2012 Federal Budget - SR&ED Changes for Canadian Agri-Food Industry

Budget 2012 – SR&EDBudget 2012 SR&ED

Impact to Food & Ag ProcessorsImpact to Food & Ag Processors

IntroductionIntroductionAndrew Raphael

Director of Food & Ag Processing Division

R an P Mackie ichRyan P. MackiewichSR&ED Practice Leader

Andrew PellizzariSR&ED F d & A P i S i li tSR&ED Food & Ag Processing Specialist

TopicsTopics

1 Helping Processors Meet Complex1. Helping Processors Meet Complex Consumer Demands

2 Food & Beverage Processing2. Food & Beverage Processing Opportunities

3 B d t 20123. Budget 20124. Opportunities for Funding5. Tax Planning6 Questions6. Questions

Building a Sound Growth Strategy

Benefits to your BusinessBenefits to your Business– Minimizing your taxes

Managing Risk– Managing Risk– Controlling Costs

Enhancing your Performance– Enhancing your Performance– Maximizing your Human Resources

R i i Fi i l C t l– Regaining Financial Control– Financing Change

Can Help Processors Meet Complex Consumers Demands

Food safety & quality are essential

Consumersare paramount

Consumers Demands

Convenience

• Aging population• Increased health

awareness• Demand for natural &

organic foods Health & Wellness

• The value of time• Higher rate of women working • faster pace lifestyle• Smaller household

g• Demand for functional

foods & nutraceuticals• “Food as medicine”• More novel foods • Educated & sophisticated

consumer

Health & Wellness

ValuePleasure• Fun & entertaining• Comfort• Ethnic & exotic• Indulgent & guilt free

consumer• Declining food expenditure• share• Demand for premium• private label productsIndulgent & guilt free

• Premium & prestigiousp p

• Income distribution & gap• Price consciousness of lower

income consumer

SR&ED Opportunities forF d & B PFood & Beverage Processors

• Equipmentq p– Strong Loonie = Time to Purchase & Adapt

• Flavour Formulations T F t S di S– Trans Fats, Sodium, Sugar

– New taste demands • Doing More With LessDoing More With Less

– Retail Consolidation Impacts– Be Proactive

• Packaging – Product Interaction With Packaging

SR&ED Opportunities forF d & B PFood & Beverage Processors

• Going GreenBi d d bl P k i– Biodegradable Packaging

– Storage– Delivery Systems

• Traceability• Traceability– RFID

• Web Based Interactive Services – Sales Inventory Feedback On Line AuctionsSales, Inventory , Feedback , On Line Auctions,

• Functional Foods– R&D, Testing, Proving Claims

• Anti Allergiesg– Gluten Free & Peanuts– R&D, Testing, Proving Claims

2012 Budget2012 Budget

• SR&ED = Scientific Research &SR&ED = Scientific Research & Experimental Development

• ITC = Investment Tax Credit the “Gold”• ITC = Investment Tax Credit – the Gold we are going for CCPC C di C t ll d P i t• CCPC = Canadian Controlled Private Corporation

• Proxy Amount = A notional gross up of labour costs to cover overheads


Effective January 1 2013Effective January 1, 2013• Contractor costs for SR&ED reduced to

80% of the contract payments80% of the contract payments


Effective January 1 2014Effective January 1, 2014• SR&ED ITC reduced to 15% (from 20%),

Th h d ITC f CCPC ill i t– The enhanced ITC for CCPCs will remain at 35%.

C it l dit l li ibl f• Capital expenditures no longer eligible for for SR&ED

• Prescribed proxy amount reduced to 55% (from 65%)


ExampleExample• Spend $100,000 on eligible SR&ED

$50 000– $50,000 wages– $25,000 contractors

$– $25,000 materials

Canadian Controlled Private Corporations 10% ITC

New

Federal Tax Savings:

Qualified SR&ED Expenditures 122,500

Provincial ITC 12,250

Federal ITC @ 35% 38,588

Total SR&ED ITCs 50,838

Prior


Qualified R&D Expenditures 132,500 p ,




Change in Total ITCs Earned (4,150)

Non-CCPCs 10% ITC

New


Qualified R&D Expenditures 122,500




Prior


Qualified R&D Expenditures 132,500




Ch i T t l ITC E d (8 313)Change in Total ITCs Earned (8,313)


• These changes result in $1 3 Billion inThese changes result in $1.3 Billion in savings

• Savings used for funding various R&D• Savings used for funding various R&D Initiatives

2012 Budget2012 Budget• The government will spend $6 million over the

next two years to implement changes to thenext two years to implement changes to the administration of the program through the following measures:

The CRA will conduct a pilot project to determine the– The CRA will conduct a pilot project to determine the feasibility of a formal pre-approval process

– Enhance the existing online self-assessment eligibility tooltool

– Work with industry representatives to address emerging issuesI th N ti f Obj ti t ll f– Improve the Notice of Objection process to allow for a second review of scientific eligibility determination.

– Increase the number of technical reviewers


• Providing additional training andProviding additional training and establishing coordinated technical support for the technical reviewersfor the technical reviewers.

• Devoting more time to program services.E h i th lit• Enhancing the quality assurance methodology.

• Reviewing dispute resolution procedures to ensure their effectiveness.

Innovation CanadaA Call to Action: Jenkins Report

• Shift resources from indirect support through the SR&ED pp gtax incentive program to direct forms of support, including the Industrial Research Assistance Program.St li th G t’ t f b i• Streamline the Government’s support for business innovation.

• Simplify the SR&ED tax incentive program and improveSimplify the SR&ED tax incentive program and improve cost-effectiveness, predictability and accountability.

• Make business innovation one of the core objectives of tprocurement.

• Refocus the institutes of the National Research Council on demand-driven applied research.on demand driven applied research.

• Help high-growth innovative firms access risk capital.• Establish a clear federal voice for innovation

Opportunities for FundingOpportunities for Funding

• Helping High-Growth Firms AccessHelping High-Growth Firms Access Risk Capital

• Increasing Direct Support for Business• Increasing Direct Support for Business InnovationS ti I ti B i i• Supporting Innovative Businesses in Western Canada

• Supporting Private and Public Sector Research Collaborations


• Helping High-Growth Firms AccessHelping High Growth Firms Access Risk Capital

• $400-million fund to help increase private$400 million fund to help increase private sector investment of early-stage companiesp

• Access to capital In shorter supply in Canada (affects ability to hire). ( y )

• Details won’t be announced for a few months.

Opportunities for FundingOpportunities for Funding• $100-million for the Business Development$100 million for the Business Development

Bank of Canada • Energy/Cleantech, Health, Information gy , ,

Technology, and Communications.• Unclear what the increased money will go

toward. – Is it a continuation of the current mandate?

O ill BDC h t t i hi h f– Or will BDC reach out to companies which, for whatever reason, hadn't been supported in the past?

Opportunities for FundingOpportunities for Funding• Increasing Direct Support for BusinessIncreasing Direct Support for Business

Innovation• Doubling the Industrial Research Assistance g

Program (IRAP)• additional $110 million per year.

– Financial support for firms– If proposal accepted IRAP provides up to 80% of

the payroll costs and 50% of the applicable subthe payroll costs and 50% of the applicable sub-contractors fees for a project up to $100k contribution.

Opportunities for FundingOpportunities for Funding• Supporting Innovative Businesses in pp g

Western Canada• Launch of the Western Innovation

Program– Financial support to innovative small and

Cmedium-sized enterprises in Western Canada– Like Programs offered in other Quebec,

Atlantic Canada and Southern OntarioAtlantic Canada and Southern Ontario– Ontario: $20 million for food and beverage

processing sector and export developmentprocessing sector and export development


• Supporting Private and Public SectorSupporting Private and Public Sector Research Collaborations

• Integrating High Quality Researchers• Integrating High-Quality Researchers Into the Labour Market

$14 illi t t d bl th– $14 million over two years to double the Industrial Research and Development Internship programInternship program

– 1:1 cost sharing with private sector partner


• Business-Led Networks of Centres ofBusiness-Led Networks of Centres of Excellence program

• Industry led research consortia• Industry-led research consortia• 1:1 cost sharing with private sector partner


• Supporting Innovation ThroughSupporting Innovation Through Procurement– Canadian Innovation Commercialization

Program• (additional $95 million over three years, starting in

2013 14 and $40 million per year thereafter)2013–14, and $40 million per year thereafter)

• Refocusing the National Research CouncilCouncil– $67 million in 2012–13 to support the

business-led, industry-relevant research. , y

Opportunities for FundingOpportunities for Funding– Cuts to the federal tax incentive program, p g ,

expected to be nearly half a billion dollars a year, outweigh new investments in grants

f k b d i d– movement away from market-based, industry-led research and development to institutional-targeted research and developmenttargeted research and development

– The right direction we should be going in?– Grant program could increase red tapeG a t p og a cou d c ease ed tape– Apply for a program, wait for approval, there

is an inherent lag period.

2012 Budget - Summary2012 Budget Summary

• What does this all mean???What does this all mean???– Decrease to the value of SR&ED ITCs

~ 7% for CCPCs~ 20% for non-CCPCs

– More Funding Opportunities– More complex landscape– Increased scrutiny by CRA– More ways to disagree with CRA– Tax Planning

Tax PlanningTax Planning

• Contractors vs EmployeesContractors vs. Employees– Employees much more valuable

• $64 325 ITCs for Employees vs $33 200 ITCs for• $64,325 ITCs for Employees vs. $33,200 ITCs for Contractors

• Capital Spending– Have all purchases completed by 2013– Have all purchases completed by 2013

Tax PlanningTax Planning

• Performance BonusesPerformance Bonuses– Accrued by December 2013

• Project Spending/– Rates drop starting Jan 1/14

– Factor in to ROI

A Recipe for Rewarding InnovationA Recipe for Rewarding Innovation

• To ensure you get the most from your claim, it is important to work with professionals who understand your industry and the intricacies of the SR&ED program

• Advisors deliver insight to help you:– Identify eligible projects– Develop accurate project descriptionsDevelop accurate project descriptions– Review your claims– Train your team

P ti i t i CRA i– Participate in CRA reviews– Strategic tax planning

ContactsContactsAndrew Raphael604 637 [email protected]

Ryan P. [email protected]@mnp.ca

Andrew Pellizzari416 515 [email protected]

2012 Federal Budget - SR&ED Changes for Canadian Agri-Food Industry

Business

Transcript of 2012 Federal Budget - SR&ED Changes for Canadian Agri-Food Industry