Contingency fee arrangements help promote innovation: CICA
TORONTO, November 14, 2012 – Contingency-based fee arrangements have become a vital component of the tax incentive system for promoting innovation among Canadian businesses, according to the Canadian Institute of Chartered Accountants (CICA).
The federal government has been seeking input on how contingency fee arrangements with third-party preparers affects Canada’s tax incentive program for scientific research and experimental development (SR&ED). The CICA recently provided its views to the Department of Finance Canada and the Canada Revenue Agency.
“Contingency fee arrangements emerged because companies of all sizes required a cost-effective way to prepare the complex tax credit claims associated with innovation investment,” said Gabe Hayos, the CICA’s vice-president, taxation.
In fact, the CICA submission noted government statistics show that two-thirds of businesses making claims rely on third parties to prepare them. A survey of CICA members supported the government’s finding.
The survey was just one aspect of the research carried out by the CICA to gain better insights about the issue of contingency-based fee arrangements. The Institute also consulted with a working group composed of SR&ED specialists from Canada’s seven largest accounting firms. In addition to gaining their insights, the individuals were polled to compile confidential data regarding the nature and extent of contingency-based billing practices.
“Many businesses simply do not have sufficient in-house resources with the highly specialized mix of scientific and tax knowledge needed to assess eligibility, prepare the claim and compile supporting documentation,” explained Hayos. “We believe these businesses and the system’s overall administration benefit from quality claims.”
The CICA submission also confronts suggestions that contingency fee arrangements may result in an undue proportion of government innovation spending being paid to third-party consultants.
Based on research compiled, the CICA’s submission revealed that consultant fees of the seven largest accounting firms amounted to just 3.7 per cent ($133.9 million) of the $3.6 billion paid annually by the government for SR&ED credits. Of these, contingency-based fees amounted to just 2.3 per cent ($83.27 million) of the credits paid.
“Given the size and complexity of the SR&ED program, we firmly believe that the amount of contingency-based fees paid to third-party preparers is reasonable in the circumstances,” stressed Hayos. “The ability to engage third-party preparers on a contingency-fee basis often allows companies to increase innovation spending which is a primary objective of the government.”
The CICA’s submission is available online (www.cica.ca/contingencyfees)
Chartered Accountants (CAs) are Canada's most valued, internationally recognized profession of leaders in senior management, advisory, financial, tax and assurance roles. Through their integrity, expertise, and internationally recognized qualification standards, Canada's 82,000 CAs sustain their influence and leadership position both in Canada and globally. As trusted business advisors to Canadian organizations of all sizes, Canada’s CAs foster confidence in Canadian business and contribute to the health and sustainability of Canada’s capital markets and economy. The Canadian Institute of Chartered Accountants (CICA) represents Canada’s CA profession both nationally and internationally. The CICA is a founding member of the International Federation of Accountants (IFAC) and the Global Accounting Alliance (GAA).
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