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R&D Tax credits

R&D Tax credits. An overview of the SR&ED Program. Government Support for R&D. Canadian companies doing R&D in Ontario may be able to access: IRAP funding Digital Media tax credits Federal SR&ED tax credits Provincial SR&ED tax credits. Other government grants and incentives.

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R&D Tax credits

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  1. R&D Tax credits An overview of the SR&ED Program

  2. Government Support for R&D Canadian companies doing R&D in Ontario may be able to access: • IRAP funding • Digital Media tax credits • Federal SR&ED tax credits • Provincial SR&ED tax credits. • Other government grants and incentives

  3. SR&ED & foreign-owned companies Foreign companies become eligible when they become a subsidiary of a foreign parent and can claim 20% tax credits on qualifying SR&ED activities. Another way to become eligible is to become a Canadian-controlled private corporation (CCPC), as long as an owner owns less than 50% of the company’s shares, so the majority of ownership is Canadian. Becoming a CCPC allows the company to claim 35% cash back on qualifying SR&ED activities.

  4. The SR&ED Program Level of Support For CCPCs: • 35% of: • qualifying salaries • materials • payments to contractors • capital costs • Overhead expenses or ‘proxy’ in lieu – increases salary amounts by 65% • Payment is ‘refundable’. • Plus Ontario tax credit – another 10%. • For larger companies the rate is 20% of and the support is a credit against taxes..

  5. Timeframe • Work is claimed retrospectively. • Earliest possible filing date - with the tax return for the year the work was done. • Latest possible filing date – 18 months after end of fiscal period when work was done. • CRA’s service standard is 120 days for claims filed with the T2, 240 days otherwise. • The actual waiting period till a cheque arrives depends on how well the claim is received – could be less than 120 days, could be much more.

  6. Criteria for Eligibility Work must be in Canada • Basic Research (advancement with no application) B. Applied Research (work with a practical application) C. Experimental Development of new or existing products or processes D. And engineering, design, operations research, mathematical analysis , computer programming, data collection, testing, psychological research in support of A, B or C (support activities)

  7. Excluded Activities • Market research • Sales promotion • Quality control • Routine testing • Human or social sciences • Prospecting • Exploring or drilling for, or producing, minerals • Petroleum or natural gas • Commercial production • Style changes • Routine data collection

  8. Eligible expenditures • Current expenditures: – Salary, wages and benefits for SR&ED personnel – Cost of materials used in SR&ED projects – Certain payments to third parties – A share of general and administrative overhead costs • Report under the regular method or the proxy method • Capital expenditures: – Outlays to acquire plant and equipment to be entirely or substantially used in SR&ED – Shared-use equipment is also eligible

  9. What Costs Qualify: Exceptions • Building Rent • Legal • Rights for other technology • Accounting • Interest • Amortization • Used Equipment

  10. Tax Credit Rules Federal Rules: • Total Your Costs (Wages, Materials, Contracts etc) 2. Subtract Government and Non-Government Assistance and Contract Payments in respect of the SR&ED 3. Multiply the result by the appropriate Investment Tax Credit (ITC) rate 4. Use the result to reduce Federal Income Taxes or in some cases generate a cash refund

  11. Optimize the Claim • Spend the time to set up a system to identify, monitor and capture R&D costs. • Ensure you identify all eligible R&D projects and related expenditures i. e. technical staff must talk to each other, as well as to the financial staff. • Without going overboard, document your R&D activities. Just keep a file with notes, e-mails, project plans, status reports, lab reports, patent applications, etc. • File your claim within 6 months of year-end. If you wait to file after 6 months and before 18 months of year-end, expect delays to the review process. If you wait longer than 18 months after yearend, the R&D tax credits are lost forever.

  12. Federal ITCs

  13. Claiming Process • Claim is submitted as part of tax return (T661) • Costs • Technical Description • CRA processes claim and may choose to review • Technical • Financial • Both

  14. About POLEG Invest Corp. POLEG Invest Corp. is the expert in maximizing your Scientific Research & Experimental Development (SR&ED) tax credits. If you are a science and technology company performing research in Canada, we can help you make the most of the tax credits available to you. We provide consultation in every aspect of the SR&ED application process for submission to the Canada Revenue Agency (CRA). Our services include: • Comprehensive R&D tracking. • Complete analysis of eligible work and expenses. • Pre-filing screening for your claim. • Communication and liaison with CRA. • Ongoing support and consultation.

  15. Questions? For further information or individual advice, please contact: Simply SRED (POLEG Invest Corp.) Ilya Poltorac 647-273-7387 info@simplysred.com

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