Applications for approval of projects, I am informed, are received at the rate of about two per month. According to the memory of officials in the Department of National Revenue who deal with this subject, only two or three applications have ever been refused. The practical situation is, therefore, that almost every application that has been made by a private company or organization to get this 100 per cent deductibility for research expenditures has been approved. The practice is that the Minister of National Revenue consults the national research council with respect to these matters, and makes a decision.
A very important feature of the system is the definition of scientific research. I think I should like to put that on the record. It is: ... any activity in the field of natural or applied science for the extension of knowledge.
This is amplified further on in the regulations as:
references to scientific research relating to a business or class of business, include any scientific research that may lead to or facilitate an extension of that business, or as the case may be, business of that class.
In other words, that means that while research must be related to the taxpayer's business, it need not necessarily be in the
particular line of production in which he is actually engaged at that time. It may be a similar line or a by-product or some line quite different from the main line of production. Any bona fide research program undertaken by a taxpayer in Canada to further the interests of his business is almost certain to receive this approval.
Now, these expenditures may be made for research directly carried out by the taxpayer, or they may be payable to approved bodies that carry out research for the taxpayer, such as research associations undertaking scientific research related to the class of business to which the taxpayer's business belongs, or something of that kind. It may be an approved university, college or similar institution. Now, the capital expenses, as opposed to current expenditures, are on a little different basis. There is no deductibility for the land. All other items of a capital nature that are directly undertaken by or on behalf of the taxpayer, that is buildings, equipment, machinery, whatever might be required, are depreciable at the rate of one-third of the value per year. In other words, those items are completely written off in three years. I would submit to the hon. member and to the house that is a very generous write-off indeed.
How does this situation compare to the situation that exists in other countries? The hon. member was interested in that. I feel the hon. member will agree that the scale of industrial research in the United States is extensive indeed. The situation there is that the internal revenue code of the United States does not contain any special provision dealing with the deduction of expenditures for scientific research. In administering their particular law, however, the bureau of internal revenue recognizes that most manufacturing businesses have experimental, research and developmental departments, and allows the cost of this work as a deductible expense. I am advised the main concern of the bureau appears to be whether any cost in developing a new process should be capitalized, that is regarded as a capital expenditure, and written off over a period of years or should be classed as a current expenditure.
In brief, with respect to current expenditures, the situation in the United States is just about on a par with the situation in this country prior to 1944. It does not appear to be as generous a provision as we now have in Canada. Though scientific research programs do not have to be officially approved any deduction made by a taxpayer has to meet the general test of being a necessary expense of doing business.
That brings us right back to the situation we had in Canada prior to the fiscal provisions made in 1944. Expenditures on scientific research of a capital nature in the United States do not qualify for any quick write-off but would obtain only the depreciation allowance for property of their class used in the general course of the business. That is obviously a very much less generous provision than that provided in this country for capital expenditure.
In the United Kingdom the provisions of the income tax law which allow a deduction for expenditures on scientific research are similar in many respects to those in the Canadian law. Scientific research is defined as:
Any activities in the fields of natural or applied science for the extension of knowledge.
There is a deduction for expenditure of both a current and capital nature, but the deduction for expenditures of a capital nature must be spread over five years, as compared with three years in Canada. Their law does not have the requirements that the scientific research program must be approved, although it does require that when expenditures are made by scientific research associations, universities and the like, these institutions must be approved. And they have a lengthy definition which ties the expenditure down to research related to the trade in question. This is regarded as quite a bit more restrictive than the situation here in Canada.
In his speech the hon. member for Lamb-ton West referred to provisions made in a recent budget brought down in the British parliament on April 6. He referred to a special 20 per cent write-off for research expenditures. I was interested in that, as it seemed to indicate a change in the situation as I had understood it. With that in mind I looked up the parliamentary debates of the House of Commons at Westminster, volume 526, No. 90, and I believe that portion of the budget speech to which the hon. member had reference is to be found at page 225, where the Hon. Mr. Butler said:
In general, the field over which the new investment allowance will operate will be the same as that of the initial allowance, which applies to plant and machinery generally and to new industrial buildings and mining works.
Looking further, I find that this is not a deduction specifically for research purposes. It is a special allowance made over the broad field of industrial expansion for new plant, new industrial buildings, and new undertakings of that kind. They are eligible for this 20 per cent allowance, whether or not they are connected with research. It is true that if they are connected with research, they may qualify; but it is not a program that is intended specifically to encourage research.
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It is a program that is intended rather to encourage the expansion of business over the general field.
That, I think, deals in some detail with what I believe was the main theme of the hon. member's speech. He went on to ask questions about whether we are doing enough agricultural and medical research. Well, I think the answer to that is exactly the same as the answer to his first question. It can never be said we are doing enough. The question is: Are we doing the best we can in all the circumstances, and with the facilities available?
Then he asked how the situation compares between the United States, the United Kingdom and Canada. The Minister of Trade and Commerce (Mr. Howe) put some figures on record in this debate on May 11, when he dealt with that subject. I am not going to tire the house by repeating the figures, but I would state briefly that the figures of expenditures on an absolute basis, on the basis of per capita expenditure, and also on the basis of expenditures as related to national income and gross national product, show that Canada has been expanding research, and particularly government research, in a manner that is very creditable indeed, as compared with either the United States or the United Kingdom.
I do not suggest for one moment that we are doing everything that could possibly be done; but I do suggest the general program compares favourably with programs under way in the two countries I have mentioned. The hon. member referred particularly to arrangements being made in the United States and the United Kingdom for special committees or advisory councils. The fact is that for many years neither of those countries found it necessary or thought it advisable to have any organization of the nature of the national research council, which we have had for a long period of time.
We think the job the national research council has done has been pretty effective and pretty worth while for Canada. I do not doubt that the types of organizations selected in the United States and the United Kingdom will be designed to meet the problems with which they are confronted. But I do submit to you, Mr. Speaker, that the performance we have had from the national research council indicates that we have followed a pretty clear and pretty worth-while path in that regard.
Then the hon. member asked a final question, which amounted to his wondering whether the national research council is doing enough: Is its work sufficient? Well, that again is a question to which no one can
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give a categorical answer. I think the hon. member will agree that the reputation of the national research council in scientific circles, not only in this country and in the United States, but throughout the world, is very high indeed. Names of many men connected with the national research council, and the work they have done, are known everywhere. Perhaps the most recent and most outstanding honour that has come to this organization, or anybody connected with it, was the awarding of the Kelvin medal to Dr. Mackenzie. That is an accolade that is an honour, not only to the distinguished man who received it but to the organization in which he has worked and which he has headed so effectively for many years.
He would be the last to suggest I am sure that the national research council has done everything possible. I am sure every scientist realizes, perhaps better than hon. members in the House of Commons, the tremendous extent of knowledge as yet undiscovered, and the magnitude of the problem with which research men are faced. Having that knowledge, they realize even better than we do that no one can say, "Well, the organization is doing enough".
We come again to the basic question: Are we doing the best we can, in all the circumstances, and with the facilities available? I believe there is very little more I can add, except to say in conclusion that the national research council does cordially invite members of the House of Commons to come to their open-house tomorrow, and if not then to come later in the week.
In his speech the hon. member for Lamb-ton West used an expression that I thought was quite extraordinary. As reported at page 4632 of Hansard, referring to the development of Canada, and what he termed a new phase in Canadian history, he said:
We are beginning to grow up in spite of ourselves.
Now, that may be the considered opinion of the hon. member. It is not my opinion, and I hope it is not the opinion that is shared very widely in this house and in the country. I do not believe this country has grown in spite of itself, in any sense of the word; but it has grown because of what has been done in this country in many, many fields, and not the least of these fields is the field of research. The circumstances of our development in Canada have meant that a very large proportion of our research has to be done by government, not only the federal government but by other governments. Happily the extent to which private initiative and private interests are making contributions to research is growing every day. I think that the kind of
climate that this government has created in this country, both over the whole sphere of the economic life of the country and also in the measures that have been taken to try to make it possible for companies to undertake research, has been largely responsible for the scale of our progress.
It has taken hard work and an intelligent approach to problems and a willingness by governments, by individuals and by private enterprise to search and to find the best path towards our continued and sound progress, but that has in large measure been done. I hope that we have built well on the foundation that was provided for us by our ancestors, and I hope that our children and our children's children will not consider that we have grown up in spite of ourselves.