Changes to R&D tax credit program welcomed, in the U.S.

The US Treasury Department is currently finalizing some new rules for their R&D tax credit program and, in contrast to the situation in Canada, the changes are being enthusiastically received. According to an article in the Washington Postthe new rules are the result of a decades-long battle waged by Dow Chemicals and others to broaden the standards used to decide what kind of work qualifies. The changes are to be retroactive.

The article mentions that Treasury Department at one time had a rule requiring companies to show they had produced information that “exceeds, expands, or refines the common knowledge of skilled professionals in a particular field of science or engineering”, a rule similar to Canada’s requirement that work be undertaken “for the purpose of achieving technological advancement”. The US rule no longer applies. 

It seems the new rules are to be more business-oriented, in line with the way R&D is defined by most OECD countries, following the model in the current edition of the Frascati Manual. In contrast, Canada’s definition of SR&ED was (and still is) based on the first edition of the Frascati Manual from 1963. That definition is considerably narrower and more academic. In combination with the "technological advancement" requirement, the effect is to reduce the level of private-sector development work that is recognised as R&D in Canada.