Contingency-based fees: Vital to Canada’s SR&ED tax credit system

Find out about the possible impact of contingency fee arrangements with third-party preparers on Canada’s Scientific Research and Experimental Development (SR&ED) tax credits program.

In a submission to the Department of Finance Canada and Canada Revenue Agency (CRA), CICA shared its views on the impact of contingency fee arrangements with third-party preparers on the effectiveness of Canada’s tax incentive program for SR&ED.

Based on the views of a CICA Working Group and supplementary research, we believe contingency-based fee arrangements enhance the SR&ED tax credit program’s fairness, effectiveness and efficiency, without significantly diverting an undue proportion of government funding for innovation.

  • The portion of SR&ED credits paid to third-party preparers under contingency-based arrangements is nominal.
  • Contingency-based fees do not appear to increase either the consultant’s fee or the claimant’s compliance costs.
  • Contingency-based fees increase the number of claims filed and the amount of funding available for future innovation.
  • With these arrangements, small and medium-sized companies that do not have specialized in-house resources can still participate in the program without any upfront cash outlay.
  • These arrangements offer a form of innovation financing, allowing companies to devote more funds to innovation projects without the risk that they will incur losses on fees for SR&ED claims.
  • CRA already has the means to deny ineligible claims and curtail perceived abuses. If the government thinks it necessary, it could take steps to promote transparency and accountability among third-party preparers.

If you have comments or views about the impact of contingency-based fee arrangements on Canada’s support for innovation through the SR&ED tax credit system, email Gabe Hayos.

This document was originally prepared by a legacy CPA organization.