According to Craig Mulcahy, a Partner at BDO, Startups should investigate SR&ED because it is a good Year 2 cash flow tool for them- however, just because you make an app doesn’t mean that you are eligible for SR&ED tax credits. To avoid problems, it is recommended that start-up companies abide by the following guidelines.
1. Plan ahead- go through the CRA assessment tool and talk to CRA to get a quick assessment of whether you should apply. Ask an accountant or SR&ED specialist for a free consultation to see if it is worth proceeding.
2. Be realistic- be modest in your expectations; if your budget requires SR&ED funding to pay full-time staff, you may have problems.
3. Ensure that documentation is available- Learn about the documentation CRA requires and make sure you produce it throughout the year.
Quebec Finance Minister Carlos Leitao announced cutbacks to the Quebec SR&ED tax credit program during his December 2nd economic update. Although SR&ED is a federal program, each province or territory may also provide provincial or territorial tax credits to qualifying corporations carrying out SR&ED in their respective province or territory.
Effective immediately, minimum eligibility thresholds will be introduced for the Quebec provincial tax credit. The provincial government will be establishing a minimum expenditure threshold situated $50,000 (for companies with less than $50 million in assets) and $225,000 (for companies with assets totalling over $75 million). This threshold will increase linearly from $50,000 to $225,000 for companies with assets between $50 million and $75 million.
Secondly, Quebec’s enhanced SR&ED tax credit rates for research contracts, private partnership research, and fees paid to a research consortium will be standardized (to be set at same rate as researchers’ salaries) as of December 3, 2014.
The Canada Revenue Agency (CRA) has launched a new 4-part video series about the SR&ED program. The 4-part series covers the following topics:
- Who can claim SR&ED tax incentives
- What work qualifies for SR&ED
- How do you calculate your SR&ED expenditures and investment tax credit
- How to apply for SR&ED tax incentives
The SR&ED program can have a significant impact on the affordability of product development for food processors. But SR&ED isn’t solely concerned with a R&D team- Eligible SR&ED costs and claims may be initiated, supported, or documented in other operational areas, especially quality assurance and food safety. Both of these areas are fundamental parts of any food and beverage company’s daily operations, and they present a typically well-authenticated opportunity to initiate, support, and document experimental development activities and associated costs. As two departments that rely heavily on documentation and analysis, quality assurance and food safety are not only important to a business’s bottom line, meeting industry standards, and quality production, but also offer a wealth of information that can lead to SR&ED claims that were previously missed or undervalued. More about how quality assurance and food safety departments can help substantiate SR&ED claims can be found in Food Quality and Safety’s special feature.
NorthBridge Consultants will be hosting a seminar on alternative financing options for small- to medium-sized enterprises in Cambridge, Ontario on September the 18th, 2014. Topics covered will include:
- Government funding and financing for business expansion
- SR&ED financing
- Other private sector financing options
Registration for this event is available online.