Fund Your Innovation - SR&ED Tax Credits and other Government Grants

Editor's Notes

1. Before we can start addressing all of those questions, I want to briefly remind you what SR&ED stands for and a few basics about the program. It's a Canadian research and development tax credit Commonly pronounced "SHRED" ~95% of claims are considered experimental development In 2013, the government provided over $3.4 Billion in assistance to 22,000 claimants SR&ED returns are called Investment Tax Credits (or ITCs)
2. Work must meet three criteria: Technological Advancement Technological Uncertainty Technical Content CRA defines this as “Work performed for the purpose of creating new, or improving existing, materials, devices, products, or processes”
3. What’s eligible? Work must meet the three criteria Work must meet three criteria: Technological Advancement Technological Uncertainty Technical Content CRA defines this as “Work performed for the purpose of creating new, or improving existing, materials, devices, products, or processes” Can occur in various industries (both low and high tech)
4. Canadian controlled and foreign owned corporations: Canadian Controlled Private Corporations (CCPCs) Foreign and publically owned Corporations (non-CCPCs) As well as large and small companies Small to medium sized enterprises (SMEs) are defined as generating less than $500K income in that fiscal year. Small-medium sized companies (SMEs) as well as large companies can claim SR&ED.
5. Small-medium sized companies (SMEs) as well as large companies can claim SR&ED. You claim a percentage of the expense paid towards salaries, subcontractors and materials for SR&ED Eligible work. Non-arms length subcontractors *Salaries and sub-contractors MUST be Canadian-based SME Canadian-controlled private corporations (CCPCs) can claim as much as ~64% back on salaries; ~32% back on sub-contractors and ~42% back on materials. Rates are smaller for publically owned or foreign-controlled companies, as well as large CCPC companies Assuming all expenses are paid, SME’s qualify for refundable investment tax credits (or ITCS). This means they get a cheque back from the government
6. Foreign owned corporations, publically-traded, or Canadian controlled companies that are earning more than $500K in revenue per year qualify for the following returns: For 2014: Salaries ~36% Sub-Contactors ~ 18% (Calculated on 80% of expenditures) Materials ~28% Lowered the federal SR&ED return rate from 20% to 15% as of Jan 1, 2014 ITCs are non-refundable. They are simply tax credits that be carried back 3 years or forward indefinitely.
7. Technical documentation needs to be: Contemporaneous – documented at the time of the experimentation. Highlight technical obstacles or challenges Dated Examples of documentation: Timesheets, Engineering notebooks, Versioning Control on software Iterations, Whiteboard images, Emails. Just be aware. Some agile software development teams have needed to implement a better documentation system for their SR&ED eligible projects. Each company works very differently - we can help you set up an efficient system for your company.
8. Time Tracking Financial Tracking - What needs to be tracked from a financial/accounting perspective and give some tips on how to do that
9. Provide relevant industry examples
10. You can leverage SR&ED returns to exponentially grow your team. Here’s a brief case study to show you how this is possible. For this case study, SME software company based in Vancouver 3 developers making $70K/year 100% of the time is eligible for SR&ED
11. You can leverage SR&ED returns to exponentially grow your team, WITHOUT increasing your expenses or R&D budget.
12. Ready to claim? You can do this in-house or outsource to a consultant. Determine whether you’ll prepare the claim in-house or out-source. Consider: Do you want your technical team spending valuable time preparing your claim when they could be building more technology? Is your team capable of handling a CRA Review? Gather documentation
13. 18 Months past the fiscal year end Current Filing= 6 Months to file taxes after fiscal year end Amended Filing= 7 Months to 18 month past fiscal year end
14. CRA’s success rate at meeting these turnaround times is 96% The CRA only took 68 days, on average, to process a CCPC current claim in 2012.
15. A CRA Audit is not to be confused with a tax audit. The CRA only reviews SR&ED expenditures and technical work. Multiple Types of Reviews: Desktop Financial only Technical & Financial FTCAS – new service launched Jan 2014, it is an in-person meeting with the CRA to review your first submitted claim and to set you up for success for the next claim. Will happen every 4/5 years Most important way to support a review claim is documentation and time tracking. Keep in mind, just because your claim has been approved, doesn’t mean that it’s been fully reviewed. Just because you are at a higher risk of an audit, doesn’t mean you shouldn’t submit a claim. If you have documentation to support your claim, you should be fine and we are with you every step of the way.
16. Recommended approaches for claiming R&D grants: Pay yourself or staff (sweat equity is $0 equity) SR&ED require spend / NRC – solid business model Incorporate company and ensure clear IP ownership. Company vs contractor
17. I’ll send you a link to access the Ultimate SR&ED Guide. The guide goes into detail on documentation, calculations and more. It’s an interactive Guide that we will update as the program changes The CRA has strict documentation requirements, which we cover in the guide.
18. Common pitfalls for technology startups: Poor documentation of dev activity and financials- also important for business. Focus on business opportunity vs technology
19. Common pitfalls for technology startups: Poor documentation of dev activity and financials- also important for business. Focus on business opportunity vs technology
20. Pilot program to help SMEs access business services or technical assistance at Canada's learning institutions and publicly-funded research organizations.
21. Focused on helping SME's commercialize a new technology, product, process or service based in Western Canada.
22. Developing the next generation of innovators with vital scientific and business skills through unique research and training programs. Option for companies with offices or facilities in Canada. This can be domestic or foreign-owned, as long as the intern can spend time on-site and collaborate in Canada.
23. Ultimate Innovation Funding Guide is available on our website. Alternatively, I can email you a link.
24. We operate one of the largest boutique SR&ED advisory firms in Canada with offices in both Vancouver and Calgary. We are: Contingent Scope your claim upfront and invoice when your claim is successful Efficient Only require interviews & documentation Proactive Ongoing engagement and future recommendations
25. If you haven’t already, assess your internal projects for SR&ED eligibility. You may have some projects that you hadn’t even considered. I’d happy to sit down with you for 30 minutes to assess your potential. We work on a contingency basis, so we don’t invoice until you’ve successfully received your ITC’s. We invoice on a percentage of the ITCs collected. I’ll be emailing you with a copy of our SR&ED infographic as well as a link to the Slideshare file with these slides. Now let’s move onto Questions. Will publish on SlideShare and distribute the link afterwards