“It’s like offering someone $20 to give you back your $5 bill”
“Basically, anything they deny or reassess for a client is considered ‘income’ for themselves. For example, let’s say you have a $1,000 tax refund owing to you. If the CRA reassesses your refund to $100, the $900 difference counts as ‘income’ for the CRA. And some executive and managerial bonuses are tied to how much their team can ‘earn’ from TEBA.”
“TEBA” is the Canada Revenue Agency’s acronym for “Tax Earned by Audit.”
“SR&ED” is the acronym for “Scientific Research and Economic Development,” also a program of the Canada Revenue Agency. SR&ED is a federal tax incentive program that encourages businesses to conduct research and development. It offers $4 billion annually in tax credits and deductions to companies which have invested in innovative research.
David Reti is a second-generation member of Toronto’s Taxi industry. His father is Andy Reti, career Cabbie and plate investor, a long-time activist for improvements for the industry (and respected Holocaust survivor and educator).
Of course, owning a Taxi plate in Toronto has mostly meant nothing but heartache for the past 15 years. David Reti has not just a theoretical understanding of the disastrous consequences of insane government decisions on committed businesspeople: he has lived it.
For the past 18 years, David has worked as an SR&ED Consultant. SR&ED Consultants are necessary because while the concept of giving businesses a tax credit for innovative Research and Development is a great idea, the CRA has made the application process so incredibly complex that it often takes an experienced specialist to guide business owners through the labyrinth of the system.
Enter the SR&ED consultants, who provide a valuable service to Canadian business owners willing to venture into the CRA maze. Usually, they are paid a success fee: that is, if the business owner actually does receive the tax credit from CRA, the consultants are paid out of the savings. This should be considered a win/win/win scenario: the business owner wins by getting a tax refund; the consultant wins by getting paid a fee; and Canada wins by having businesses innovate, help our economy grow, and compete on the world stage.
Except that as David Reti, and other SR&ED consultants, and engaged business owners have discovered in recent years, a spanner has been thrown into the works. Bureaucrats at the Canada Revenue Agency discovered a nefarious way to earn cash bonuses at the expense of business owners when TEBA was ported over to SR&ED, which was created to motivate innovators.
“TEBA (“Tax Earned By Audit) is an internal metric the CRA uses to make their financials look better,” Reti writes in his first column today.
“Basically, anything they deny or reassess for a client is considered ‘income’ for themselves. For example, let’s say you have a $1,000 tax refund owing to you. If the CRA reassesses your refund to $100, the $900 difference counts as ‘income’ for the CRA. And some executive and managerial bonuses are tied to how much their team can ‘earn’ from TEBA.”
Wait….what? We are incentivizing bureaucrats NOT to encourage investments in innovation?
Wouldn’t this set-up pit CRA bureaucrats directly against the business owners they are being paid by our tax dollars to assist?
Yes. Yes, it would.
How does giving powerful, privileged bureaucrats a motivation to deny tax credits to innovative businesses improve Canada’s economy and productivity?
It doesn’t. It doesn’t help at all. In fact, it clearly HINDERS the very group of innovative entrepreneurs Canada claims to want to support, while rewarding paycheque-collecting public servants to harass them.
“To deny these incentive credits so that the CRA’s finances can look better and its staff can earn more bonuses, is at best, a conflict of interest. And it’s a primary source of a lot of the problems and challenges the program is facing right now,” Reti notes.
One SR&ED claimant said, “Even before these latest changes, the level of scrutiny was over the top. We had claims that were well-documented, supported by testing, and even acknowledged by the reviewing engineer as strong — yet we still faced rejection. It’s disheartening.”
Last summer, I wrote a series of columns about Fascism and elements which make up a “fascistic” government, including Corporatism. Corporatism is when some businesses are essentially so favoured by government that they become dovetailed or enmeshed with government; they become part of government. We saw this when Uber began pre-writing legislation and by-laws for governments across Canada.
Corporatism can also mean people inside of government run businesses and profit handsomely from their business activities, given the undisputed advantages they have by being the group that writes the laws that harm their competitors.
We saw this when former Employment Minister Randy Boissonnault apparently continued actively running multiple businesses after he was elected as an MP, including one selling products to the government in which he served.
Now we have a tax credit program enticing innovative business owners to apply for credits which rewards civil servants for wasting these busy peoples’ time, energy, money and enthusiasm. Why WOULDN’T a bureaucrat who is guaranteed a paycheque anyway waste the time of an SRED applicant when they are offered money to do so?
It’s a blazing, flagrant, brutally obvious conflict of interest.
It makes Canada less innovative and productive, not more.
The Scientific Research and Economic Development program may actually have the ironic impact of discouraging Scientific Research and preventing Economic Development.
Thank you, David Reti, for having the guts to go public with this insane situation.
