to
the claimant.
At the same time, we're
ensuring that SR&ED is more intimately linked to industry -- more responsive
to the needs and realities of its customers.
In adopting the central mind
and management approach, my position was created and I'm fully accountable for
this program.
I'm not a scientist. Heaven
knows, I'm not an accountant. I'm a business manager with a proven track record
for getting things done.
The Headquarters staff will
report to me directly. Concurrently, program delivery is being restructured to
become accountable to my office as well.
In addition, we're
implementing an account executive model throughout the program. With this, 850
companies involved in the program will be assigned a science advisor who's
versed in the company's specific field of research.
This advisor will shepherd a
company through the entire claims process, from the time the work begins --
sometimes even before that -- to the review of the company's claim.
Pilots of this model are
underway in Vancouver and Ottawa. Reports so far are that this approach is very
effective in clarifying expectations and ensuring that both parties are on the
right track. We expect to complete a full rollout of the account executive model
over the course of the next year.
We're also taking positive
steps to streamline and improve basic processes. For example, regional work
plans were developed to clear the backlog of claims.
These work plans included new
risk management tools, which assessed a claimant's history under the program. We
could thereby identify claims that could be accepted quickly, based on our more
in-depth knowledge of the claimant's needs.
These tools proved so
effective that they are now part of our ongoing claims processing. And, I'm very
happy to report that we're on target to eliminate the claims backlog by the end
of the month. After that, our commitment is to process claims within 120 days.
Our field offices are also
working with selected claimants to document the claim preparation process. We
need to fully understand what the process is like for companies so we can
improve it.
In addition, as a value-added
service to industry, we're piloting a preclaim project review in six offices.
This will help claimants
better understand what they're entitled to. And in this way, borderline issues
can be resolved before a claim is made, speeding up the processing of claims and
avoiding surprises.
Ultimately in each of these
initiatives, our goal is to shrink significantly the wide gray band between
what's eligible and what's not.
Consultative
Now, I'd like to describe how
the program is becoming more consultative. In addition to improving customer
service and the day-to-day management of the program, I believe we have to focus
on the long-term strategic direction of SR&ED.
In this, the participation of
our industry partners is especially vital. We must keep the consultative
momentum generated by the "Building Partnerships" conference alive.
Thanks to our partners in industry, I believe we're doing just that.
An action plan steering
committee, comprised of 11 individual representatives from industry, was struck
immediately after the conference.
Its role is to guide and
monitor our progress on the comprehensive Action Plan. Guide is the operative
word here. The committee does not police our activities. It's involved at the
strategic level.
Sector specific committees
have also been formed for all the major industrial sectors. Together with the
steering committee, these groups are actively examining the issues arising from
the conference. The aim is to devise real world solutions.
These sector specific
committees have another crucial role as well. In the past, a general circular
was used to explain SR&ED standards and guidelines for the program as a
whole. Of course, the circular was comprehensive and detailed. It was also
universally reviled.
Each industry is different.
Claimants felt they had to guess what this rule meant for their applications.
Often that guess was wrong. The result -- paralysis by analysis. Development of
Information Circular 86 4R4 has been stopped.
In its place, the
sector-specific committees are developing issue sheets, standards and
interpretation guidelines for each of their individual sectors.
This customization will go
long way in making the rules clear for everyone and will represent a true
consensus by industry.
In another strategic thrust,
we're implementing the national technology sector specialists program, whereby
recognized industry experts will ensure that each individual sector is covered
by a team of qualified researchers.
These sector specialists, who
are Headquarters resources, will work with Revenue Canada's field staff so our
people in the field have access to people who understand the needs of different
industries.
The sector specialists will
also develop strategies to ensure the consistent application of criteria and
fair treatment across companies.
These specialist positions
have already been staffed on an interim basis. Now, we're interviewing
candidates from industry to ensure we have people on board with a rich
understanding of each sector.
Communications
And now, let me tell you
about communications. We are making significant progress on the communications
front. And, certainly, it is the most challenging.
Our customers simply don't
understand the rules, practices and policies surrounding SR&ED, which are
intended to make the program fair to every company.
The review process is
perceived as complicated and often leads to disputes. For some companies, the
forms might just as well be in Klingon. And educating stakeholders about the
program through open and ongoing dialogue is a necessity.
To make sure the rules of the
game are clear, several new communications are before the steering committee and
the advisory committee, as well as the Department, for review.
These include documents that:
- clarify
the rights, obligations and responsibilities of all the stakeholders
involved;
- explain
departmental policies about the audit process and outline the rights of the
taxpayer;
- help
claimants understand science reviews and how they should be conducted;
- describe
the claims process, its time frames and the claimant's options during an
appeal; and
- guide
claimants on how to get a second opinion or use mediation to better resolve
disputes.
We
need your honest and constructive feedback about these new documents.
As you all know,
communications is a two-way street.
To further stimulate
dialogue, we're investigating a feedback system to monitor disputes and to
evaluate customer satisfaction.
We're also developing joint
training for people, both from industry and Revenue Canada. At these education
sessions, people will learn about audit techniques, as well as issue sheets,
standards and guidelines, as they are released.
In addition, we're expanding
our outreach activities with public seminars and services directed at individual
taxpayers, especially small business and first-time claimants.
Progress is vital
I believe we're making real
progress to ensure that the SR&ED program is customer-centric, consultative
and driven by clear communications and open dialogue. This progress is vital.
It's essential that the program be better managed internally. It has to focus
outward to anticipate the needs of industry. It must communicate openly and
widely.
As the director general of
the SR&ED program, I'm committed to continuing to move in this direction.
And my personal goal is to
engineer my own obsolescence. I want to hear more and more from happy claimants.
By the time my three-year term is up, the program will be running itself --
efficiently and effectively.
Conclusion
Before I conclude, I'd like
to highlight why I know the SR&ED program is so important in the wider
context -- and why it's so vital for both government and industry to take
ownership of it. Canada has what it takes to succeed in the new global
information economy. Recent analysis conducted by the OECD, for example, led to
the conclusion that Canada is first among the G-7 countries in terms of
technology potential.
Yet, our country also suffers
from a serious innovation gap.
Canada has a smaller critical
mass of high-tech manufacturers than other major industrial powers. Canadian
companies spend much less on R&D than U.S. companies as a percentage of GDP.
About two-thirds of Canada's
technology inputs come from other countries. That's far more than the other G-7
economies.
Domestic R&D investment
that is critical to closing this innovation gap. Let's not forget about its
spillover benefits. R&D investment not only provides a sustainable source of
profitable growth for individual companies. It has a lasting impact on the
economy as a whole.
The ideas and knowledge --
new processes, new products, and new services -- generated by a single company
trickle down to other companies. The result -- an entire sector experiences
growth through greater innovation. The ultimate result -- the whole economy
grows.
ITAC predicted this
phenomenon, roughly a decade ago, when it introduced the concept of the enabling
effect. ITAC believed that investment in technology would lead to cost savings,
improved quality, new products and services, enhanced management and entirely
new ways of organizing work and realizing objectives.
This, in turn, would lead to
enhanced competitiveness, wealth creation and an improved quality of life for
all Canadians.
As the Conference Board of
Canada states in its "1998 Performance and Potential" report,
"Innovation is now recognized as the major, if not the sole, sustainable
source of economic growth and the major determinant of the wealth of a
nation."
This innovation is not
something that government can foster on its own. It needs to work with industry
and it's doing just that.
As I hope I've shown,
government is doing its part to make the SR&ED program customer-centric,
consultative and driven by clear communications and open dialogue.
But, I believe industry must
actively recognize its role as well. The SR&ED program isn't about handouts.
It's about creating new opportunities and boosting the enabling effect of
R&D across all sectors and throughout the economy as a whole. To accomplish
that, government and industry must both actively contribute to the success of
the program. We must answer the knock and walk through the door of opportunity
together.
Remember, in the increasingly
competitive global economy, opportunities are never lost. Others take them.
"
Thank you.
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