On June 30, 2017, the Saskatchewan government proclaimed a new piece of legislation, the Saskatchewan Commercial Innovation Incentive (Patent Box) Act, c. S-10.2 (the “Act”).
The Act is intended to encourage Saskatchewan-based R&D and technology commercialization by reducing the corporate income tax rate to 6% on income earned through such commercialization. For successful applicants, the rebate can last for 10 or 15 years (from a starting year selected by the applicant) depending on the amount of R&D that is based in the province. The rebate is focused on attracting entrepreneurial talent, foreign investment and new business, while driving job creation in the tech sector.
The scheme is fairly simple on its face, comprising a two-part assessment of applications: scientific eligibility and economic eligibility.
First, compliant applications are vetted for scientific eligibility, where technical assessors determine whether the technology subject of the application meets the requirements set out in the Act and the related regulations; in essence, the technology must be an “exceptional innovation,” a term defined (somewhat) in the regulations.
If scientific eligibility is established, the application is then assessed for economic eligibility, which requires that (a) the company revenues are derived solely from the commercialization activities and (b) certain “economic growth benchmarks” are met (e.g. creation of new jobs, spending prescribed amounts on R&D, etc.) – but if the benchmarks are not met the Act does allow for recognition of alternative ways of providing a “new economic benefit” to the province.
If the eligibility tests are met, a certificate is issued allowing the applicant to claim the tax rebate, which rebate will be allowed for 10 consecutive years but can be available for 15 consecutive years where at least 50% of the R&D for the technology is conducted in Saskatchewan. The certificate may also be suspended or cancelled if eligibility requirements cease to be maintained.
There is a substantial degree of flexibility in the scheme, which may be seen as advantageous in some ways, but maximum government flexibility unfortunately means maximum uncertainty for applicants.
The legislation is replete with terms that are ill-defined or even colloquial, introducing a vagueness that may deter participation. Many crucial terms such as “intellectual property,” “innovation,” “intellectual property source” and “generation improvement” go without definitions, and the requisite degree of control over the “intellectual property” is also unclear, so applicants may find it difficult to determine whether their technology is eligible in the first place. Notwithstanding this, a “patent box” tax incentive may provide significant benefits to companies seeking to commercialize technology in the province.
Applications are expected to be available this month. We would be pleased to advise you on the scheme and assist you with preparing applications, and we can help you incorporate new standalone companies where necessary to engage the program. We are also available to provide internal presentations on the program and its uncertainties to better prepare your organization to take advantage of what might be a highly valuable opportunity for companies operating in Saskatchewan.