Survey Reveals that Majority of Small Business Owners are Not Aware of SR&ED

Posted on December 10, 2012 by admin

According to a survey conducted by the American Express Small Business Monitor, more than half (58%) of small businesses have never heard of the SR&ED tax credit.  Small business owners continue to have a negative outlook on their immediate future. While innovation remains a priority, they have indicated that improving their current product line (43%) is the most important factor in their future success. The poor economy has decreased the willingness of small business to take on increased risk.

The survey found that 28% of of small business owners have heard about the SR&ED tax credit, but don’t apply. Canadian small businesses seem to be neglecting to take full advantage of the SR&ED tax credit, whose average return is $67,832.

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SR&ED Dispute Settled in Airmax’s Favour by Tax Court of Canada

Posted on December 3, 2012 by admin

Airmax is an installer of heating, ventilation, and air conditioning systems in residential homes who worked extensively on the development of a high-static, high-velocity fan coil system.  They invested in the modifications and reprogramming of HVAC systems to further reduce their noise, improve efficiency, and size issues in townhouses.

Airmax claimed SR&ED tax credits for the expenses incurred when filing for its 2007 and 2008 income taxes.  However, on a reassessment, the CRA found that the majority of work conducted on the HVAC system was SR&ED-ineligible on the basis that it was routine engineering work.  Airmax disputed CRA’s reassessment, choosing the less time-consuming informal procedure and appealing to the independent Appeals Branch of the CRA.

The case of Northwest Hydraulic Consultants Limited v. The Queen identified 5 criteria that were required for SR&ED eligibility:

  1. Technological risk or uncertainty
  2. Hypothesis aimed at reducing uncertainty
  3. Procedures using the scientific method, including the formulation, testing and modification of hypothesis
  4. Technological advancement
  5. Detailed record of hypothesis and test results as work progressed.

After a thorough examination, the Tax Court of Canada concluded that Airmax had $387,553 of qualified eligible SR&ED expenditures, based on the above 5 criteria.  Offered a chance to comment, the CRA declined, as it does not discuss the affairs of individual taxpayers.

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Quebec Increases Refundable SR&ED Tax Credit for Biopharmaceutical Companies

Posted on November 27, 2012 by admin

The Parti Quebecois government has tabled a 2013-2014 fall budget, which has increased the refundable SR&ED tax credit for the biopharmaceutical sector.   The basic refundable tax credit rate of 17.5% will be temporarily increased to 27.5% for eligible biopharmaceutical companies.   Generally, this increase will apply to eligible expenditures incurred and work carried out after November 20, 2012, but before January 1, 2018.

To benefit from such increase, the biopharmaceutical corporation has to obtain an initial certificate from Investissement Québec after demonstrating that the eligible activities are related to human health.  Eligible corporations will also have to obtain an eligibility certificate each year, which will require companies to show that the eligible activities related to human health accounted for at least 75% of the activities it carried out throughout the year in question.

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Alberta Corporate Tax Amendment Act Introduced to Remove “the Grind” from SR&ED

Posted on November 5, 2012 by admin

Because of the scheduled legislation to remove “the Grind” from Alberta SR&ED claims this fall, the Alberta Corporate Tax Act will be amended to address the forthcoming technical changes.  As a result, AT1 Schedule 9 has been revised and be used for the Alberta SR&ED tax credit for all taxation years.

The reduction in the federal investment tax credit when calculating the Alberta SR&ED tax credit (“the Grind”) will be eliminated for taxation years ending after March 31, 2012. For taxation years ending on or before March 31, 2012, a new form, AT1 Schedule 9 Supplemental, has been developed for calculating the Grind. Claimants are to use it with AT1 Schedule 9 for taxation years ending on or before March 31, 2012.

Claimants do not need to complete the new AT1 Schedule 9 Supplemental for taxation years ending after March 31, 2012.

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Reduction of SR&ED Tax Credit Detrimental to Canadian Businesses

Posted on November 5, 2012 by admin

Many of Canada’s largest research and development have voiced their concerns over the federal government’s cuts to the SR&ED program.  According to a report by Canadian Manufacturers and Exporters (CME),  Canadian businesses will receive a $750-million / year reduction in their funding from SR&ED.  This could make Canada less competitive in the global economy, which could motivate large multinationals to move their R&D activities  to other countries.

For example, executives of Research In Motion Ltd. have found that the SR&ED changes will cost the company $50 million a year.  Morgan Elliot, RIM’s director of government relations, pointed out that RIM spends $1.5 billion a year on research and development, and pays more than $1 billion in corporate taxes, which means that the $50 million is a good investment for the federal government.

The Liberal critic for Science and Technology, Ted Hsu, also voiced concerns that the cuts to the SR&ED program hurts industrial sectors such as aerospace, automotive, information and communications technology, and oil and gas.  Although the federal government has planned to move savings from the SR&ED cuts into direct funding, Hsu opines that there is no evidence that suggests that direct funding works better than tax credits.

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