THE BACK OFFICE:KEY AREAS OF FOCUS

WINTER 2014 COHORT

Presented by: Matt Harrison February 6, 2014

AGENDA

•  Compensation •  Capital Structure •  Sales taxes •  SRED •  U.S.A.

COMPENSATION

!  METHODS TO TAKE OUT MONEY:

!  Draws (shareholder loans): "  Common in young companies with irregular revenue "  No SRED value:

•  Note: can be converted, but requires payment of DAS

!  Dividends: "  Common in young companies to clear shareholder

loans – requires hard look at share structure "  No SRED value

#  Straight salary: "  More common in post angel mid seed round

companies "  Highest SRED value

!  REVENUE QC-FED – REMIT DAS ON TIME!

CAPITAL STRUCTURE

! DID YOU INCORPORATE ONLINE OR WITH A LAWYER? #  What share capital was authorized and issued?

#  Did you pay?

! WHAT ELSE IS OUT THERE? #  Did you offer shares for services?

#  Stock options

#  “Phantom” stock plans – “I promised…”

#  Warrants, rights, convertible prefs….

! NEED CLEAR AND CONCISE CAPITAL TABLE

SALES TAXES

! ARE YOU REGISTERED? #  Why not?

#  NOT dependent on having revenue

! WHERE DO YOU BUY FROM OR SELL TO? #  Watch for HST provinces for proper bill

#  Possible need to register with provinces with own PST system, example: QC, MB,SK

! REVENUE QUEBEC: #  Do NOT miss a remittance – aggressive

! COMPLEX RULES ON INTERNET SERVICES

! CONSULT PROFESSIONAL TO ENSURE COMPLIANCE

SR&ED: SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT

WHO DID YOU PAY? !  Salaries for shareholders < 10% and

employees are the highest rewarded

!  Contractors: "  Arms length – Quebec knocks it down "  Non-arms length – FED completely ignores

!  Specified employees (> 10% shares): "  Key issue is how it limits or caps the proxy amount

!  U.S. contractor or employee: "  Zero

!  Warning: Did you really pay? Accounting!

WHAT IS THE SRED LANDSCAPE CURRENTLY? ! The Federal Government is changing the process by

which companies comply to receive ITC credits in the following four areas:

#  Investment in compliance: #  Government is spending 14 million dollars on new auditors across

Canada who each will service say 100+ claims

#  Adherence to new criteria: #  3 former criteria to 5 specific questions. No = out

#  Strict compliance guidelines and fines: #  Fines range with failure to produce proper filings ($1k) to fraud

which carries a fine of 5 X claim

#  New information required: #  New questions that ask who is doing your claim #  How much are they charging

U.S.A

! Ways we touch the border: •  Permanent Establishment:

-  Authority to contract

-  Office or in some cases home office

-  Deemed Permanent Establishment

•  Sales – Sales Tax? Amazon court case..Reps/Affiliates

•  Purchases – Transfer pricing issue?

•  Economic Nexus HOT – How much sales to the state

•  Subsidiaries – Transfer pricing HOT

•  Investors – What do they want?

! Be very careful because it’s likely you are not in compliance with filing requirements in the U.S.

! Remember that the individual states don’t necessarily follow the Federal treaty

! Consult a specialist

CONCLUSIONS

$  Be careful to plan how you compensate

$  Clarify your capital structure

$  Register immediately for GST & QST

$ Watch who you pay for SRED and be careful with your consultants

$  If you touch the U.S. border - Consult!

THANK YOU!