Canadian Institute of Chartered Accountants Weigh in on SR&ED Contingency Fees

Posted on October 1, 2012 by admin

According to Gabe Hayos, the Vice President of the Canadian Institute of Chartered Accountants (CICA), the CICA Tax Policy Committee believes that contingency fee arrangements are a vital component of Canada’s SR&ED tax credit system.  Consultants play a valuable role in encouraging taxpayers to participate in the program and increase their investments in innovation.  Gabe explains that many SMEs that do not have sufficient in-house resources are able to participate in the SR&ED program without upfront cash relay, due to third party contingency-based consulting services.  These arrangements also make possible a form of SR&ED financing, which allow SMEs to devote more effort into their innovation and growth.

The Canadian Department of Finance and the CRA are currently consulting Canadians on the use of contingency-related fees for third-party preparers of SR&ED claims.  The government is currently investigating whether third-party contingency fees are diminishing the impact of SR&ED tax credits to Canadian businesses.

CICA is preparing a submission to Finance Canada and the CRA, and Gabe welcomes all CICA members to send him feedback.

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Invest in Canada

Posted on September 27, 2012 by admin

A recent webpage released by the Government of Canada’s Invest in Canada initiative touted the benefits that foreign companies have of investing in Canada. Specifically, a foreign company can take advantage of a 20% non-refundable tax credit through forming a Canadian subsidiary, which can significantly reduce or eliminate Canadian taxes payable. Alternatively, a foreign company can also set up a Canadian-controlled private corporation (CCPC), as long as the foreign company owns less than 50% of the company’s voting shares. A CCPC with taxable incomes of under $500,000 can receive a refundable tax credit of 35% of eligible SR&ED expenditures, to a maximum of $3 million of expenditures per year.

A breakdown of the various SR&ED scenarios is outlined in the table below.

SR&ED expenditures Credit Rate % Refund Refundable Tax Credit (Cash Back) Non-Refundable Tax Credit (Reduce Taxes)
Small Canadian-controlled Private Corporations First $3 million 35% 100% $1,050,000 –
Remaining $2 million 20% 40% $160,000 $240,000
Total $1,210,000 $240,000
Large Public or Foreign-controlled Corporations First $3 million 20% – – $600,000
Remaining $2 million 20% – – $400,000
Total – $1,000,000
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Provincial SR&ED Tax Credits

Posted on September 18, 2012 by admin

Many provinces have their own SR&ED tax credits for research and development, that can supplement federal SR&ED tax credits. To follow is a summary of provincial SR&ED tax credits.

Province Provincial SR&ED Rate Provincial SR&ED ITC Refundable Overhead proxy amount admissible for SR&ED ITC Calculation
Alberta 10% Yes Yes at a rate of 65% of SRED salaries claimed
British Columbia 10% Yes Yes
Manitoba 20% Only if working under an eligible contract with a qualifying research institute Yes at a rate of 65% of SRED salaries claimed
New Brunswick 15% Yes Yes
Newfoundland 15% Yes Yes
Nova Scotia 15% Yes Yes
Ontario 10% Yes No
Prince Edward Island 35% Yes No. Overhead proxy is calculated at 50% of SRED salaries claimed
Quebec 37.5% – 17.5%. The SRED ITC rate starts at 37.5% and is reduced by 1% for every $1.25M in total assets. Yes No
Saskatchewan 15% Yes Yes
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Science Minister Goodyear Says National Research Council will be Transformed to Respond to Private Sector Demand

Posted on September 10, 2012 by admin

Science Minister Gary Goodyear commented on the progress of the federal government thus far on R&D spending.  Canada continues to lag behind other industrialized nationals in terms of innovation, and the Jenkins Report released earlier this year provided recommendations on federal R&D spending.  Goodyear credited the expert panel on the Jenkins Report for their tremendous work, and highlighted the significant changes that have already been made by the government to the SR&ED and IRAP programs.  In term, Mr. Jenkins said that he was impressed by the government’s quick adoption of the panel’s recommendations when he spoke with The Hill Times in April.

One of the report’s major recommendations was for the establishment of an Industrial Research and Innovation Council (IRIC) that would coordinate government initiatives to close the Canadian commercialization gap.  Goodyear commented that the National Research Council is in the process of being transformed into a research and technology organization to respond to the research needs of the private sector.  However, Goodyear said that it was too early to comment on how government will respond to the IRIC recommendation.  It also remains unclear whether the NRC would assume the role of the proposed IRIC.

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Legislative Changes to SR&ED Program

Posted on September 4, 2012 by admin

A draft of upcoming legislative proposals by the Canadian Finance Department, released August 14th, has revealed changes to the SR&ED program as detailed in the 2012 federal budget:

  1. Removal of capital from the expenditure base (for capital expenditures incurred in 2014)
  2. Reduction of the proxy to calculate overhead costs from 65 percent to 60 percent for 2013 and to 55 percent after 2013 (to be fully phased in as of January 1, 2014)
  3. Reduction of contract payment eligibility to 80 percent of the payment (effective January 1, 2013)
  4. Reduction in the General Investment Tax Credit rate from 20 percent to 15 percent (effective January 1, 2014). This will not affect organizations that qualify for the enhanced rate of 35 percent.
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