CRA’s New SR&ED Filing Requirements for Partnerships

Posted on June 25, 2012 by admin

A regulation currently exists in the Income Tax Regulations that requires all Canadian partnerships to file an annual information return.  However, in the past, an exemption has been made for partnerships with fewer than 6 partners.  The CRA has recently reviewed the conditions for partnership filing exemptions, and has decided to remove this exemption.

New SR&ED filing requirements have been introduced for partnerships with fiscal year ends ending on or after January 1, 2011:

  • Each person who holds an interest in a partnership must complete and file a separate Partnership Information Return for each T5013 information slip (when an interest is held for another person).
  • Corporations that are a member of a partnership can no longer file form T661 along with its T2 Corporation Income Tax Return. ITCs allocated to corporations by partnerships must be supported by a completed Form T5013, Statement of Partnership Income.
  • Partnerships with a corporate member must file a Partnership Information Return.  The partnership must file a completed Form T661 SR&ED Expenditures Claim with this return.
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Excellence in Manufacturing Consortium Members in Eastern Canada Benefit from SR&ED Seminars

Posted on June 18, 2012 by admin

Earlier this month, Excellence in Manufacturing Consortium (EMC) members from Atlantic Canada (South Shore, Halifax, Truro and Amherst/Springhill) all benefited from the opportunity to network and learn about the latest on the SR&ED program. Through a series of SR&ED seminars, EMC’s Ross Cooper and representatives from Northbridge Consulting, including Pierre Pinet, spoke specifically on the topic of SR&ED claim reviews.

Pierre spoke about the changes to the SR&ED program made in the last federal budget, and he detailed the steps members needed to take when undergoing a CRA SR&ED claim review. Third-party support for the SR&ED program was a lengthy topic of discussion. Although a small percentage of members were able to file SR&ED claims successfully themselves, many admitted that they sought assistance with their claims and SR&ED processes.

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OECD Canadian Economic Surveys

Posted on June 14, 2012 by admin

The Organisation for Economic Co-operation and Development (OECD) has released the results of their Canadian Economic Surveys.  The results revealed that strong profits in the mining and oil sectors have supported business investment , while the latest indicators suggest that the economy is picking up.  The outlook calls for continued moderate output growth and inflation in 2012-2013.

While Canada’s academic research is world class, the productivity growth due to research and development has not been significant.  The OECD suggests that government support to R&D should focus more on raising the performance of incentive programs such as SR&ED.  The OECD supports the government’s changes to R&D in the 2012 budget, which included the reduction of the SR&ED program in exchange for the $400-million Venture Capital (VC) fund, and more money for the grant-based Industrial Research Assistance Program (IRAP) — but cautioned it against “picking winners”.  It has also been recommended that the higher tax subsidy rate for small domestic firms should be unified at the lower large firm rate to encourage firms to attain the economy of scales needed for innovation.

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Bioartificial Gel Technologies (BAGTECH) Inc. v. The Queen

Posted on June 11, 2012 by admin

In the recent case “Price Waterhouse Coopers Inc., agissant ès qualité de syndic à la faillite de Bioartificial Gel Technologies (BAGTECH) Inc. v. The Queen,” the Tax Court of Canada ruled in favour of Bagtech that it qualified as a Canadian-controlled Private Corporation (CCPC). Even though more than 50% of Bagtech’s voting shares were owned by non-resident shareholders, it was deemed that they did not legally control Bagtech, because according to their shareholder’s agreement, Bagtech’s Canadian resident shareholders had the power to elect a majority of Bagtech’s board of directors.

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Government Incentive Programs: SR&ED and Flow-Through Shares

Posted on June 5, 2012 by admin

Economists believe that the government should not distort the private sector’s efficiency in allocating scarce resources.  However, in reality, government often acts in an indirect manner by creating policy in order to encourage entrepreneurs to invest in certain sectors.  SR&ED and flow-through shares are both examples of government incentives for entrepreneurs.

Canada is the global leader in mining and resource finance in the world because of the federal government’s flow-through share program.  The flow-through share program is a Canadian innovation that is widely successful.   Flow-through shares are an effective way of generating investment when immediate capital costs are high, and the profit is distant, by converting current and future losses into present operating capital.    The flow through share is a common share on which the issuer renounces qualifying expenses to the share subscriber, who can then deduct the qualifying expenses for personal income tax purposes.

Flow-through shares provides up to a 45% rebate back to the investor, in the form of tax deductions at the highest marginal tax rate.  They also allow the issuer to obtain a premium for its shares, in exchange for the investor’s tax deductions.  This provides increased cashflow for the issuer in exchange for losses that are of no immediate use to the issuer.

The SR&ED program operates in a very similar manner.  When the government provides tax credits for research and development expenses, it incentivizes the company to conduct research and development, while still allowing it to allocate its own capital.  If the company opts to invest in research and development, then the (refundable) tax credits it receives can then be redeployed back into the company, and be used to create more jobs.

Both the SR&ED and flow-through share program are examples of how government can incentivize certain activities instead of “picking winners.”  These programs showcase how the government can play productive roles in the private sector without creating inefficiences and distorting the private business environment.

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