Mr. Chair, thank you very much.
It's a pleasure to be here once again. Our brief is just being handed out to you now. I apologize; we just got the call on Friday. You will find copies of our brief in French and English being distributed to you at this moment.
I'd like to focus in on just two items primarily, for the consultations today. The first one is the SR&ED tax credit and changes that we would like to see in the SR&ED program. The second one is access to capital, primarily limited private equity capital, and structural problems coming in from the United States.
On the SR&ED tax credit system, earlier this year OCRI and ITAC jointly commissioned a paper on how to improve productivity through the SR&ED program. The purpose for doing this was because we have made representations to this committee for the last number of years on changes that are necessary to the SR&ED program, and we have seen some of those changes implemented, but many of them not. I understand the challenges this committee has, because there have been over 13 different submissions made to this committee over the past number of years. What we did was we retained some former officials from the Department of Finance and from CRA to actually help us with this study, to look at all those 13 reports that were produced to come up with what is the main recommendation that we find is consistent among all these reports.
You will find in our brief that what we have is a synopsis of this. The main thing we are asking for is when you take a look at the SR&ED program, which does finance private sector innovation in this country, what we like to see is that all SR&ED claims become refundable, and refundable up to the $10 million in qualified R and D expenditures to a maximum of 20% or $2 million.
Now, we did have officials from the Department of Finance, so the next question that's usually asked is what is the cost of this to the treasury? We cannot estimate it to any fine level because the data are just not available to do that. We do know that there are over 11,000 claimants every year in the SR&ED program, and that a combination of the credits going forward is about $2.6 billion in the refundability. We estimate that the cost to make all claims refundable up to $2 million would be between $500 million and $1 billion. But it would certainly go a long way to encourage R and D performers in Canada to continue to do so, and also to increase that level of productivity improvements.
The second item that we'd like to bring to your attention, which we have done before, is on the venture capital and the private equity side. Ottawa has been very fortunate to attract, on a consistent basis, between 20% and 25% of all the venture capital money that flows into Canadian companies. We are also very successful at getting approximately 50% of all foreign venture capital that comes into Canada. However, that silver lining has a bit of a cloud over it because there are barriers to U.S. limited partnerships investing in Canada that cause them not to. And most of the companies that receive U.S. venture capital financing are forced to go through a very complicated structure to either change their head office to a U.S.-based company or to do something with their shares, which makes it very awkward for them, and very expensive, and typically we lose these companies to the U.S.; they now become U.S. head office companies.
What we are recommending to the finance committee is that you take a look at some of these provisions that are restricting or limiting the foreign limited partners from investing in Canada. Those conditions have been made public in a number of different fora, and through the task force on early stage financing, which functioned a number of years ago, and the main issues here are to remove the barriers to treat the U.S. tax-exempt institutions from investing in Canada in a tax-exempt fashion in Canada; to remove the Income Tax Act provisions that trigger taxation from cross-border mergers; and to remove the IT provisions that trigger withholding tax on capital gains made by foreign investments in private equity.
Mr. Chair, these are not going to cost the treasury very much money because they're not investing right now in Canada. As a result of this, their money is staying offshore and they're forcing Canadian companies to structure themselves to be offshore entities.
Thank you.