What's new with R&D tax credits?

What’s new with the SR&ED tax credit program?

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SR&ED Program

Scientific Research and Experimental Development (SR&ED) Tax Credit Program

• Incentive to encourage innovation and leadership in Canada by subsidizing eligible R&D expenditures

• Managed by an independent group within CRA with the goal of growing R&D activities and subsidies

Best R&D Tax Incentive Program in the World

• Quebec ranked among the best worldwide for R&D tax measures for small businesses (Organization for Economic Co-operation and Development)

• Canada ranked among the best worldwide on the Innovation Index, which is a measure of market incentive structures, human resources skills, and interaction between business and scientific sectors (World Economic Forum)

Very Accessible Program for All Companies

• Over $4.0 billion per annum from the Federal government alone in R&D tax credits

• Over 20,000 businesses annually of which 75% are small and medium size businesses

© R&D PARTNERS 2014

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SR&ED Project Criteria

• Attempt at Technological Advancement– Intent to push knowledge or

even a material, product, or process

• Technological Uncertainty

– Uncertain achievement of or the steps required to achieve objectives

• Systematic Approach– Research, analysis or

development is carried-out logically by qualified personnel and documented


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Rates and Refund Criteria

Combined Federal and Quebec SR&ED Tax Credit Rates

Tax Credit Rate and Refund Criteria• Corporate structure• Taxable income, taxable capital, total assets• Total admissible SR&ED expenditures • Fiscal year end date• Other financial constraints

Select SR&ED Tax Rates

Credit Credit %RefundedRate Current Capital Rate All

Non-Corporation 15% 40% 40% 17.5% 100%CCPC 15%-35% 0%-100% 0%-40% 17.5%-37.5% 100%Other Canadian Controlled Corporation 15% 0% 0% 17.5%-37.5% 100%Foreign Controlled Corporation 15% 0% 0% 17.5% 100%Note: These percentages will also be influenced by other factors

% RefundedFederal Quebec


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SR&ED Update

Proposed Federal Budget 2012 SR&ED Changes

Existing 1-Jan-13 1-Jan-14

General tax credit rate for Canadian Controlled private corps. 35% 35% 35%General tax credit rate for other entities 20% 20% 15%

Tax credit on capital expenditures 35% 35% 0%

Proxy rate for overhead 65% 60% 55%

Non-arm's length subcontractors inclusion 100% 80% 80%


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SR&ED Update

Greater Number of AuditorsCRA has significantly increased the size of the audit teamsMRQ now audits all first year claims and at least reviews others

Faster Audit Decision Making ProcessCRA and MRQ are quicker to reject projects or claims

Much Stronger Demands on Contemporaneous InformationProject objectivesWork performedExperiment/testing resultsTime capture


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SR&ED Filling Timeline

Income Tax Submission

Fiscal YearEnd

CRA Response

0 to 18 months Up to 4 months

SR&ED Refund

1-4 months

Income Tax Submission

Fiscal YearEnd

CRA Response

0 to 18 months Up to 4 months

SR&ED Refund

1-4 months

Note: Assuming a CCPC and filed with original tax filing, provincial credit to follow (varies by province)


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Key R&D Issues

Technical

• General admissibility of technical work

• Claim support information

Financial /Legal

• Corporate structure and funding

• Expenditure rules and restrictions

• Subcontractor relationships and IP ownership

Overall

• Tax situation simulations and elections

• Overall tax credit returns and risks

• International R&D opportunities and constraints


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SR&ED Main Audit Steps


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Case Studies

Case Studies

• Building of a new product production line

• Development of an autonomous robot

• Formulation of a new chemical compound

Three SR&ED Project Criteria Must Be Met


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R&D Partners - Services

We aim to provide complete and efficient solutions tailored to each of our client's particular needs. We provide "A to Z" services in the area including:

• Implementation of R&D tax credit best practices and processes• Identification of eligible technical projects • Validation of eligible projects, activities and costs • Complete preparation of technical report• Complete preparation of financial/tax entries • Complete support for audit defense• Assistance with contracts and strategic transactions in relation to R&D tax credits• Implementation of R&D tax credit software solutions • Training and support of your team year-round • Assistance with other government programs for technology companies


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R&D Partners - Your Firm’s Team Member

Extensive and Solid SR&ED Experience – Team members have worked on a significant number of SR&ED claims in IT, telecom,

and other high technology environments– All project leaders have a very strong technical and financial background

(Principals - P. Eng., MBA and at least ten years technical/finance experience)Strong Understanding of and Relationships with CRA and Provincial SR&ED

– Aware of SR&ED changing rules, policies, court cases and precedence arguments – Understand the SR&ED written and unwritten accounting and technical rules– Familiar with many of the technical and financial auditors– Participated in numerous CRA and related provincial training sessions

R&D Partners Delivers Concrete Results– Focused entirely on maximizing your returns– Minimum disruption of client resources– Team approach to all our engagements – Successfully worked on over 1000 projects – Secured over $100 M in R&D tax credits


Contact Us

Sahar Ansary, M. Eng.Tel. 514-476-0938 | Toll- free: 1-800-500-7733, ext 2Email: [email protected] Website: www.rdpartners.com


What's new with R&D tax credits?

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