�ݺ�ߣ

Government incentive tax programs GETTING THE GOVERNMENT TO PAY FOR THE DEVELOPMENT OF YOUR PROJECTS www.sredunlimited.com

BEFORE or AFTER PROJECT COMPLETION IRAP SR&ED PROVINCIAL DIGITAL MEDIA PROGRAMS

IRAP Strict conditions apply Competitive basis (annual cap) Audit Mandatory reporting

PROVINCIAL PROGRAMS - QC: 10% of qualified labour (max 5% of production costs) + 20% of qualified labour for claims related to QC Production Tax Credit ON: 20% of qualified labour (no max) ANIMATION

PROVINCIAL PROGRAMS - QC: Production of multimedia titles tax credit; 30% of eligible labour + 7.5% if in French ON: Digital media tax credit;30% of eligible labour DIGITAL MEDIA

QC: 89% and more of eligible labour ON: 68% of eligible labour FEDERAL+ PROVINCIAL: SR&ED

SR&ED Program Eligibility Technical Criteria What is Experimental Development? It has Technological Content It seeks Technological Advancement It attempts to resolve Technological Uncertainty It involves systematic analysis, tests or experiments Success or failure of experimental development is not a factor.

FEDERAL + PROVINCIAL: SR&ED (*) For simplicity’s sake, there are no contractor fees in this example (**) 50% is taken just as an example; Quebec allows overhead up to 100% of qualified payroll and 50% of the contractor fees 89% 89,063 32,813 56,250 150,000 50% (**) 100,000 37.5% 35% 50% 200,000 QC 68% 68,475 51,975 16,500 165,000 65% 100,000 10% 35% 50% 200,000 ON % of qualified payroll Total Fed Prov Total w/OH Over-head Direct cost(*) Prov Fed % R&D Salary

FEDERAL + PROVINCIAL: SR&ED After fiscal year end (you have 18 months) Submit your taxes T661 form

Scientific Research & Experimental Development (SR&ED) NOT on competitive basis Flexible definition of what is innovative Tax refund, not tax credit

SR&ED Tax Incentive Program Employee wages and owner's labour (68%-89% of qualified payroll) Sub-contracts (lower rate) Dividends, bonuses and remuneration based on profit are not claimable. Contract fees paid to owners are not claimable. ELIGIBLE EXPENSES

SR&ED Tax Incentive Program - Statistics $4 billion a year to about 18,000 claimants 70% of claimants are small to mid-size businesses

Claim Refund Size – Example 2 A company spent 100K on salaries and 60K on consulting fees 75 percent of the labour and consulting fee were attributed as R&D ON: Claim size 100,000 x 0.75 x 0.685 (*) + 60,000 x 0.75 x 0.415 (*) Claimable refund: 70,050 (*) These multipliers are for Ontario; Quebec’s will be higher (see the table on slide 8)

Work that qualifies for SR&ED tax credits Research to advance scientific knowledge without a specific practical application in view. Experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones.

Who qualifies for the SR&ED refund Canadian-controlled companies, privately owned, incorporated Other types of companies (lower rate) Payroll (T4) Producing a product or service (Software, Electronics, Manufacturing, Chemical, Environmental Protection, Printing/Image Processing, Biotechnology, Food industry) Experimental Development

SR&ED Program Eligibility Technical Criteria What qualifies as a "technological advancement"? Something that creates new knowledge that advances our understanding of some aspect of science or technology Definitions are vague

SR&ED Program – Projects Eligibility Technological Advancement Technological Uncertainty Technological Content (software was developed systematically and the uncertainties are systematically resolved) A systematic investigation or search by experiment or analysis must be demonstrated.

SR&ED Program – Projects Eligibility Technical challenge that competent professionals could not have overcome by applying generally available knowledge New knowledge must be gained during the work on the project

Examples of eligible software development activities Developing and utilizing mathematical algorithms (scheduling, optimization, forecasting, image processing etc.) Improving performance Non-standard problems Resolving problems imposed by restrictions/bugs of the tools used for development.

Software Projects – Eligible Activities Analysis; design; experimental development Research into and Review of existing, emerging, and competing technologies Internal technical documentation (but not User Manuals). First-line management of employees and contractors Testing in which software is verified against technological advancement goals

Software Projects – In eligible Activities Marketing research; Sales Maintenance and Customer Support Routine development Testing that deals primarily with user acceptance, suitability and marketability

SRED claim supporting materials Evidence of systematic approach To justify SRED expenses - especially labour expenditures CRA Policies regarding labour tracking: Cooperative with first time claimants, allow estimates Require proper tracking later

MYTHS about SR&ED Only “rocket science” projects are eligible It is very difficult to make a claim The project must be successful You will be audited by CRA

Planning for a SR&ED claim Evaluate project to determine eligibility Develop a project plan and keep it updated Keep all prototypes, plans, drawings, notes Register issues that cause problems or difficulties in your development Expenses tracking: Time sheets

Planning for a SRED claim: proper structure of company financials Payroll (salary paid through T4) to “specified employees” – owners. Contract fees paid to owners are not claimable. Payroll instead of bonuses and dividends.

CRA reviews 100% claims go through screening Technical review. Reviewers can reduce the size of the claim. Financial review. No crossover with CRA audit division. Without proper tracking (by hours) – client estimate against CRA estimate; often results in a settlement. No clawback if subsequent year claim deemed not eligible

SRED program and saleability of the custom software If a company outsources SR&ED development to a contractor, some of its own expenses are also claimable (feasibility study, analysis, requirements, testing, etcetera). If you are a subcontractor: propose a custom application (or customization of existing application), which will be paid for by government through the SR&ED claim - a great selling feature.

SRED Unlimited SRED Unlimited specializes in SR&ED claims and digital media program claims SRED Unlimited employs highly qualified technical consultants www.sredunlimited.com

We help you with Pre-screening and projects identification; identification of a project’s potential Recommendations on project structuring to better meet the criteria of SR&ED program Preparing a detailed technical report Preparing all tax schedules and accounting reports detailing the costs associated with the project Dealing with SR&ED financial and technical reviewers. Assistance in negotiations on your behalf www.sredunlimited.com

SRED Unlimited We charge a contingency based fee We pay you a referral fee www.sredunlimited.com

SR&ED Tax Credit Digital media programs SR&ED Tax Incentive Program Planning ahead for SR&ED claim How you could benefit from the SR&ED program: Submitting the claim for your own company Referral fees

�ݺ�ߣ

Tax credits for technology-related business

More Related Content

Tax credits for technology-related business