Canadian Manufacturing

Ontario mulling new tax credits to spur investment in R&D

Also exploring another tax incentive for new spending in equipment, technology and training

TORONTO—Ontario’s governing Liberals are eyeing new tax credits and incentives to encourage cash-rich companies to spend their money on research and development as well as new equipment, technology and training.

There could be a “play or pay” tax incentive to reward companies for making specific investments, Finance Minister Charles Sousa said ahead of his fall economic statement.

“If those companies don’t initiate those investments, don’t provide for those supports, then they pay what they’re paying now,” he said. “If they do other things, if they play, they get a better rate.”

Many companies are holding on to their cash as the global economy slowly recovers from the economic downturn, Sousa said in a speech to the Empire Club of Canada.

“As a former banker, I recognize how important it is to have a strong balance sheet and ensure that we invest money in those things that are going to make greater returns in the long run,” he said after the speech.

But businesses need to invest the money that’s sitting on their balance sheet to be more productive and to boost the province’s competitiveness, he said.

Ontario’s spending on research and development as a proportion of its gross domestic product is significantly lower than the United States, he said.

Many American states are providing R&D tax credits to encourage investment and Ontario can’t fall behind.

“We recognize that we have to continue finding those stimulus initiatives for those businesses to invest in those particular areas,” he said.

“Other parts of the world are using incremental tax credits in a better form than Ontario has been doing.”

Asked how he would ensure that companies wouldn’t apply those tax credits to expenditures they’d have to incur anyway, Sousa said the province was reviewing all its tax credits to make sure they’re being used the way they should.

But the Progressive Conservatives say businesses are sitting on their cash because they don’t have confidence in the minority Liberals’ stewardship of the economy.

“They said they would reduce corporate taxes two budgets ago and then pulled the rug out at the last second,” said Tory finance critic Vic Fedeli.

Floating new tax credits is an admission that corporate taxes are too high, he said.

Ontario doesn’t need a “one-off,” it needs an integrated plan that includes reducing taxes, lowering energy costs, eliminating the deficit and reducing the debt.

Sousa didn’t provide any details about the proposed measures, but said his fall economic statement would “speak” to it.

The statement will also repeat his promise to slay Ontario’s nearly $12-billion deficit by 2017-18, the minister said.

But they won’t bring in “drastic cuts” or “business-killing taxes” to balance the books.

Fedeli said Sousa can’t eliminate the deficit unless he cuts back on spending, and there’s no sign the Liberals are moving in that direction.

“We’re on a path for failure,” he said.

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