The Impact of Proposed Changes to the SR&ED Tax Credit

Posted on October 31, 2012 by admin

Canadian Manufacturers & Exporters (CME) has recently released a study on the impact of the proposed changes to the SR&ED program to the international competitiveness of the Canadian tax system.  According to the study, the cost of investing in research and development will increase by 5.9% if the changes to the SR&ED program are implemented.  This will Canada from 13th to 17th for tax competitiveness, on the list of nations in the Organisation for Economic Co-operation and Development (OECD).

The study points out that Canada’s manufacturing sector accounts for more than 50% of total Canadian R&D spending, and that changes to the tax system must be highly considered because of its direct impact on Canada’s abilities to attract and retain the R&D of global manufacturing companies.

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Canadian Institute of Chartered Accountants submits SR&ED Contingency Report to CRA

Posted on October 29, 2012 by admin

Canada’s Institute of Chartered Accounts (CICA) has submitted a report summarizing their views on the impact of contingency fees on the Scientific Research and Experimental Development (SR&ED) program.  CICA has found that contingency-based fee arrangements are a vital component of Canada’s tax incentive system for promoting SR&ED. 

Amongst their key findings were that:

  • As per a poll of Canada’s 7 largest professional services firms, the portion of the SR&ED credits paid to firms’ preparers under contingency-based arrangements is a nominal 2.3% of the SR&ED program’s annual $3.6 billion cost.
  • When compared to hourly-based or flat fees, contingency-based fees were comparable to fixed fee and hourly rate fee engagements of equivalent scope.  Contingency-based fees are estimated to be on average 58% of standard billing rates.
  • Almost half of those who had paid contingency-based fees would have likely not made a SR&ED claim under an alternative fee arrangement.
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Increase Your Cashflow by Filing SR&ED On Time – SR&ED Service Standards

Posted on October 22, 2012 by admin

The latest Canada Revenue Agency service standards for April 2012 to September 2012, as reported in CRA’s Annual Report to Parliament, show that the average SR&ED claim takes 109 days to process.

It should be noted that it is advantageous to file refundable SR&ED claims sooner, as opposed to later.  Refundable SR&ED claims that are complete and filed on time with the tax return are placed on a fast-track, and take an average of only 63 days to process.  On the other hand, refundable claims that are filed late take significantly longer – 146 days on average.  This means that filing refundable SR&ED claims on time with your tax filing could increase your cashflow substantially by accelerating your return by 83 days!

Some common reasons why SR&ED claims might be delayed are as follows:

  • Incomplete claims
  • Not filing SR&ED claims on time with the tax return
  • Not responding to the CRA’s request for more information or to the CRA’s proposal letter
  • Modifications to a SR&ED claim during a review

 

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CATA’s Position on SR&ED Contingency Fees

Posted on October 15, 2012 by admin

Russ Roberts, CATA’s Senior Vice President for Tax, Finance and Advocacy recently submitted CATA’s position on contingency fees in regards to the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program.   In his letter, Roberts stated that the Canadian Advanced Technology Alliance (CATA) believes that contingency relationships are crucial to the success of the SR&ED program.

Roberts addressed the letter to Geoff Trueman, Director, Business Income Tax, Finance Canada, which was copied to Sue Betts, Director General, Scientific Research and Experimental Development Directorate, CRA.

“In response to the announcement of the consultations, CATA undertook discussions of the pros and cons of contingency relationships with interested individuals and in our Linked In SR&ED Group. We believe that it is important you hear directly from these parties why the contingency relationships are critical to the success of the SR&ED program. Their examples are very telling. As a result, we have encouraged all in the CATA SR&ED family to provide their input directly to you…”

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Canadian Manufacturers & Exporters (CME) Petitions the Federal Government on SR&ED

Posted on October 9, 2012 by admin

Canadian Manufacturers & Exporters (CME) has created an online petition to voice their opposition to the recent changes to the SR&ED program.  CME’s recommendations to the federal government are as follows:

  1. Large companies should be provided with a partially refundable tax credit to offset the ITC reduction from 20% to 15%.
  2. Refundability to be expanded to unused tax credits so businesses can invest in future R&D projects.
  3. Accelerated depreciation rates should be provided for capital expenditures related to R&D.
  4. The reduction of the proxy on labour should be reviewed in regards to the administrative burden this reduction will have on the cost of compliance and on the CRA.
  5. The proposed changes to the SR&ED program should be excluded from the second Budget Implementation Bill, and be addressed in a separate bill to provide it the attention it deserves.
  6. The CRA should be made to respect their mandate to administer the program without changing the rules governing the eligibility of activities.  Efficient processes should be put into effect to lessen the confusion that takes place in the interpretation of current rules.
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