Your SlideShare is downloading. ×
0
MaRS Centre
June 14, 2012
John Sutherland
Scientific research and
experimental development
incentives
© Deloitte & Touche LLP and affiliated entities.
Presenter contact info:
Scientific research and experimental development ...
© Deloitte & Touche LLP and affiliated entities.
Agenda
•  Overview of the Canadian SR&ED program
•  Budget updates – Fede...
© Deloitte & Touche LLP and affiliated entities.
Canadian SR&ED Program
•  Canadian Controlled Private Corporations (CCPC)...
© Deloitte & Touche LLP and affiliated entities.
Benefit of the program
•  Other benefits
–  Accelerated write-offs
–  Tim...
© Deloitte & Touche LLP and affiliated entities.
Federal update
Scientific research and experimental development incentive...
© Deloitte & Touche LLP and affiliated entities.
Federal budget
•  Non-CCPC
–  15% non-refundable for taxation year ending...
© Deloitte & Touche LLP and affiliated entities.
Federal budget – Impact
•  Reduction in total benefit in Ontario will ran...
© Deloitte & Touche LLP and affiliated entities.
Federal budget – Other SR&ED and research Items
•  Conduct a pilot projec...
© Deloitte & Touche LLP and affiliated entities.
Program criteria &
qualifying expenditures
Scientific research and experi...
© Deloitte & Touche LLP and affiliated entities.
Program criteria
Definition of SR&ED
•  Three types of eligible developme...
© Deloitte & Touche LLP and affiliated entities.
Program criteria (Cont’d)
Eligibility criteria
•  Three essential element...
© Deloitte & Touche LLP and affiliated entities.
Program criteria (Cont’d)
Technological advancement
•  Typically a new ch...
© Deloitte & Touche LLP and affiliated entities.
Program criteria (Cont’d)
•  “Technological uncertainty” may occur in eit...
© Deloitte & Touche LLP and affiliated entities.
Program criteria (Cont’d)
Scientific or technological content
•  Qualifie...
© Deloitte & Touche LLP and affiliated entities.
SR&ED activities include
•  Technical feasibility studies
•  Review of co...
© Deloitte & Touche LLP and affiliated entities.
SR&ED activities exclude
•  Market research
•  Routine testing
•  Routine...
© Deloitte & Touche LLP and affiliated entities.
Other criteria
•  Development must be in a field of science or technology...
© Deloitte & Touche LLP and affiliated entities.
SR&ED in a nutshell
Scientific research and experimental development ince...
© Deloitte & Touche LLP and affiliated entities.
SR&ED industry examples
Scientific research and experimental development ...
© Deloitte & Touche LLP and affiliated entities.
SR&ED – What can you claim?
1.  Salaries and wages
2.  Materials consumed...
© Deloitte & Touche LLP and affiliated entities.
Overhead
Scientific research and experimental development incentives23
© Deloitte & Touche LLP and affiliated entities.
Traditional or proxy method of calculation
Each year taxpayer can choose ...
© Deloitte & Touche LLP and affiliated entities.
Salary and wages
Scientific research and experimental development incenti...
© Deloitte & Touche LLP and affiliated entities.
Salary and wages
•  Employees Directly engaged (proxy)
•  Employees Direc...
© Deloitte & Touche LLP and affiliated entities.
Materials
Scientific research and experimental development incentives27
© Deloitte & Touche LLP and affiliated entities.
Materials consumed vs. transformed
Consumed
•  Implies materials are abso...
© Deloitte & Touche LLP and affiliated entities.
SR&ED Contract payments
(80% after 2012)
Scientific research and experime...
© Deloitte & Touche LLP and affiliated entities.
127(9) – Definition of contract payment
“Contract payment” means
•  An am...
© Deloitte & Touche LLP and affiliated entities.
Leases (until 2013)
Scientific research and experimental development ince...
© Deloitte & Touche LLP and affiliated entities.
Leases (until 2013)
•  All or substantially all (ASA)
–  90% used for SR&...
© Deloitte & Touche LLP and affiliated entities.
Third party payments
Scientific research and experimental development inc...
© Deloitte & Touche LLP and affiliated entities.
Third party payments
•  Payments to any one of the following entities whi...
© Deloitte & Touche LLP and affiliated entities.
Capital expenditures
(Until 2013)
Scientific research and experimental de...
© Deloitte & Touche LLP and affiliated entities.
Eligible capital expenditures
•  “All or substantially all” (ASA)
•  Inte...
© Deloitte & Touche LLP and affiliated entities.
ITC Recapture
Scientific research and experimental development incentives...
© Deloitte & Touche LLP and affiliated entities.
What does it apply to and when?
•  The “property” subject to the recaptur...
© Deloitte & Touche LLP and affiliated entities.
Ontario technology
tax credits often
overlooked
Scientific research and e...
© Deloitte & Touche LLP and affiliated entities.
Ontario tax credits
•  Ontario innovation tax credit
•  Ontario research ...
© Deloitte & Touche LLP and affiliated entities.
OITC
•  10% Ontario Innovation Tax Credit (OITC) for eligible expenditure...
© Deloitte & Touche LLP and affiliated entities.
ORDTC
•  Replaces pre – harmonization Ontario deduction for federal ITC
•...
© Deloitte & Touche LLP and affiliated entities.
Ontario Interactive Digital Media Tax Credit (OIDMTC)
•  Refundable tax c...
© Deloitte & Touche LLP and affiliated entities.
OIDMTC: Funding for eligible product
•  Eligible expenditures
–  Salaries...
© Deloitte & Touche LLP and affiliated entities.
OIDMTC – Digital media game corporations
•  35% tax credit rate for quali...
© Deloitte & Touche LLP and affiliated entities.
Computer animation and special effects tax credit
•  20% refundable tax c...
© Deloitte & Touche LLP and affiliated entities.
Ontario Business – Research Institute Tax Credit
(“OBRITC”)
•  20% refund...
© Deloitte & Touche LLP and affiliated entities.
Stretching your SR&ED dollars
Agreements with suppliers/customers
•  Proa...
© Deloitte & Touche LLP and affiliated entities.
Stretching your SR&ED dollars (Cont’d)
Tracking SR&ED on a contemporaneou...
© Deloitte & Touche LLP and affiliated entities.
Who is Deloitte?
•  Largest service provider in this field in Canada
•  I...
© Deloitte & Touche LLP and affiliated entities.
Questions?
Scientific research and experimental development incentives51
SR&ED: What you need to know about the changing landscape - MaRS Best Practices
SR&ED: What you need to know about the changing landscape - MaRS Best Practices
Upcoming SlideShare
Loading in...5
×

SR&ED: What you need to know about the changing landscape - MaRS Best Practices

302

Published on

The Scientific Research and Experimental Development (SR&ED) tax incentive program provides support in the form of tax credits to groups or individuals conducting scientific research or experimental development in Canada.

Some significant changes are on the way as a result of the last federal budget. See how these new rules could affect you!

Published in: Business, Technology, Education
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
302
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
11
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "SR&ED: What you need to know about the changing landscape - MaRS Best Practices"

  1. 1. MaRS Centre June 14, 2012 John Sutherland Scientific research and experimental development incentives
  2. 2. © Deloitte & Touche LLP and affiliated entities. Presenter contact info: Scientific research and experimental development incentives3 John Sutherland BA, CGA Senior Manager – Tax Global R&D and Government Incentives Phone (416) 643-8048 Cell (905) 379-3261 josutherland@deloitte.ca
  3. 3. © Deloitte & Touche LLP and affiliated entities. Agenda •  Overview of the Canadian SR&ED program •  Budget updates – Federal and Ontario •  CCPCs •  Program Criteria •  Ontario Technology credits •  Stretching SR&ED dollars 4 Scientific research and experimental development incentives
  4. 4. © Deloitte & Touche LLP and affiliated entities. Canadian SR&ED Program •  Canadian Controlled Private Corporations (CCPC) Benefits: –  SR&ED Deduction pool –  ITCs •  35% of eligible expenses –  Refundable on the 1st 3m of SR&ED expenses –  Taxable Income and Taxable capital thresholds to be maintained for refund-ability –  Provincial refund ability •  20% of eligible expenses –  40% refund ability on SR&ED expenses in excess of $3m –  Taxable Income and Taxable capital thresholds to be maintained for refund-ability •  Provincial Credits also available Scientific research and experimental development incentives5
  5. 5. © Deloitte & Touche LLP and affiliated entities. Benefit of the program •  Other benefits –  Accelerated write-offs –  Timing on utilization of expenditures –  Unused credits carry forward Scientific research and experimental development incentives6
  6. 6. © Deloitte & Touche LLP and affiliated entities. Federal update Scientific research and experimental development incentives7
  7. 7. © Deloitte & Touche LLP and affiliated entities. Federal budget •  Non-CCPC –  15% non-refundable for taxation year ending after 2013 –  Reduce proxy calculations to 60% for 2013 and 55% thereafter –  Arm’s length subcontract expenses to be reduced to 80% after 2012 –  No lease expenses after 2013 –  No capital expenses made after 2013 –  No shared use equipment after 2013 •  CCPC –  35% rate remains unchanged though the base of qualifying expenditures will be smaller – as per above –  15% for non-qualifying CCPC or for expenses in excess of $3m or expenditure limit Scientific research and experimental development incentives8
  8. 8. © Deloitte & Touche LLP and affiliated entities. Federal budget – Impact •  Reduction in total benefit in Ontario will range from 6% to 40% –  Depending on: •  CCPC small corporation status •  Mix of employees versus contractors •  Capital component of claims •  Materials component of claims Scientific research and experimental development incentives9
  9. 9. © Deloitte & Touche LLP and affiliated entities. Federal budget – Other SR&ED and research Items •  Conduct a pilot project to determine the viability of a formal pre-approval process •  Enhance the existing online self-assessment eligibility tool •  Make more frequent and effective use of “tax alerts” •  Improve the Notice of Objection process to allow for a second review of scientific eligibility determinations •  Divert “savings” from reduced SR&ED ITC% to direct incentives –  Make the Canadian Innovation Commercialization Program permanent –  Provide support in 2012-13 to the NRC to refocus on business-led, industry relevant research –  Double the IRAP Internship program –  Launch the Western Innovation Program •  Similar to such programs in other provinces –  Other plans not yet clarified Scientific research and experimental development incentives10
  10. 10. © Deloitte & Touche LLP and affiliated entities. Program criteria & qualifying expenditures Scientific research and experimental development incentives11
  11. 11. © Deloitte & Touche LLP and affiliated entities. Program criteria Definition of SR&ED •  Three types of eligible development: 1.  Basic research 2.  Applied research 3.  Experimental development (90%+ of all claims) −  Work undertaken… for the purpose of creating new, or improving existing materials, devices, products or processes, including incremental improvements Scientific research and experimental development incentives12
  12. 12. © Deloitte & Touche LLP and affiliated entities. Program criteria (Cont’d) Eligibility criteria •  Three essential elements 1.  Technological advancement 2.  Technological uncertainties, and 3.  Technical content Scientific research and experimental development incentives13
  13. 13. © Deloitte & Touche LLP and affiliated entities. Program criteria (Cont’d) Technological advancement •  Typically a new characteristic or capability •  The knowledge gained •  Transferability of this new knowledge –  Examples: –  Integration of disparate technologies –  Algorithms, methods or capabilities –  e.g. special caching techniques to improve performance –  Tools (e.g. speed up development, load balancing) –  Any technological improvements in proprietary systems –  Faster, more data, smaller footprint, cheaper, etc •  Note that success is not a requirement, only an attempt Scientific research and experimental development incentives14
  14. 14. © Deloitte & Touche LLP and affiliated entities. Program criteria (Cont’d) •  “Technological uncertainty” may occur in either of two ways: –  Uncertain that goals can be achieved; technological obstacles exist that must be overcome through experimentation or analysis. –  Goals can be achieved; however, what path, route, approach, equipment configuration, etc., will work. •  Need for experimentation and analysis •  SR&ED Project STARTS when uncertainty is identified •  SR&ED Project ENDS when uncertainty is resolved Scientific research and experimental development incentives15
  15. 15. © Deloitte & Touche LLP and affiliated entities. Program criteria (Cont’d) Scientific or technological content •  Qualified people involved –  Employee records can support qualifications –  Professional, academic, technical training and work experience are all relevant credentials •  Systematic investigation –  Departure from application of proven approaches –  Experimentation and analysis –  Testing and evaluation –  Conclusions reached Scientific research and experimental development incentives16
  16. 16. © Deloitte & Touche LLP and affiliated entities. SR&ED activities include •  Technical feasibility studies •  Review of competing technology •  Design •  Prototype build and evaluation •  Programming •  Component, system and integration testing •  Technical documentation •  Support activities undertaken directly to help resolve the uncertainties that make the project R&D Scientific research and experimental development incentives17
  17. 17. © Deloitte & Touche LLP and affiliated entities. SR&ED activities exclude •  Market research •  Routine testing •  Routine data collection •  Social sciences or humanities •  Commercial production •  Style changes Scientific research and experimental development incentives18
  18. 18. © Deloitte & Touche LLP and affiliated entities. Other criteria •  Development must be in a field of science or technology •  Work must be performed physically in Canada •  Work must be performed by Canadian taxable entities •  Claimant and claimed subcontractors •  Claim must be submitted within 18 months of fiscal year end •  Expenditures must be paid within 6 months of fiscal end •  Work contracted by another Canadian entity may be subject to reduction of eligible expenses by the amount paid •  And many other less common rules which we will deal with on a case- by-case basis –  e.g. Salaries of “specified employees” Scientific research and experimental development incentives19
  19. 19. © Deloitte & Touche LLP and affiliated entities. SR&ED in a nutshell Scientific research and experimental development incentives20 Point A ‘base level’ Point B ‘target level’ •  Faster •  Increased yield •  More efficient •  Better performance •  New capability •  New application •  Knowledge •  Better tools Barriers, Constraints, Obstacles, Challenges Advancement Knowledge base Technical objective 1.  Idea generation 2.  Idea selection 3.  Prototype, analysis, testing, simulation, modeling, FEA, etc. 4.  Results/conclusions
  20. 20. © Deloitte & Touche LLP and affiliated entities. SR&ED industry examples Scientific research and experimental development incentives21 Industry Example of SR&ED Software/ IT Improvements to customized software Manufacturing Process improvements to reduce production time and cost Consumer Goods Production formulations with restricted ingredients to achieve sought specifications Pharmaceutical/Biotechnology Improving processes to reduce material waste Chemicals Developing custom equipment to improve process performance
  21. 21. © Deloitte & Touche LLP and affiliated entities. SR&ED – What can you claim? 1.  Salaries and wages 2.  Materials consumed and transformed 3.  Contract SR&ED payments (80% after 2012) 4.  Lease expenses (until 2013) 5.  Third party-payments for other people performing SR&ED that taxpayer can exploit 6.  Overhead (2 methods of calculation) 7.  Certain capital expenditures (until 2013) •  Less SR&ED contract payments received •  Less Government Assistance (grants, credits) Scientific research and experimental development incentives22
  22. 22. © Deloitte & Touche LLP and affiliated entities. Overhead Scientific research and experimental development incentives23
  23. 23. © Deloitte & Touche LLP and affiliated entities. Traditional or proxy method of calculation Each year taxpayer can choose between: •  Traditional Method –  Calculation of actual overhead directly attributable to SR&ED, or •  Proxy Method –  Notional calculation of overhead based on 65% * of directly engaged labour * (60% for 2013 and 55% thereafter) Scientific research and experimental development incentives24
  24. 24. © Deloitte & Touche LLP and affiliated entities. Salary and wages Scientific research and experimental development incentives25
  25. 25. © Deloitte & Touche LLP and affiliated entities. Salary and wages •  Employees Directly engaged (proxy) •  Employees Directly attributable (traditional) Ø Incremental and related to SR&ED Scientific research and experimental development incentives26
  26. 26. © Deloitte & Touche LLP and affiliated entities. Materials Scientific research and experimental development incentives27
  27. 27. © Deloitte & Touche LLP and affiliated entities. Materials consumed vs. transformed Consumed •  Implies materials are absorbed, used up or broken into small pieces •  Destroyed or rendered virtually useless as a result of SR&ED Transformed •  Materials are incorporated into product that has some value to the taxpayer or to another party •  Subject to ITC recapture when a disposition occurs Scientific research and experimental development incentives28
  28. 28. © Deloitte & Touche LLP and affiliated entities. SR&ED Contract payments (80% after 2012) Scientific research and experimental development incentives29
  29. 29. © Deloitte & Touche LLP and affiliated entities. 127(9) – Definition of contract payment “Contract payment” means •  An amount paid or payable to a contractor taxpayer for SR&ED performed •  on the claimant’s behalf •  on an arm’s length basis Scientific research and experimental development incentives30
  30. 30. © Deloitte & Touche LLP and affiliated entities. Leases (until 2013) Scientific research and experimental development incentives31
  31. 31. © Deloitte & Touche LLP and affiliated entities. Leases (until 2013) •  All or substantially all (ASA) –  90% used for SR&ED •  Claim actual cost •  Primarily –  Used 50% to 90% for SR&ED •  Claim 50% of cost Scientific research and experimental development incentives32
  32. 32. © Deloitte & Touche LLP and affiliated entities. Third party payments Scientific research and experimental development incentives33
  33. 33. © Deloitte & Touche LLP and affiliated entities. Third party payments •  Payments to any one of the following entities which carry on SR&ED activities in Canada: –  An approved association that undertakes SR&ED –  An approved university, college, research institute or other similar institution Scientific research and experimental development incentives34
  34. 34. © Deloitte & Touche LLP and affiliated entities. Capital expenditures (Until 2013) Scientific research and experimental development incentives35
  35. 35. © Deloitte & Touche LLP and affiliated entities. Eligible capital expenditures •  “All or substantially all” (ASA) •  Intent test •  “Shared use equipment” (SUE) •  Use test Ø Must be new for ITC purposes Ø Excludes buildings and leasehold interest in buildings Ø Must be available for use Scientific research and experimental development incentives36
  36. 36. © Deloitte & Touche LLP and affiliated entities. ITC Recapture Scientific research and experimental development incentives37
  37. 37. © Deloitte & Touche LLP and affiliated entities. What does it apply to and when? •  The “property” subject to the recapture rules include: •  Materials, all or substantially all equipment (“ASA”),shared use equipment (“SUE”) •  When sold or converted to commercial use, the itc’s related to these items may be recaptured Scientific research and experimental development incentives38
  38. 38. © Deloitte & Touche LLP and affiliated entities. Ontario technology tax credits often overlooked Scientific research and experimental development incentives39
  39. 39. © Deloitte & Touche LLP and affiliated entities. Ontario tax credits •  Ontario innovation tax credit •  Ontario research and development tax credit •  Ontario interactive digital media tax credit •  Ontario computer animation tax credit •  Ontario business research institute tax credit Scientific research and experimental development incentives40
  40. 40. © Deloitte & Touche LLP and affiliated entities. OITC •  10% Ontario Innovation Tax Credit (OITC) for eligible expenditures incurred in Ontario •  Available for all corporations with operations in Ontario •  Refundable •  Qualified expenditures up to the expenditure limit ( $3M) –  Canadian taxable income of the group of companies –  World wide taxable capital of the group of companies –  Planning: •  No 18 months deadline •  Contract payments from customers outside Ontario Scientific research and experimental development incentives41
  41. 41. © Deloitte & Touche LLP and affiliated entities. ORDTC •  Replaces pre – harmonization Ontario deduction for federal ITC •  Catch: considered to be assistance Reduce ITC –  Reduce SR&ED pool à ORDTC attracts federal and Ontario tax •  Unused ORDTC can be carried back 3 years (but not to taxation year ending before 2009) and carried forward 20 years •  Taxpayer can waive this non-refundable tax credit –presumably to increase federal ITC •  If waived, no immediate difference on cash flow compared to O161 in companies with losses Scientific research and experimental development incentives42
  42. 42. © Deloitte & Touche LLP and affiliated entities. Ontario Interactive Digital Media Tax Credit (OIDMTC) •  Refundable tax credit of 40% since March 27, 2009 for non-specified products –  35% for “specified products” (fee-for-service) •  Eligibility based on product, which must be complete •  Educate, inform or entertain •  Interactive (What info and how info is displayed) •  Multimedia (2 of text, images and/or sound) •  Available to non-exempt corporations only •  For work done in Ontario •  Must obtain a Certificate of Eligibility Scientific research and experimental development incentives43
  43. 43. © Deloitte & Touche LLP and affiliated entities. OIDMTC: Funding for eligible product •  Eligible expenditures –  Salaries and wages –  Contractors (only 50% of cost eligible before March 27, 2009) –  Marketing and distribution costs (capped at $100k per product) •  Benefits –  40% regardless of size (after March 26, 2009) – non specified product –  35% specified product Scientific research and experimental development incentives44
  44. 44. © Deloitte & Touche LLP and affiliated entities. OIDMTC – Digital media game corporations •  35% tax credit rate for qualifying digital game corporations •  Incur a minimum $1 million of eligible Ontario labour costs over a 3 year period for fee-for-service work done in Ontario that is directly related to the development of a digital game •  Not required to be at arm’s length with the purchaser corporation •  Not required to develop all, or substantially all, of the eligible product •  35% tax credit rate to specialized digital game corporations –  80% of Ontario payroll or 90% of annual revenues attributable to interactive digital media game development •  Minimum of $1 million of Ontario labour expenditures in the taxation year directly attributable to the development of eligible digital games –  Entitled to file an annual OIDMTC application –  Not required to contract with an arm's length purchaser –  Not required to develop all, or substantially all, of products included Scientific research and experimental development incentives45
  45. 45. © Deloitte & Touche LLP and affiliated entities. Computer animation and special effects tax credit •  20% refundable tax credit •  Ontario labour expenditures for development of computer digital animation and digital visual effects for use in television or film •  A certificate of eligibility must be obtained from the Ontario Media Development Corporation and filed with tax return Scientific research and experimental development incentives46
  46. 46. © Deloitte & Touche LLP and affiliated entities. Ontario Business – Research Institute Tax Credit (“OBRITC”) •  20% refundable tax credit •  For SR&ED expenditures through a PE in Ontario •  SR&ED payments made to an Ontario Eligible Institute •  Business should be entitled to exploit the results of the SR&ED •  An eligible research institute includes most universities and colleges in Ontario, hospital research institutes and certain non-profit research organizations •  OBRITC is in addition to OITC credit Scientific research and experimental development incentives47
  47. 47. © Deloitte & Touche LLP and affiliated entities. Stretching your SR&ED dollars Agreements with suppliers/customers •  Proactively reviewing agreements to ensure SR&ED tax credits are maximized •  Invoices should have proper segregation of materials and services to avoid/minimize recapture •  Clear terms regarding performance and ownership of SR&ED Scientific research and experimental development incentives48
  48. 48. © Deloitte & Touche LLP and affiliated entities. Stretching your SR&ED dollars (Cont’d) Tracking SR&ED on a contemporaneous basis •  Meets CRAs requirements •  Capture additional activities Purchase of Capital Assets for SR&ED purposes •  Purchase requisition should state intent •  Ensuring available for use by the year end Scientific research and experimental development incentives49
  49. 49. © Deloitte & Touche LLP and affiliated entities. Who is Deloitte? •  Largest service provider in this field in Canada •  Integrated team of engineers, scientists, accountants and tax specialists •  Adaptable work models –  “A la carte” to full outsourcing capability –  We provide support from opportunity qualification, through all CRA technical and financial approvals Scientific research and experimental development incentives50 Practice overview Canada GTA SR&ED Partners 8 3 SR&ED Associate Partners 11 5 SR&ED Senior Managers 58 9 Other Professional Staff 75 31 Total number of SR&ED practitioners 152 48 Professional/Graduate Engineers 71 22 CA’s, CGA’s and CMA’s 81 26
  50. 50. © Deloitte & Touche LLP and affiliated entities. Questions? Scientific research and experimental development incentives51
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×