Good morning, Mr. Chairman and committee members.
I'm Michael Conway, chief executive and national president of Financial Executives International Canada. FEI Canada is a voluntary membership association comprised of 2,000 chief financial officers and senior financial executives from across Canada.
The recommendations we present to you today are the result of the collective efforts of FEI Canada's tax committee, whose chair, Peter Effer, VP tax at Shoppers Drug Mart, is with me here today.
FEI Canada understands the critical importance of maintaining stability while the government works to achieve its fiscal policy goals. We agree with the government's continued commitment to fiscal prudence. It is imperative that the government focus its resources to achieve maximum impact for its spending. In order to be able to continue offering many of Canada's current social benefits, the escalating cost of which is driven by aging demographics, Canada needs to continually strive to get a better bang for its buck.
In our written submission to you, we highlighted three initiatives that FEI Canada believes the government should adopt, as they will be critical to achieving an efficient tax environment.
First, FEI Canada believes the government should encourage innovation. FEI Canada agrees with the Jenkins report that innovation is the ultimate source of long-term competitiveness of business and quality of life of Canadians.
There are various ways to encourage innovation through funding. Tax credits could be provided to angel investors who fund qualifying innovation expenditures. Help can be provided to companies that incur costs that lead to innovation.
In this regard, one efficient way to encourage innovation would be to use a mechanism the government already has that works well, and that's the scientific research and experimental development program, or SR and ED. But improvements need to be made to it, as the SR and ED credit is currently too complex and narrowly focused. It should be recognized that innovators need support beyond the early R and D stage, and that activities leading to product commercialization should be eligible for SR and ED claims. After all, it's commercialization of research that leads to economic activity.
The current program discourages small private corporations from accessing public capital by reducing the available tax credit from 35% to 20% when a company becomes public. FEI Canada recommends that public companies be entitled to the same tax credit entitlements as private companies.
Finally, we like the Jenkins report recommendations to simplify the SR and ED program by basing the tax credit for small and medium-sized enterprises solely on labour-related costs.
Mr. Chairman, that point makes a good segue into a request we made to the committee last year. For the benefit of both business and government, we need to reduce the complexity of the taxation system and its compliance requirements. In my appearance before the committee last year, I compared Canada's first tax act to the rather hefty volume we have today. The government should do exactly what it did last year to review red tape in R and D spending--namely, a task force could be established to thoroughly review the federal Income Tax Act. Tax simplification will cut the administrative burden shouldered by both business and the government, which funds the CRA. Having more clarity will reduce the number and cost of tax disputes for both sides.
This will be particularly helpful for small and medium-sized businesses, and will help this key sector of the economy, which employs millions of Canadians and generates the majority of Canada's GDP. The best way to start simplifying the tax system would be for the government to continue work commenced last year on the taxation of corporate groups.
As we stressed in our comments during the consultation process, a tax loss transfer system for corporate groups would make the system far more fair, as tax planning is generally not affordable to small business. Allowing companies to file one consolidated tax return would further reduce the administrative burden for everyone involved--corporations and the tax department.
In conclusion, we believe our recommendations will foster innovation, streamline government, and reduce time spent on compliance so we can focus on generating economic activity and job creation.
Thank you.