Everything You Need to Know to Claim SR&ED Tax Credits

Everything You Need to Know to Claim SR&ED Tax Credits

BoastCapital.com | @BoastCapital | BoastCapital.com/blog

Agenda

1. SR&ED Overview

2. Industry Examples

3. Recoverable Amounts & Qualifying Expenditures

4. Program Changes

5. Financial & Technical Tracking

6. Timeframe for Claiming

7. CRA Reviews

8. About Boast Capital

BoastCapital.com | @BoastCapital | BoastCapital.com/blog 2

What is SR&ED

Scientific Research

Experimental Development


• Technology Advancement Sought

• Technology Uncertainties/Challenges

• Technical Content (Iterations)

Identifying SR&ED Eligibility

5BoastCapital.com | @BoastCapital | BoastCapital.com/blog

Industry Examples


What Can be Claimed

• Salaries *• Overhead (Traditional vs. Proxy)• Sub-Contractors * (80% of expenditure)• Materials (Transformed or Consumed)• Capital Expenditures (Expired Dec 31, 2013)

* Work must be carried out in Canada (10% allowed outside of Canada/preformed by Canadian Tax payers)


Recoverable Amounts

CCPC – Refundable ITC’s

•Salaries – ~64%•Sub-Contractors - ~32%•Materials - ~40%


Recoverable Amounts

Non-CCPC – Nonrefundable ITC’s

•Salaries – ~36%•Sub-Contractors – ~18%•Materials – ~28%


Percentages Breakdown

CCPC Non-CCPC

Federal Percentage 35% 15%

Provincial Percentage 10% (Alberta & BC) 10% (Alberta & BC)

Refundable YESFederal –NO

AB Provincial – YESBC Provincial - NO

Totals Up to 64% Up to 36%


RateCCPC

Refundable?

Other Corporations Refundable? Expenditure Limit

Alberta 10% Yes Yes Up to $4M in expenditures

British Columbia 10% Yes No Up to $3M in expenditures

Manitoba 20% Yes [1] Yes [1]

New Brunswick 15% Yes Yes

Newfoundland and Labrador 15% Yes Yes

Northwest TerritoriesNova Scotia 15% Yes Yes

NunavutOntario

Business research institute tax credit (OBRI) 10% Yes Yes Up to $20M in expenditures

R&D tax credit 20% Yes Yes Up to $3M in expenditures

(ORDTC) [8] 4.50% No No Up to $3M in expenditures

Prince Edward IslandQuebec

R&D Wage Tax Credit

17.5% or 37.5%] Yes [2] Yes [2]

University, public research center and research consortium tax credit 35% Yes Yes

Private partnership tax credit 35% Yes Yes

Saskatchewan 15% Yes No

Yukon 15% Yes [3] Yes [3]

[1] - Partially refundable - 50% - for in house expenditures and 100% refundable for eligible contractswith a qualified research institute

[2] - Quebec Canadian-controlled corporations with less than $50 million* in assets, on an associatedbasis, can claim the 37.5% rate on up to the spending limit of $3 million* of R&D wages, on anassociated basis. For those with assets between $50 million* and $75 million*, the 37.5% rate isgradually reduced to 17.5%.** The rate is 17.5%** for all other taxpayers. 50% of payments to arm'slength subcontractors are eligible for the credit. All thresholds are in respect of the previous year, ona worldwide associated basis.

[3] - 15% of eligible expenditures made to Yukon College only

No provincial R&D tax credit



Provincial R&D Tax Credits

Provincial Amounts


Recent Program Changes

• Eliminate capital expenditures For expenditures incurred after Jan 1, 2014

• Lower the overhead proxy amount Current 55% ( was 65% in 2012 and 60% in 2013)

• Lower % of subcontractor payments Currently 80% (was 100% before Jan 1, 2013)

• Lower federal SR&ED rate for large corps. Currently 15% (was 20% before Jan 1, 2014)


Financial Tracking


Technical Tracking

Documentation should be:

•Contemporaneous •Dated•Highlight technological obstacles/challenges


Technical Tracking


How to File

• Complete the T661 form (Sch. 32)• Complete T661 Part 2 form (Sch. 60)– For each project claimed

• Complete the provincial forms– AT1 Sch. 9 and Sch. 9 List in Alberta

• File completed tax return electronically


Time Frame for Claiming

18 Months past the fiscal year end


Claim Turnaround Time

From receipt of a complete claim:

• Current filing (CCPC) – 120 days

• Amended filing (CCPC) - 240 calendar days

• Non-Refundable (non-CCPC) – 365 days


CRA Claim Review Process

• CRA SR&ED review division– Reviews ONLY SR&ED expenditures and technical

content (not the company's FS, etc.)

• 4 types of CRA reviews– FTCAS (First Time Claimant Review)– Desktop– Financial only– Technical & Financial


CRA Review Likelihood

• Expenditure makeup– Large subcontractor expenditures– Large materials/capital/lease expenditures– High percentage of specified employees being claimed

• Claim size– Relative size ($100K+ in ITC is likely to be reviewed)– Expenditure size as % of overall company expenditures

• Date of last review– Reviews are likely to occur every 4/5 years

• Significant increase in ITC’s claimed year over year


Dealing with SR&ED Receivables

•Use professional judgment on the likelihood of receipt and treat like any other AR

•Claimant history and SR&ED claim makeup dictate CRA audit risk (AR risk)


Who Should Claim

1. Financial Risk

1. Technical Direction of Project

2. Results of the research - IP Ownership

1. Contract for services vs. goods


About Boast Capital

• R&D Tax Credit Consulting Firm– Calgary, Vancouver, Silicon Valley

• Events – Innovation Funding Seminars, Next Event May 13, 2014 in conjunction with CED

• Writing – Oil & Gas Magazine (OGM), Calgary

Herald Startup of the Week, Techvibes


Boast Capital Work

• Industries of Expertise– Oil and Gas Services– Software Development & IT– Manufacturing– Agriculture– Bio Tech

• Contingency based work• Invoice on a percentage of ITC’s received by

company


Boast Capital Team


Contact Information

Jeff Christie – VP Alberta and Prairies 403-589-2809

[email protected]

James Suk – Partner

604-779-7770

[email protected]


mailto:[email protected]

mailto:[email protected]

Questions or Comments?


Everything You Need to Know to Claim SR&ED Tax Credits

Business

Transcript of Everything You Need to Know to Claim SR&ED Tax Credits