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2012 Federal Budget - SR&ED Changes for Canadian Agri-Food Industry


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Innovation has become critical in the agri-food industry. With retailers demanding that processors do more with less, new regulatory demands, and increased consumer focus on health, companies must develop new ideas and processes if they want to stay in the game. In Budget 2012 the Canadian government announced a number of changes to the way it fosters innovation that could help agri-food processors deal with the challenges they face.
If you’re doing R&D to provide the same product at a lower cost; improve packaging, environmental sustainability, or web-based customer interaction; establish traceability; or develop functional or anti-allergenic foods, you may be eligible for the SR&ED tax credit.

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2012 Federal Budget - SR&ED Changes for Canadian Agri-Food Industry

  1. 1. Budget 2012 – SR&EDImpact to Food & Ag Processors
  2. 2. IntroductionAndrew Raphael Director of Food & Ag Processing DivisionRyan P. MackiewichR an P Mackie ich SR&ED Practice LeaderAndrew Pellizzari SR&ED Food & Ag Processing Specialist F d A P i S i li t
  3. 3. Topics1.1 Helping Processors Meet Complex Consumer Demands2.2 Food & Beverage Processing Opportunities3. Budget3 B d t 20124. Opportunities for Funding5. Tax Planning6.6 Questions
  4. 4. Building a Sound Growth StrategyBenefits to your Business – Minimizing your taxes – Managing Risk – Controlling Costs – Enhancing your Performance – Maximizing your Human Resources –RRegaining Fi i i Financial C t l i l Control – Financing Change
  5. 5. Can Help Processors Meet Complex Consumers DemandsFood safety & Consumersquality are essential are paramount• Aging population • The value of time• Increased health • Higher rate of women working awareness Convenience • faster pace lifestyle• Demand for natural & • Smaller household organic foods g Health & Wellness• Demand for functional foods & nutraceuticals• “Food as medicine”• More novel foods • Educated & sophisticated consumer• Fun & entertaining Pleasure Value • Declining food expenditure• Comfort • share• Ethnic & exotic • Demand for premium• Indulgent & guilt free • private label p p products• Premium & prestigious • Income distribution & gap • Price consciousness of lower income consumer
  6. 6. SR&ED Opportunities for Food Beverage P F d&B Processors• Equipment q p – Strong Loonie = Time to Purchase & Adapt• Flavour Formulations – T Trans Fats, Sodium, Sugar F t S di S – New taste demands• Doing More With Less – Retail Consolidation Impacts – Be Proactive• Packaging – Product Interaction With Packaging
  7. 7. SR&ED Opportunities for Food Beverage P F d&B Processors• Going Green – Bi d Biodegradable P k i d bl Packaging – Storage – Delivery Systems• Traceability – RFID• Web Based Interactive Services – Sales Inventory , Feedback , On Line Auctions Sales, Auctions,• Functional Foods – R&D, Testing, Proving Claims• Anti Allergies g – Gluten Free & Peanuts – R&D, Testing, Proving Claims
  8. 8. 2012 Budget• SR&ED = Scientific Research & Experimental Development• ITC = Investment Tax Credit – the “Gold” Gold we are going for• CCPC = C Canadian C t ll d P i t di Controlled Private Corporation• Proxy Amount = A notional gross up of labour costs to cover overheads
  9. 9. 2012 BudgetEffective January 1 2013 1,• Contractor costs for SR&ED reduced to 80% of the contract payments
  10. 10. 2012 BudgetEffective January 1 2014 1,• SR&ED ITC reduced to 15% (from 20%), – Th enhanced ITC f CCPCs will remain at The h d for CCPC ill i t 35%.• C it l expenditures no l Capital dit longer eligible f li ibl for for SR&ED• Prescribed proxy amount reduced to 55% (from 65%)
  11. 11. 2012 BudgetExample• Spend $100,000 on eligible SR&ED – $50 000 wages $50,000 – $25,000 contractors –$$25,000 materials
  12. 12. Canadian Controlled Private Corporations 10% ITCNewFederal Tax Savings: Qualified SR&ED Expenditures 122,500 Provincial ITC 12,250 Federal ITC @ 35% 38,588Total SR&ED ITCs 50,838PriorFederal Tax Savings: p Qualified R&D Expenditures 132,500 , Provincial ITC 13,250 Federal ITC @ 35% 41,738Total SR&ED ITCs 54,988Change in Total ITCs Earned (4,150)
  13. 13. Non-CCPCs 10% ITCNewFederal Tax Savings: Qualified R&D Expenditures 122,500 Provincial ITC 12,250 Federal ITC @ 15% 16,538Total SR&ED ITCs 28,788PriorFederal Tax Savings: Qualified R&D Expenditures 132,500 Provincial ITC 13,250 Federal ITC @ 20% 23,850Total SR&ED ITCs 37,100Change i T t l ITC EarnedCh in Total ITCs E d (8,313) (8 313)
  14. 14. 2012 Budget• These changes result in $1 3 Billion in $1.3 savings• Savings used for funding various R&D Initiatives
  15. 15. 2012 Budget• The government will spend $6 million over the next two years to implement changes to the administration of the program through the following measures: – The CRA will conduct a pilot project to determine the feasibility of a formal pre-approval process – Enhance the existing online self-assessment eligibility tool – Work with industry representatives to address emerging issues –IImprove the Notice of Obj ti process to allow f a th N ti f Objection t ll for second review of scientific eligibility determination. – Increase the number of technical reviewers
  16. 16. 2012 Budget• Providing additional training and establishing coordinated technical support for the technical reviewers reviewers.• Devoting more time to program services.• E h Enhancing th quality assurance i the lit methodology.• Reviewing dispute resolution procedures to ensure their effectiveness.
  17. 17. Innovation CanadaA Call to Action: Jenkins Report• Shift resources from indirect support through the SR&ED pp g tax incentive program to direct forms of support, including the Industrial Research Assistance Program.• St Streamline th G li the Government’s support for business t’ tf b i innovation.• Simplify the SR&ED tax incentive program and improve cost-effectiveness, predictability and accountability.• Make business innovation one of the core objectives of procurement. t• Refocus the institutes of the National Research Council on demand driven applied research. demand-driven• Help high-growth innovative firms access risk capital.• Establish a clear federal voice for innovation
  18. 18. Opportunities for Funding• Helping High-Growth Firms Access Risk Capital• Increasing Direct Support for Business Innovation• S Supporting Innovative Businesses in ti I ti B i i Western Canada• Supporting Private and Public Sector Research Collaborations
  19. 19. Opportunities for Funding• Helping High Growth Firms Access High-Growth Risk Capital• $400-million fund to help increase private $400 million sector investment of early-stage p companies• Access to capital In shorter supply in Canada (affects ability to hire). ( y )• Details won’t be announced for a few months.
  20. 20. Opportunities for Funding• $100-million for the Business Development $100 million Bank of Canada• Energy/Cleantech, Health, Information gy , , Technology, and Communications.• Unclear what the increased money will go toward. – Is it a continuation of the current mandate? – O will BDC reach out t companies which, f Or ill h t to i hi h for whatever reason, hadnt been supported in the past?
  21. 21. Opportunities for Funding• Increasing Direct Support for Business Innovation• Doubling the Industrial Research Assistance g Program (IRAP)• additional $110 million per year. – Financial support for firms – If proposal accepted IRAP provides up to 80% of the payroll costs and 50% of the applicable sub sub- contractors fees for a project up to $100k contribution.
  22. 22. Opportunities for Funding• Supporting Innovative Businesses in pp g Western Canada• Launch of the Western Innovation Program – Financial support to innovative small and medium-sized enterprises in Western C Canada – Like Programs offered in other Quebec, Atlantic Canada and Southern Ontario – Ontario: $20 million for food and beverage processing sector and export development
  23. 23. Opportunities for Funding• Supporting Private and Public Sector Research Collaborations• Integrating High-Quality Researchers High Quality Into the Labour Market – $14 million over t illi two years t d bl th to double the Industrial Research and Development Internship program – 1:1 cost sharing with private sector partner
  24. 24. Opportunities for Funding• Business-Led Networks of Centres of Excellence program• Industry led research consortia Industry-led• 1:1 cost sharing with private sector partner
  25. 25. Opportunities for Funding• Supporting Innovation Through Procurement – Canadian Innovation Commercialization Program • (additional $95 million over three years, starting in 2013–14, 2013 14 and $40 million per year thereafter)• Refocusing the National Research Council – $67 million in 2012–13 to support the business-led, industry-relevant research. , y
  26. 26. Opportunities for Funding– Cuts to the federal tax incentive program, p g , expected to be nearly half a billion dollars a year, outweigh new investments in grants– movement away f from market-based, i d k b d industry- led research and development to institutional- targeted research and development– The right direction we should be going in?– Grant program cou d increase red tape G a t p og a could c ease ed– Apply for a program, wait for approval, there is an inherent lag period.
  27. 27. 2012 Budget - Summary• What does this all mean??? – Decrease to the value of SR&ED ITCs ~ 7% for CCPCs ~ 20% for non-CCPCs – More Funding Opportunities – More complex landscape – Increased scrutiny by CRA – More ways to disagree with CRA – Tax Planning
  28. 28. Tax Planning• Contractors vs Employees vs. – Employees much more valuable • $64 325 ITCs for Employees vs $33 200 ITCs for $64,325 vs. $33,200 Contractors• Capital Spending – Have all purchases completed by 2013
  29. 29. Tax Planning• Performance Bonuses – Accrued by December 2013• Project Spending – Rates drop starting Jan 1/14 / – Factor in to ROI
  30. 30. A Recipe for Rewarding Innovation• To ensure you get the most from your claim, it is important to work with professionals who understand your industry and the intricacies of the SR&ED program• Advisors deliver insight to help you: – Identify eligible projects – Develop accurate project descriptions – Review your claims – Train your team – P ti i t in CRA reviews Participate i i – Strategic tax planning
  31. 31. ContactsAndrew Raphael604.637.1567604 637 1567andrew.raphael@mnp.caRyan P. Mackiewich1.877.475.5678ryan.mackiewich@mnp.caAndrew Pellizzari416.515.3915416 515