The Finances: Key Areas of Focus
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The Finances: Key areas of focus FALL 2015 COHORT Presented by: Matt Harrison September 17, 2015
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Transcript of The Finances: Key Areas of Focus
The Finances: Key areas of focus
FALL 2015 COHORT
Presented by: Matt Harrison
September 17, 2015
AGENDA Understanding ourselves to
understand our challenges Two most sensitive areas for the
Quebec Government Crowdfunding Scientific Research and Experimental
Development (“SR&ED”) U.S.A. Conclusions
Let’s talk a little about….you
Understanding ourselves to understand our challenges
Speed at which change happens internally from business concept to scaled operations:o i.e. Employees and government compliance
New financing avenues available:o i.e. Crowdfunding – reward and equity
Specific government initiatives to grow technology:o i.e. Tax incentives
Speed at which you cross international borders:o i.e. American market - one click away
Why are you so unique?
Understanding ourselves to understand our challenges
Compliance: Requires a quick response for payroll and government compliance (no slow ramp up)
Crowdfunding: Requires an understanding of the benefits, but also the implications of these tools (planning for tax)
Tax Incentives: Requires one to implement a process and documentation system to succeed in a government audit (and they will!)
U.S. Market: Requires an understanding of the compliance required for U.S. transactions
What does this mean to you?
The two most sensitive areas for the Quebec Government
Payroll: Are you sure you want to do that in-house?
o The number of ways you can err are numerouso People study and dedicate their profession to
navigating the payroll systemo Consider using an on-line or known automated
payroll serviceo Ensure it’s sensitive to your province’s nuances,
i.e. Quebec has QPIP (Quebec Parental Insurance Plan)
o Never too small
The two most sensitive areas for the Quebec Government
GST-PST-HST:
The two most sensitive areas for the Quebec Government
Are you registered? Why not? It is not uniform across Canada (HST and PST
provinces) Typically, if you are selling an on-line service or
intangible, you will charge GST/HST to out of province customers – place of the customer
Please consider having a tax check up as your monetization stage draws closer (pre-emptive) or is starting to expand to customers across Canada
Quebec audits religiously and they will challenge you on the discrepancy between your disclosed sales per period versus your remittance
Crowdfunding
What this means to you: How the government views it:
o Loan – Donation – Reward – Investment?o Is there any business motive?
Crowdfunding “…I raised 100k on kickstarter!”
Assuming you have provided the incentive to the contributor before year-end:o Include contribution in incomeo Reduce for expenses incurredo Any excess would be taxable at applicable rates,
assuming you have no losses to apply
Anticipating year-end to restrict cash Problem:
Crowdfunding “…I raised 100k on kickstarter!”
How the sales tax authorities view it (Reward):o Value compared to amount contributedo Taxable at applicable rates upon recognition as
revenue Once you recognize income, it lights up sales
tax:o Which contributors were Canadian?
Which province are they from? Total payables (from invoices) less total
receivables (from allowable expenses) is what is remitted
What this means to you (cont’d):
You cannot go back and charge people tax so, what they contribute is it
Problem:
What this means to you (cont’d):Crowdfunding “…I raised 100k on kickstarter!”
How the Securities Regulators view it (Equity):o The AMF (QC) and other participating provinces now have
guidance out for investors and issuerso This transaction has no immediate tax impact for issuer
or investor
What can I issue to the public?o Shares, bonds, units for a maximum of $1,500 per
investor and a $250,000 ceiling
What compliance should I anticipate:o Offering documento No audited financial statementso No period disclosures
Does it follow the normal crowdfunding rules?o Yes, your money goes into Trust until the pre-determined
amount originally set by the investor has been obtained
Scientific Researchand Experimental Development
(“SR&ED”)
More compliance for less dollars:SR&ED changes from 2014 into 2015
Reduction of rates:o Federal:
Non-ccpc – reduced from 20% to 15% Sub-contractors – still to 0% Proxy - reduced from 65% to 55%
o Provincial: Non-ccpc - reduced from 17.5% to 14% 20% reduction in all tax credits: 37.5% to 30%
(“SR&ED”) Threshold on minimum expenditures: $50K - no ITC:
Scales up to $220K based on total assets So what’s changed? Why do I care?
o Return on $50K combined 54% vs 78% o Return on $100K combined 64% vs 78%
More compliance for less dollars:SR&ED changes from 2014 into 2015
E-Commerce:o Six Full-time employees – 40 weeks, but only 27
hours/week! Build up a process and remit a solid claim:
o Proper documentation that helps your consultant make the link – solid time tracking
o Do not risk your reputation on a shoddy SRED claim
Compensation:o In almost all cases, a T4 salary gives the most return
on tax incentives then a shareholder loan or business invoice
o Plan ahead with consultant how to compensate those with most probability of recovery
U.S.A: Cross-border Tax Compliance
Typical ways you likely will touch the border:U.S.A: Cross-border Tax Compliance
Sales:o “… but 65% of my sales are to U.S. customers …”
Investor:o “… I just received a term sheet from a Boston VC …”
Sub-contract:o “… we found this talented fellow in N.Y. …”
Subsidiary:o “… so my lawyer said to do a Delaware Inc. …”
Key thoughts on a very complex subject:U.S.A: Cross-border Tax Compliance
Important financial issues when you hit the border:o Sales – Economic Nexus the new hot issueo Sales tax – still about a physical presence
What is a W8BEN and a Treaty-based Return?
PFIC – Passive Foreign Investment Company(75% income / 50% assets)
CFC – Controlled Foreign Company
Looking after your Board of Directors U.S. investor concerns:
Conclusion
Understand yourself to be more proactive
Get ahead of government compliance fast!
Understand the tax impact of your crowdfunding
“SR&ED” has changed – ensure you adapt
If you touch the U.S. border – Consult!
