My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, March 12, 2012

Can R&D or Mining save Ontario?

In the February 20th edition of the Globe and Mail, John Ibbitson had an article titled “Other provinces have no cause to gloat over Ontario’s woes.” The essence of the article is summarized in his final paragraph in which Mr. Ibbitson says “If things go badly, Ontario’s problem could become everyone’s problem, with a vengeance.”

The irony of this article was not lost on me, as recently over dinner, some friends and I debated the quality of Dalton McGuinty’s leadership and Ontario’s woes. We also discussed how Ontario can remain prosperous with a diminished manufacturing sector. Since my friends are huge McGuinty supporters, which I am not, they sarcastically asked me for my brilliant solution for Ontario’s issues.

I responded that I had not given this issue the proper thought, but that as part of the solution Ontario needs to expand its Research and Development sector. I suggested that Ontario be more targeted in its R&D program and cut-out fringe R&D claims. I proposed monetizing R&D credits which would allow companies who have unutilized R&D credits to sell or exchange them for cash, thus ensuring true R&D companies can further fund their development.

The irony of this situation continued when I reached for the business section. Staring at me on the first page was an article by Barrie McKenna titled “A glaring need to determine what is legitimate R&D.” ( If you wish a SR&ED primer, you can read my two blogs, The benefits of undertaking SR&ED and SR&ED-ing the Misconceptions).

In the article, Mr. McKenna discusses Federal Taxpayers’ Ombudsman Paul Dubé’s probe into the $3.5 billion annual SR&ED tax credit. Mr. McKenna notes that rather than identifying what was wrong with the program, Mr. Dubé quietly closed the probe into SR&ED with a truncated paper on the tax agency’s website explaining that there were too few complaints and insufficient evidence to reach any conclusions. Mr. McKenna further surmises that the closing of Mr. Dubé’s report will allow Prime Minister Stephen Harper to make the changes his government desires in the upcoming March 29th budget. Mr. McKenna notes that the Prime Minister embraced a report headed by Tom Jenkins, chairman of Open Text, that urged the government to limit SR&ED’s refundable credits, tighten the rules and then use the savings to support more strategic financing of R&D.

It will be interesting to see if the next federal budget addresses the SR&ED issue. From a more macro perspective, what impact would targeted R&D have in assisting Ontario to morph its economy?  As I have given the idea more thought, I think the reality is R&D would only form a small part of any solution.

So what other alternatives does Ontario have? Many including the Premier think maybe the "Ring of Fire" a mining area in Northern Ontario can stimulate the Ontario mining sector, as his government describes it as "the most promising mining opportunity in Canada in a century."

Maybe Ontario will never recover or replace its manufacturing base? Is Ontario as Mr. Ibbitson states destined to become two Ontario's. "The first Ontario is Toronto, a Canadian New York whose economy is powered by financial services, education, biosciences, cultural industries, tourism and more" and a second Ontario, "outside Greater Toronto that is a whole lot of Ohio, as the manufacturing sector follows other Great Lakes economies into rustbelt status."

What do you think? How would you re-make Ontario?

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.