The governments of many countries offer a tax credit to companies that can demonstrate they are

carrying out research and development towards the delivery of scientific and technological

advances. This offers a significant boost to small and medium scale Enterprises as it helps

encourage them to undertake development that they may otherwise not. For country like Canada

this will be very beneficial as R&D will help improve upon the economy and carried out research

demonstrating that investing public funds in science and engineering research leads to economic

growth. This means that R&D tax incentive schemes have the potential to be win-win for both

the government and businesses. This is why so many countries pursue this option. At the time of

its introduction, the R&D was the biggest reform to business innovation support for more than a

decade. The programme provides more generous rates of assistance in the form of a more

attractive tax offset, compared with a deduction under the R&D Tax Concession.

The Scientific Research and Experimental Development (SR&ED) tax incentive is a business

incentive program managed by the revenue department of Canada in order to support

organizations to conduct R&D work that they may not have started or pursued otherwise. At this

point, it has become a major source of financing for innovative Canadian companies. The

purpose of the program is to incentivize and reward companies that are investing in innovative

technologies.

This research and development (R&D) are made easier with the help of tax incentives. However,

many firms in Canada either underestimate the amount of R&D and sometimes does not realize

that these incentives are available. The reality is that, even in most of the industry within the

Canadian economy, Scientific Research & Experimental Development (SR&ED) has an amount

of tax credits to be acquired by most of the firm for continuous innovation. In this discussion, a

clear looked at both R&D and SR&ED tax incentives will be considered, the benefits to the
claims, as well as more examples of innovative options that are available to the government of

Canada.

In an attempt to improve economic development and gain an innovative economy, the Canadian

economy may adopt frequently the use of tax incentives and subsidies to entice firms. Tax

incentives aim to attract more business by means of making it less expensive for businesses to

operate. Subsidies are grants, or sums of money, that the government may offer to firms in an

effort to boost business. Considering the economy of Canada as being open, the government

reach out to a few industries but these industries will be facing developmental issue with respect

to being innovative, as a result of this there can be tax incentives offered to such organizations

rather than the subsidy. Most economists would agree with the choice of making borrowing from

banks easier as per monetary policy. This mostly assist in business expansion, investment, hiring

workers, and spending. Easier borrowing from the banks also contributes to consumers

borrowing and spending more, which directly boosts the economy. Consumer spending is the

fastest and strongest boost to the Gross Domestic Product. This will lead to addressing the main

problem of unemployment in the shortest possible time frame compared to the other options.

Increasing government spending and reducing taxes are examples of expansionary fiscal

measures that governments use during a recessionary period to increase output. Expansionary

fiscal measures aim to lower tax rates. This may lead to an increase in consumer demand, this

turns to increases the demand for products and leads to businesses hiring more employees to

support the higher demand and, therefore, lead to an increase in employment since there may be

an amount of unemployment situations within the country of Canada.

Also, in an attempt to accelerate innovation with the Canadian economy, the Government may

also stimulate the economy by spending on infrastructure programs by creating more jobs, and
incomes may increase for the labor force of within the economy. With government spendings

that is deficit spending, Governments need to borrow money in order to pay for the increased

expenditures, resulting in debt. Deficit spending leads to crowding out, where the government

may need to borrows large sums of money, increase in interest rates, making it very difficult for

businesses to borrow money and operate smoothly within the country, however, the government

may have to reduce its large sum of borrowing and rather focus on assisting the traditional based

organizations to be productive and innovative in their offering, by so doing this will increase

consumer spending, increase employment level to eliminate the issue of employment within the

country.

Furthermore, spending on infrastructure and financial support to suffering companies or

organizations may lead to production level, spending on welfare and unemployment may yield a

higher return when it comes to economic growth as those with lower incomes are more likely to

spend any discretionary income. In order to stimulate the economy, tax may be reduced and this

may increase the amount of money available to the individuals within the country. Reducing

taxes will increase disposable income and it could help to decrease costs for people but there is

no way to tell if it will or will not help to increase job opportunities. The less money that is spent

to make purchases will also increase money for households to spend on other things.

Depending on a business structure and the province in which the company exist, such

organization may claim up to 41.5 percent of expenses directly attributed to innovation. This is

mostly made up of a combination of federal and provincial innovation credits, the latter varying

by province. Most expenses linked to the R&D itself will attract tax incentives. This extends to

materials, salaries and other staff expenses, as well as third-party contractor services. The

incentive for a private business is received as a cash payment and, for publicly traded companies,
it is a credit to be offset against outstanding taxes. Canada provides support to the businesses

through the Research and Development (SR&ED) tax incentive program, through the

Accelerated investment incentive, and the strategic innovation funds. These supports are

available to firms in any industry and this help to boost the activities of the firms.

Ultimately, SR&ED is one of the most tax incentives available to Canada as a country in order to

accelerate innovation among firms within the industry since this will improve upon the

developmental projects and help reduce unemployment situation with the country. The R&D tax

incentive is a significant government programme that is highly valued by its recipients and is

consistent with much international practice in government support for business. In principle, it

aligns well with government objectives to increase innovation.