Features Business intelligence Contracting
Fenestration Forum: December 2014

The federal government and, to a somewhat lesser degree, non-profit
agencies have been actively stimulating research and development
activities for many years using provisions within the Income Tax Act.

The federal government and, to a somewhat lesser degree, non-profit agencies have been actively stimulating research and development activities for many years using provisions within the Income Tax Act. In fact, since as far back as 1944, the federal government has enabled companies to deduct a reasonable proportion of expenditures related directly to research and development activities from their taxable business income, provided that the research meets certain specified conditions.

The government’s definition of scientific research refers to the acquisition of new knowledge or the development of new products or processes to develop new products, make improvements to existing products or processes, or to develop, test and evaluate prototypes. This definition includes work undertaken with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing and psychological research. The process of discovery must involve systematic investigation carried out by means of experimental work undertaken to advance scientific knowledge. This is further defined as work undertaken to achieve technological advancement for the purpose of creating new or improving existing materials, devices, products or processes. Critically, scientific research and development does not include market research, sales promotions or preparation of operational instructions for operation.

Three or four years ago, I submitted a paper to a conference on some of the factors that affect successful introduction of innovative new technologies for construction products. The paper did stimulate a certain amount of discussion with regard to the important factors that can influence or affect the successful introduction of new product innovations. Some of the key factors I discovered were the cost of adopting and using the innovation balanced against the time and discomfort the innovation saves. The perceived risk of functional consequences from adopting the innovation is another concern. The ease or difficulty with which the idea can be disseminated to others and the ease of implementing the innovation play into companys’ decisions. Compatibility of the innovation with existing products and processes is important, as is the ease of demonstrating the innovation’s application and its benefits.

These seven factors represent some of the reasons why research and development is often a challenge. It represents a business risk. Financial incentives delivered through income tax rebates mitigate at least some of this risk. Before embarking on a research and development project, you need to determine if a given innovation is cost-effective and functions adequately. In the case of construction, you also need to consider building code requirements including health and safety, fire ratings and in some cases the requirement for formal testing. Overall the construction sector has fared quite well with regard to development and introduction of innovations.

The construction industry has been studying its own process of innovation for over four decades. There are several elements to construction R&D that make it unique. The first element is immobility, meaning that buildings are not constructed on assembly lines (well, it has been tried, but has proven very difficult). This makes it hard to replicate building engineering innovations on different sites with different building processes. The second factor hindering innovation in construction is the high degree of complexity involved. Buildings work because the interaction of multiple systems. A radical change to one can have unintended consequences elsewhere. The requirement to meet existing building codes casts a chill on many innovative initiatives. Because building codes are concerned with occupant health and safety, they are necessarily written around what is known to work. An innovation, by definition, is unknown and will probably not meet code at first.

Finally, the fact is that innovation in construction has proven to be relatively expensive. Hence the need for tax credits.

Brian is now involved with an innovative multidisciplinary firm that specializes in technical business writing: Award Bid Management Services http://award-bid-management-services.com/ . The firm assists companies interested in selling goods and services to governments and institutions. He can be reached at Burton@award-bid-management.com