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Scientific Research and Experimental Development Tax Incentive Program
(SR&ED)
BUS 750 - INNOVATION TOOL-KIT
AGENDA
● SR&ED program overview
● Who’s eligible
● What’s eligible & what’s not
● Example claim
● Tips to maximizing your returns
● Benefits & Limitations
SOME NEW TERMS
● SR&ED = Scientific Research & Experimental Development
● CCPC = Canadian-Controlled Private Corporation
● ITC = Investment Tax Credit
What is SR&ED?
● Economic incentive for investment in R&D and innovation in Canada
● Promotes corporate R&D as opposed to institutional R&D
"Each year the SR&ED program provides over $3.6 billion in investment tax credits (ITCs) to over 23, claimants. Of these, about 75 are small businesses."
Source: (http://www.cra-arc.gc.ca/, 2011)
TALK TO ME ABOUT MONEY
WHO IS ELIGIBLE
Individual Cash & Tax Credit
Canada - Small Co. Cash & Tax Credit
Canada - Large Co. Tax Credit
Foreign and Public Co. Tax Credit
CRITERIA FOR SR&ED:
New Concept with Technical Uncertainty
Can’t be a Standard Solution
MustAdvance
the Science
WHAT’S ELIGIBLE
Fundamental researchadvancement of knowledge for
its own sake
Applied researchadvancement of knowledge for
a practical purpose
Experimental development technological advancement
Direct project support engineering, design, project
management...
WHAT’S NOT ELIGIBLE
● Capital Equipment
● Travel & related expenses
● Intellectual property related expenses
● Legal and Accounting fees
● Real Estate
● Marketing/Sales
● Any work beyond Prototyping phase
HOW DOES IT BREAK DOWN
● Wages and Salaries
● Overhead
● Purchased Material
● Contracted Research
● Research Done Abroad ○ only if directly related and
vital to project
HOW YOU CLAIM YOUR MONEY
● Write 2 reports○ Justification of claim○ Description of claim
○ Financial details for audit
● Submit within 18 months of year-end (<6 months to fast-track)
Small CCPC∙ 35 cash refund on first $3M
of eligible expenses∙ 2 on the remainder, no max
○ 4 of excess as cash refund
○ 6 of excess as non-refundable tax credit
Non-CCPC and Large CCPC∙ 15 tax credit, no max
REFUND AMOUNTS
Cash Refund6 Tax Credit
4 Cash Refund
-$3M35
>$3M2
Claim Amount
Refund Scheme
FOR A SMALL CCPC WITH <$3M IN ELIGIBLE EXPENSES...Wages & Salaries 1 eligible
Overhead 55 of labour, 1 eligible
Capital Equipment Not eligible
Materials 1 eligible
Dom. Contracted Research 8 eligible ($5 exp)
Work Done Abroad 1 eligible ($3 exp)
Total Eligible Claim
Total Refund 35 of eligible expenses
RECENT PROGRAM CHANGES
Overheadproxy rates drop from 65 to
55 (2 12-14)
Contract services eligibility drop to 8 (2 13)
Benefit ratedrop from 2 to 15 for non-
CCPC’s (2 14)
Work done abroad 1 eligibility introduced
(2 14)
Capital expenditures No longer eligible (2 14)
COMMON PITFALLS
● Transition points are key○ i.e. From Prototype to Production
● In-house vs. Contracted Dev.○ Domestic vs. foreign contractors
○ Balance the salary & recruitment
cost of hiring specialists vs.
losses of claimable amount of overhead (OH as of wages)
COMMON PITFALLS (cont.)
● Total-cost of implementation○ Tracking and Reporting○ Training & incentives○ Project administration
○ Report writing & consultant fees
● Document, Document, Document○ Technical work○ Financial costs○ Daily tracking is recommended
● Individuals should incorporate○ Cap increased from 15 to 35
● Keep R&D in-house○ Claim overhead
○ Reduced to 8 (Canada) or 1 (Foreign)
● Pay a pro○ Fixed fee vs. variable
TIPS TO GET MORE $$$
TIPS TO GET MORE $$$ (cont.)
● Proxy vs. traditional overhead calculation○ 55 of all wages/salaries
○ Kill overhead - work from mom’s basement
● Leverage available CRA support○ Self assessment tool○ Account Executive Services○ Free first time review○ Pre-claim Project Review Services
● Capture○ Process for recording time○ Train employees○ Employee buy-in (KPI/bonus)
● Future○ Credits valid for up to 20 years
TIPS TO GET MORE $$$ (cont.)
SUMMARY -- BENEFITS -- COMPANY
● Funding - but DON’T give up equity!
● Able to bring new products to market quicker
● Shorter ROI cycles● Encouraged to grow companies and employee bases
SUMMARY -- BENEFITS -- COMMUNITY
● Keeping well paid jobs in Canada● Plugs holes to slow “brain drain”
● Supports a culture of experimentation and risk-taking
● Fostering communities of innovation (inventors, innovators & investors)
SUMMARY -- LIMITATIONS
● High cost to administer & report● May not incentivize the “right” type of innovation (i.e. ICT)
● Allocates resources away from direct funding & institutional innovation investments
● High burden to taxpayers
4 billion times, YES!SR&ED enables Canadians to be bold, curious and courageous enough to research, innovate and grow businesses locally!
REFERENCESHearn, D. R. (2013). Introduction to R&D Tax Credits in Canada. Retrieved from http:
//www.scitax.com/:
http://www.scitax.com/pdf/Introduction.to.R&D.Tax.Credits.in.Canada.SCITAX.pdf
http://www.cra-arc.gc.ca/. (2009, 07). Overview of the Scientific Research and
Experimental
Development (SR&ED) Tax Incentive Program. Retrieved from http://www.cra-arc.gc.ca/:
http://www.cra-arc.gc.ca/E/pub/tg/rc4472/rc4472-e.html
Madore, O. (1998, August). SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT: TAX
POLICY.
Retrieved from http://publications.gc.ca/: http://publications.gc.ca/Collection-
R/LoPBdP/CIR/899-e.htm
Wikipedia. (n.d.). Scientific Research and Experimental Development Tax Credit
Program. Retrieved from https://en.wikipedia.
org/wiki/Scientific_Research_and_Experimental_Development_Tax_Credit_Program
APPENDIX - Submission Package Check-list❏ T661 form
❏ Description of work undertaken
❏ Justification of work undertaken
❏ Identification of wages and other expenditures
❏ Details of contract payments for services
❏ Names and qualifications of key personnel
involved in each project
❏ Must be filed within 18 months of fiscal year
end, fast tracked if filed within 6 month
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