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Government incentive tax programs GETTING THE GOVERNMENT TO PAY FOR THE DEVELOPMENT OF YOUR PROJECTS www.sredunlimited.com
BEFORE or AFTER PROJECT COMPLETION IRAP SR&ED PROVINCIAL DIGITAL MEDIA PROGRAMS
IRAP <ul><li>Strict conditions apply </li></ul><ul><li>Competitive basis (annual cap) </li></ul><ul><li>Audit </li></ul><u...
PROVINCIAL PROGRAMS - <ul><li>QC: 10% of qualified labour (max 5% of production costs) + 20% of qualified labour for claim...
PROVINCIAL PROGRAMS - <ul><li>QC: Production of multimedia titles tax credit; 30% of eligible labour + 7.5% if in French <...
<ul><li>QC: 89% and more of eligible labour </li></ul><ul><li>ON: 68% of eligible labour </li></ul>FEDERAL+ PROVINCIAL: SR...
SR&ED Program Eligibility Technical Criteria <ul><li>What is Experimental Development? </li></ul><ul><li>It has  Technolog...
FEDERAL + PROVINCIAL: SR&ED (*) For simplicity’s sake, there are no contractor fees in this example (**) 50% is taken just...
FEDERAL + PROVINCIAL: SR&ED <ul><li>After fiscal year end (you have 18 months) </li></ul><ul><li>Submit your taxes </li></...
Scientific Research & Experimental Development (SR&ED) <ul><li>NOT on competitive basis </li></ul><ul><li>Flexible definit...
SR&ED Tax Incentive Program <ul><li>Employee wages and owner's labour (68%-89% of qualified payroll) </li></ul><ul><li>Sub...
SR&ED Tax Incentive Program - Statistics <ul><li>$4 billion a year to about 18,000 claimants </li></ul><ul><li>70% of clai...
Claim Refund Size – Example 2 <ul><li>A company spent 100K on salaries and 60K on consulting fees </li></ul><ul><li>75 per...
Work that qualifies for SR&ED tax credits  <ul><li>Research  to advance scientific knowledge without a specific practical ...
Who qualifies for the SR&ED refund <ul><li>Canadian-controlled companies, privately owned, incorporated  </li></ul><ul><li...
SR&ED Program Eligibility Technical Criteria  <ul><li>What qualifies as a &quot;technological advancement&quot;?  </li></u...
SR&ED Program –  Projects Eligibility <ul><li>Technological Advancement </li></ul><ul><li>Technological Uncertainty </li><...
SR&ED Program –  Projects Eligibility <ul><li>Technical challenge that competent professionals could not have overcome by ...
Examples of eligible software development activities <ul><li>Developing and utilizing mathematical algorithms (scheduling,...
Software Projects –  Eligible Activities <ul><li>Analysis; design; experimental development </li></ul><ul><li>Research int...
Software Projects – In eligible Activities <ul><li>Marketing research; Sales </li></ul><ul><li>Maintenance and Customer Su...
SRED claim supporting materials <ul><li>Evidence of systematic approach  </li></ul><ul><li>To justify SRED expenses - espe...
MYTHS about SR&ED <ul><li>Only “rocket science” projects are eligible </li></ul><ul><li>It is very difficult to make a cla...
Planning for a SR&ED claim <ul><li>Evaluate project to determine eligibility </li></ul><ul><li>Develop a project plan and ...
Planning for a SRED claim: proper structure of company financials <ul><li>Payroll (salary paid through T4) to “specified e...
CRA reviews <ul><li>100% claims  go through screening </li></ul><ul><li>Technical review.  Reviewers can reduce the size o...
SRED program and saleability of the custom software <ul><li>If a company outsources SR&ED development to a contractor, som...
SRED Unlimited <ul><li>SRED Unlimited specializes in SR&ED claims and digital media program claims </li></ul><ul><li>SRED ...
We help you with <ul><li>Pre-screening and projects identification; identification of a project’s potential </li></ul><ul>...
SRED Unlimited <ul><li>We charge a contingency based fee  </li></ul><ul><li>We pay you a referral fee </li></ul>www.sredun...
SR&ED Tax Credit <ul><li>Digital media programs </li></ul><ul><li>SR&ED Tax Incentive Program  </li></ul><ul><li>Planning ...
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Tax credits for technology-related business

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This is the presentation on government funding for technology-related business I gave at MIGS, game developers summit in Montreal, in November 2009.

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Tax credits for technology-related business

  1. 1. Government incentive tax programs GETTING THE GOVERNMENT TO PAY FOR THE DEVELOPMENT OF YOUR PROJECTS www.sredunlimited.com
  2. 2. BEFORE or AFTER PROJECT COMPLETION IRAP SR&ED PROVINCIAL DIGITAL MEDIA PROGRAMS
  3. 3. IRAP <ul><li>Strict conditions apply </li></ul><ul><li>Competitive basis (annual cap) </li></ul><ul><li>Audit </li></ul><ul><li>Mandatory reporting </li></ul>
  4. 4. PROVINCIAL PROGRAMS - <ul><li>QC: 10% of qualified labour (max 5% of production costs) + 20% of qualified labour for claims related to QC Production Tax Credit </li></ul><ul><li>ON: 20% of qualified labour (no max) </li></ul>ANIMATION
  5. 5. PROVINCIAL PROGRAMS - <ul><li>QC: Production of multimedia titles tax credit; 30% of eligible labour + 7.5% if in French </li></ul><ul><li>ON: Digital media tax credit;30% of eligible labour </li></ul>DIGITAL MEDIA
  6. 6. <ul><li>QC: 89% and more of eligible labour </li></ul><ul><li>ON: 68% of eligible labour </li></ul>FEDERAL+ PROVINCIAL: SR&ED
  7. 7. SR&ED Program Eligibility Technical Criteria <ul><li>What is Experimental Development? </li></ul><ul><li>It has Technological Content </li></ul><ul><li>It seeks Technological Advancement </li></ul><ul><li>It attempts to resolve Technological Uncertainty </li></ul><ul><li>It involves systematic analysis, tests or experiments </li></ul><ul><li>Success or failure of experimental development is not a factor. </li></ul>
  8. 8. FEDERAL + PROVINCIAL: SR&ED (*) For simplicity’s sake, there are no contractor fees in this example (**) 50% is taken just as an example; Quebec allows overhead up to 100% of qualified payroll and 50% of the contractor fees 89% 89,063 32,813 56,250 150,000 50% (**) 100,000 37.5% 35% 50% 200,000 QC 68% 68,475 51,975 16,500 165,000 65% 100,000 10% 35% 50% 200,000 ON % of qualified payroll Total Fed Prov Total w/OH Over-head Direct cost(*) Prov Fed % R&D Salary
  9. 9. FEDERAL + PROVINCIAL: SR&ED <ul><li>After fiscal year end (you have 18 months) </li></ul><ul><li>Submit your taxes </li></ul><ul><li>T661 form </li></ul>
  10. 10. Scientific Research & Experimental Development (SR&ED) <ul><li>NOT on competitive basis </li></ul><ul><li>Flexible definition of what is innovative </li></ul><ul><li>Tax refund, not tax credit </li></ul>
  11. 11. SR&ED Tax Incentive Program <ul><li>Employee wages and owner's labour (68%-89% of qualified payroll) </li></ul><ul><li>Sub-contracts (lower rate) </li></ul><ul><li>Dividends, bonuses and remuneration based on profit are not claimable. Contract fees paid to owners are not claimable. </li></ul>ELIGIBLE EXPENSES
  12. 12. SR&ED Tax Incentive Program - Statistics <ul><li>$4 billion a year to about 18,000 claimants </li></ul><ul><li>70% of claimants are small to mid-size businesses </li></ul>
  13. 13. Claim Refund Size – Example 2 <ul><li>A company spent 100K on salaries and 60K on consulting fees </li></ul><ul><li>75 percent of the labour and consulting fee were attributed as R&D </li></ul><ul><li>ON: Claim size 100,000 x 0.75 x 0.685 (*) + 60,000 x 0.75 x 0.415 (*) </li></ul><ul><li>Claimable refund: 70,050 </li></ul>(*) These multipliers are for Ontario; Quebec’s will be higher (see the table on slide 8)
  14. 14. Work that qualifies for SR&ED tax credits <ul><li>Research to advance scientific knowledge without a specific practical application in view. </li></ul><ul><li>Experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones. </li></ul>
  15. 15. Who qualifies for the SR&ED refund <ul><li>Canadian-controlled companies, privately owned, incorporated </li></ul><ul><li>Other types of companies (lower rate) </li></ul><ul><li>Payroll (T4) </li></ul><ul><li>Producing a product or service (Software, Electronics, Manufacturing, Chemical, Environmental Protection, Printing/Image Processing, Biotechnology, Food industry) </li></ul><ul><li>Experimental Development </li></ul>
  16. 16. SR&ED Program Eligibility Technical Criteria <ul><li>What qualifies as a &quot;technological advancement&quot;? </li></ul><ul><li>Something that creates new knowledge that advances our understanding of some aspect of science or technology </li></ul><ul><li>Definitions are vague </li></ul>
  17. 17. SR&ED Program – Projects Eligibility <ul><li>Technological Advancement </li></ul><ul><li>Technological Uncertainty </li></ul><ul><li>Technological Content (software was developed systematically and the uncertainties are systematically resolved) </li></ul><ul><li>A systematic investigation or search by experiment or analysis must be demonstrated. </li></ul>
  18. 18. SR&ED Program – Projects Eligibility <ul><li>Technical challenge that competent professionals could not have overcome by applying generally available knowledge </li></ul><ul><li>New knowledge must be gained during the work on the project </li></ul>
  19. 19. Examples of eligible software development activities <ul><li>Developing and utilizing mathematical algorithms (scheduling, optimization, forecasting, image processing etc.) </li></ul><ul><li>Improving performance </li></ul><ul><li>Non-standard problems </li></ul><ul><li>Resolving problems imposed by restrictions/bugs of the tools used for development. </li></ul>
  20. 20. Software Projects – Eligible Activities <ul><li>Analysis; design; experimental development </li></ul><ul><li>Research into and Review of existing, emerging, and competing technologies </li></ul><ul><li>Internal technical documentation (but not User Manuals). </li></ul><ul><li>First-line management of employees and contractors </li></ul><ul><li>Testing in which software is verified against technological advancement goals </li></ul>
  21. 21. Software Projects – In eligible Activities <ul><li>Marketing research; Sales </li></ul><ul><li>Maintenance and Customer Support </li></ul><ul><li>Routine development </li></ul><ul><li>Testing that deals primarily with user acceptance, suitability and marketability </li></ul>
  22. 22. SRED claim supporting materials <ul><li>Evidence of systematic approach </li></ul><ul><li>To justify SRED expenses - especially labour expenditures </li></ul><ul><li>CRA Policies regarding labour tracking: </li></ul><ul><li>Cooperative with first time claimants, allow estimates </li></ul><ul><li>Require proper tracking later </li></ul>
  23. 23. MYTHS about SR&ED <ul><li>Only “rocket science” projects are eligible </li></ul><ul><li>It is very difficult to make a claim </li></ul><ul><li>The project must be successful </li></ul><ul><li>You will be audited by CRA </li></ul>
  24. 24. Planning for a SR&ED claim <ul><li>Evaluate project to determine eligibility </li></ul><ul><li>Develop a project plan and keep it updated </li></ul><ul><li>Keep all prototypes, plans, drawings, notes </li></ul><ul><li>Register issues that cause problems or difficulties in your development </li></ul><ul><li>Expenses tracking: Time sheets </li></ul>
  25. 25. Planning for a SRED claim: proper structure of company financials <ul><li>Payroll (salary paid through T4) to “specified employees” – owners. </li></ul><ul><li>Contract fees paid to owners are not claimable. </li></ul><ul><li>Payroll instead of bonuses and dividends. </li></ul>
  26. 26. CRA reviews <ul><li>100% claims go through screening </li></ul><ul><li>Technical review. Reviewers can reduce the size of the claim. </li></ul><ul><li>Financial review. No crossover with CRA audit division. </li></ul><ul><li>Without proper tracking (by hours) – client estimate against CRA estimate; often results in a settlement. </li></ul><ul><li>No clawback if subsequent year claim deemed not eligible </li></ul>
  27. 27. SRED program and saleability of the custom software <ul><li>If a company outsources SR&ED development to a contractor, some of its own expenses are also claimable (feasibility study, analysis, requirements, testing, etcetera). </li></ul><ul><li>If you are a subcontractor: propose a custom application (or customization of existing application), which will be paid for by government through the SR&ED claim - a great selling feature. </li></ul>
  28. 28. SRED Unlimited <ul><li>SRED Unlimited specializes in SR&ED claims and digital media program claims </li></ul><ul><li>SRED Unlimited employs highly qualified technical consultants </li></ul>www.sredunlimited.com
  29. 29. We help you with <ul><li>Pre-screening and projects identification; identification of a project’s potential </li></ul><ul><li>Recommendations on project structuring to better meet the criteria of SR&ED program </li></ul><ul><li>Preparing a detailed technical report </li></ul><ul><li>Preparing all tax schedules and accounting reports detailing the costs associated with the project </li></ul><ul><li>Dealing with SR&ED financial and technical reviewers. </li></ul><ul><li>Assistance in negotiations on your behalf </li></ul>www.sredunlimited.com
  30. 30. SRED Unlimited <ul><li>We charge a contingency based fee </li></ul><ul><li>We pay you a referral fee </li></ul>www.sredunlimited.com
  31. 31. SR&ED Tax Credit <ul><li>Digital media programs </li></ul><ul><li>SR&ED Tax Incentive Program </li></ul><ul><li>Planning ahead for SR&ED claim </li></ul><ul><li>How you could benefit from the SR&ED program: </li></ul><ul><li>Submitting the claim for your own company </li></ul><ul><li>Referral fees </li></ul>

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