Technology tax credits for small businesses


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The presentation touches on various tax refund programs and grants for companies dealing with technology: SR&ED, OIDMTC, IRAP, Youth IRAP, SBIP and others.

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  • IT-related trades: 416e Electronic Service Technician 630a Micro-Electronics Manufacturer 631a Network Cabling Specialist 634a Technical Support Agent Information Technology Call Centre (formerly Information Technology CallCentre Agent)** 634b Information Technology Hardware Technician (formerly Hardware Info. Tech. Support Analyst)** 634c Information Technology Network Technician (formerly Network-Info. Tech. Support Analyst)** 634d Information Technology Call Centre Inside Sales Agent***(1) 634e Information Technology Call Centre Customer Care Agent***(1)
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  • Technology tax credits for small businesses

    1. 1. Incentive programs for technology-related small businesses A Brief Introduction December 2011
    2. 2. What is “ SR&ED ” ? <ul><li>The S cientific R esearch & E xperimental D evelopment (SR&ED) tax incentive program … money from the government to encourage businesses, from small to large, to pursue advancements in their own technical capabilities, regardless of the industry. </li></ul><ul><ul><li>Administered by the Canada Revenue Agency (CRA) </li></ul></ul><ul><ul><li>In 2010, provided over $5.5 billion annually in investment tax credits (ITCs) to more than 23,000 claimants </li></ul></ul><ul><ul><li>Approx 75% of claimants are small to medium businesses (SMB) </li></ul></ul>
    3. 3. What is “ SR&ED ” ? <ul><li>Not necessary to be a research lab to claim SR&ED. </li></ul><ul><li>Here’s a few examples of industries that have successfully claimed: </li></ul><ul><ul><li>Software </li></ul></ul><ul><ul><li>Telecommunications </li></ul></ul><ul><ul><li>Electrical and electronics </li></ul></ul><ul><ul><li>Printing and image processing </li></ul></ul><ul><ul><li>Energy and environment (cleantech) </li></ul></ul><ul><ul><li>Food industry (catering, bakeries, food plants, etcetera) </li></ul></ul><ul><ul><li>Manufacturing and metalworking; tools and dies </li></ul></ul><ul><ul><li>Dental labs </li></ul></ul>
    4. 4. What can SR&ED Do For The Claimant? <ul><li>Claimant may receive: </li></ul><ul><ul><li>A refund (cash) </li></ul></ul><ul><ul><li>A tax credit - reduction in taxes payable </li></ul></ul><ul><ul><li>Both of the above </li></ul></ul>
    5. 5. Who Can Claim? <ul><li>Canadian Controlled Private Corporations (CCPCs) </li></ul><ul><ul><li>Receive a refundable ITC applied first to taxes payable, refund on the balance </li></ul></ul><ul><ul><li>Different types of claimed SRED expenditures receive a differing ratio of refund: </li></ul></ul><ul><ul><ul><li>Payroll – 67% </li></ul></ul></ul><ul><ul><ul><li>Contractor payments – 40% </li></ul></ul></ul><ul><ul><ul><li>Materials – 40% </li></ul></ul></ul><ul><li>Proprietorships, Partnerships, Trusts </li></ul><ul><ul><li>Receive 50% of the refund enjoyed, on the same expenditures, compared to CCPCs </li></ul></ul>
    6. 6. Who Can Claim? <ul><li>SR&ED work claimed must be related to claimant’s business </li></ul><ul><ul><li>fundamental requirement </li></ul></ul>
    7. 7. A Sample Claim Scenario? <ul><li>Our sample company spent $100,000 on salary, of which 67 % (0.67) could be potentially refunded by SR&ED. They also spent $60,000 in sub-contracted consulting fees, of which 40 per cent (0.40) could potentially be refunded. </li></ul><ul><li>After detailed review, 75 per cent (0.75) of these costs were found to be eligible SR&ED expenditures. </li></ul><ul><li>The resulting calculation would be: $100,000 x 0.75 x 0.67 = $50,250 + $ 60,000 x 0.75 x 0.40 = $18,000 = Combined refund: $69,250 </li></ul>
    8. 8. Definition of SR&ED <ul><li>SR&ED is … “ systematic investigation or search carried out in a field of science or technology by means of experiment or analysis … to advance scientific knowledge or to achieve technological advancement” </li></ul><ul><li>from subsection 248(1) of the Income Tax Act </li></ul>
    9. 9. Categories for SR&ED work <ul><li>3 Categories for SR&ED work: </li></ul><ul><ul><li>Experimental Development (most common): work done to achieve technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes </li></ul></ul><ul><ul><li>Applied Research: work done to advance scientific knowledge with a practical application in view </li></ul></ul><ul><ul><li>Basic Research: work done to advance scientific knowledge without a practical application in view </li></ul></ul>
    10. 10. To Qualify – three criteria <ul><li>To qualify, work must meet all three of the following criteria: </li></ul><ul><ul><li>Technological Uncertainty or Obstacle </li></ul></ul><ul><ul><ul><li>When trained, experienced professional staff don’t know how best to proceed </li></ul></ul></ul><ul><ul><li>The pursuit of Technological Advancement </li></ul></ul><ul><ul><ul><li>About seeking , not finding: success is not a qualifying criteria </li></ul></ul></ul><ul><ul><ul><li>An incremental improvement to the performance of the underlying technologies in the project, or claimant’s know-how about them </li></ul></ul></ul><ul><ul><li>Scientific or Experimental Approach </li></ul></ul><ul><ul><ul><li>Systematic, and experimental </li></ul></ul></ul>
    11. 11. Work Directly in Support <ul><li>The law specifies 8 types of supporting work only, which must also be corresponding to the needs of the core research: </li></ul><ul><ul><li>Engineering </li></ul></ul><ul><ul><li>Design </li></ul></ul><ul><ul><li>Operations Research </li></ul></ul><ul><ul><li>Mathematical Analysis </li></ul></ul><ul><ul><li>Computer Programming </li></ul></ul><ul><ul><li>Data Collection </li></ul></ul><ul><ul><li>Testing </li></ul></ul><ul><ul><li>Psychological Research </li></ul></ul>
    12. 12. Not SR&ED, Not Ever <ul><li>The law excludes the following from being claimed: </li></ul><ul><ul><li>Market research or sales promotion </li></ul></ul><ul><ul><li>Quality control or routine testing of materials, devices, products or processes </li></ul></ul><ul><ul><li>Research in social sciences or humanities </li></ul></ul><ul><ul><li>Prospecting, exploring or drilling for, or producing minerals, petroleum or natural gas </li></ul></ul><ul><ul><li>Commercial production of a new or improved material, device or product, or the commercial use of a new or improved process </li></ul></ul><ul><ul><li>Style changes </li></ul></ul><ul><ul><li>Routine data collection </li></ul></ul>
    13. 13. Expenditures <ul><li>SR&ED is ultimately about linking a body of qualifying technical work with the costs of doing that SR&ED work, together with work that is directly in support </li></ul><ul><li>Claimable: </li></ul><ul><ul><li>Salaries and wages </li></ul></ul><ul><ul><li>Materials </li></ul></ul><ul><ul><li>SR&ED Contracts </li></ul></ul><ul><ul><li>Equipment lease costs </li></ul></ul><ul><ul><li>3 rd -party payments </li></ul></ul><ul><ul><li>Capital expenditures </li></ul></ul>
    14. 14. SR&ED Critical Concept <ul><li>A CRA science reviewer: “ the issue is not what you do with the technology, but what you do to the technology ” </li></ul>
    15. 15. SR&ED <ul><li>Q & A </li></ul>
    16. 16. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>Conducted by OMDC (Ontario Media Development Corporation) </li></ul><ul><li>A refundable tax credit that supports interactive media development in Ontario. Encourages development in the area of digital media </li></ul><ul><li>Eligible company: - Canadian or foreign-owned corporation - Operates in Ontario - Files Ontario tax return </li></ul><ul><li>A qualifying small corporation </li></ul><ul><ul><li>Gross revenue < $20 million, total assets < $10 million </li></ul></ul>
    17. 17. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>BETTER THAN SR&ED IN MANY ASPECTS </li></ul><ul><li>Can claim both OIDMTC and SR&ED for the same project, but no double dipping </li></ul><ul><li>Up to 40% of the qualifying expenditures </li></ul>
    18. 18. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>An eligible product must be: -  an interactive digital media product whose primary purpose is to educate, inform, or entertain - achieves its primary purpose by presenting information in at least two of the following formats:  text, sound and/or images </li></ul><ul><li>All of the product must have been developed in Ontario </li></ul><ul><li>Definition: a combination of one or more application files and data files, all in digital format, that are integrated and are intended to operate together </li></ul>
    19. 19. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>Several types of products </li></ul><ul><li>Non-specified products: developed by the claimant corporation (40%) </li></ul><ul><li>Specified products: developed under a fee-for-service for an arm’s length purchaser corporation (35%) </li></ul><ul><li>Digital games developed by qualifying or specialized digital game corporation (35%) </li></ul>
    20. 20. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>Digital games developed by a qualifying or specialized digital game corporation </li></ul><ul><li>A qualifying digital game corporation carries on a business that includes the development of digital games AND incurs $1 million in eligible labour expenditures in a 36 month period on a digital game </li></ul><ul><li>A specialized digital game corporation where most salaries and wages or most of the gross revenues for the year are directly attributable to the development of digital games; AND the company has incurred $1 million in eligible labour expenditures in the year on a digital game(s).  </li></ul>
    21. 21. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>A specified or non-specified product must be 90% or more developed by the applicant, and the product must be completed before claiming OIDMTC </li></ul><ul><li>Digital games qualify even if the corporation is responsible for developing less than 90% of the product, and the product is not completed </li></ul><ul><li>Specialized digital game corporations can file annually </li></ul>
    22. 22. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>What kind of products are eligible for the OIDMTC? </li></ul><ul><li>Typical examples: digital games, e-learning products, online information and entertainment websites, such as online magazines or newspapers, which primarily inform, educate, or entertain </li></ul><ul><li>Are products like webinars, webisodes, or mobisodes eligible? </li></ul><ul><li>The streaming video/audio content policy has been re-evaluated, and products that are made up of more than 50% streaming video or audio content may now be eligible for the OIDMTC, as long as the user has a choice of information to be presented, and the sequence and form in which it is presented </li></ul>
    23. 23. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>Product should NOT be intended for interpersonal communication or promote the corporation’s products/services </li></ul><ul><li>The content of commercial advertisement and promotional materials should not exceed 50% </li></ul><ul><li>Social networking sites are not eligible (90% content rule) </li></ul><ul><li>Online catalogues are not eligible (no promotion rule) </li></ul><ul><li>No double-dipping with SR&ED </li></ul>
    24. 24. Ontario Interactive Digital Media Tax Credit (OIDMTC) - process <ul><li>Application fee of 0.1% of the total qualifying expenditures (minimum $100) </li></ul><ul><li>Application is submitted to OMDC for a certificate of eligibility (usually within 3-5 months) </li></ul><ul><li>Then the certificate is filed together with the corporate tax return for the refund </li></ul><ul><li>No refund for projected expenditures </li></ul>
    25. 25. Ontario Interactive Digital Media Tax Credit (OIDMTC) - eligibility <ul><li>Eligible expenditures: labour (employees and subcontractors, no cap ), marketing and distribution (up to 100K) </li></ul><ul><li>Goes back 3 years from the project completion date (determined by you) </li></ul><ul><li>New versions of the same product can be claimed in case of significant changes. The difference can be the content, the underlying technology, or a combination of the two. </li></ul><ul><li>The new application for website can be made once in 2 years only </li></ul>
    26. 26. Ontario Interactive Digital Media Tax Credit (OIDMTC) <ul><li>Q & A </li></ul>
    27. 27. Other Programs and Opportunities <ul><li>Here are a few other opportunities and programs that may be of interest: </li></ul><ul><ul><li>Industrial Research Assistance Program (IRAP) </li></ul></ul><ul><ul><ul><li>NRC-IRAP </li></ul></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><ul><li>NRC Youth IRAP </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul>
    28. 28. Other Programs and Opportunities – cont ’ d <ul><ul><li>Small Business Internship Program ( SBIP )   </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><ul><li>Apprenticeship Training Tax Credit (ATTC) Ontario </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><ul><li>MITACS Accelerate </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul>
    29. 29. NRC-Industrial Research Assistance Program (IRAP) <ul><li>The National Research Council – Industrial Research Assistance Program </li></ul><ul><li>Company must be Canadian, have 500 employees or fewer, and be involved in advancing their technology and innovations through R&D </li></ul><ul><li>Funding for in-house technical labour or sub-contracted labour </li></ul><ul><li>Requirements apply </li></ul>
    30. 30. NRC-Industrial Research Assistance Program (IRAP) – differences from SR&ED BEFORE or AFTER PROJECT COMPLETION IRAP SR&ED OIDMTC
    31. 31. NRC-Industrial Research Assistance Program (IRAP) – differences from SR&ED <ul><li>You must prepare an proposal and apply for funding in advance, obtaining approval </li></ul><ul><li>Reduces subsequent SR&ED claim </li></ul><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>
    32. 32. NRC Youth IRAP <ul><li>Company eligibility criteria similar to NRC-IRAP program </li></ul><ul><li>Provides financial assistance to hire post-secondary graduates in science, engineering, technology, business and liberal arts, aged 15-30 </li></ul><ul><li>Work on technical or technology-related projects </li></ul><ul><li>Internship: 6-12 months (maximum) </li></ul><ul><li>Maximum contribution is $30,000 towards salary costs </li></ul><ul><li> </li></ul>
    33. 33. Small Business Internship Program (SBIP) <ul><li>Provides financial assistance to hire post-secondary students to enhance e-business capability of the company </li></ul><ul><li>Students under 30 intending to return to studies </li></ul><ul><li>Must be pre-approved against a list of criteria: </li></ul><ul><li>The student intern must gain meaningful work experience </li></ul><ul><li>Company eligibility criteria similar to IRAP </li></ul><ul><li>Company must contribute a minimum of 25% of student wages and expenses </li></ul><ul><li>Program provides up to 75% of the eligible wages and related expenses, max of $10,000 </li></ul><ul><li> </li></ul>
    34. 34. Apprenticeship Training Tax Credit (ATTC) Ontario <ul><li>The credit is equal to a specified percentage (35% to 45%) of the eligible expenditures. Max $10,000 per year per apprentice per year, max 4 years </li></ul><ul><li>Qualifying skilled trade approved by the Ministry of Training, Colleges and Universities (see the list here: ) </li></ul><ul><li>Corporation and apprentice are participating in apprenticeship program: </li></ul><ul><ul><li>registered under the Ontario College of Trades contract of apprenticeship </li></ul></ul><ul><ul><li>registered under the Trades Qualification and Apprenticeship Act </li></ul></ul>
    35. 35. MITACS-Accelerate <ul><li>A national internship program, managed by MITACS (a national not-for-profit research organization) </li></ul><ul><li>Connects companies with over 50 research-based universities through graduate students and postdocs, who apply their specialized expertise to business research challenges </li></ul><ul><li>Each 4-month internship project receives $15,000 in direct funding, with the partner organization and Mitacs each providing $7,500 . 10K goes to the intern and the rest to project funding </li></ul><ul><li>Applications are accepted throughout the year and projects may begin at any time </li></ul><ul><li>http:// /accelerate </li></ul>
    36. 36. Other Programs and Opportunities – cont ’ d <ul><li>OCE (Ontario centers of excellence) – various programs </li></ul><ul><ul><li>Commercialization </li></ul></ul><ul><ul><li>Talent development </li></ul></ul><ul><ul><li>Technology transfer partnership </li></ul></ul><ul><li>IDF (Innovation Demonstration Fund) - a discretionary, non-entitlement funding program administered by the Ministry of Economic Development and Innovation, focusing on emerging technologies, with a bias for green technologies. Supports pilot demonstrations that will lead to the commercialization of processes and/or products in Ontario. Covers up to 50% of eligible costs </li></ul>
    37. 37. Other Programs and Opportunities – cont ’ d <ul><li>CONII (Colleges Ontario Network for Industry Innovations) - financial support for industry-driven applied research and commercialization projects in partnership with its member colleges </li></ul><ul><li>JCP - Ontario Job Creation Partnerships ( wage subsidy for your community-based projects, when you give job seekers meaningful work experience; they should be EI eligible or having had received EI in the past 3 years ) </li></ul><ul><li>FedDev – various programs (Ontario) </li></ul><ul><li>OETF - Ontario Emerging Technologies Fund, coinvesting in focus areas </li></ul>
    38. 38. Other Programs and Opportunities – cont ’ d <ul><li>Yves Landry foundation AIME program: for Ontario manufacturing companies (15-1500 employees), up to $50,000 per company in the form of a grant to foster training that will lead to advancements in innovation </li></ul><ul><li>Investment Accelerator Fund (IAF) helps accelerate the growth of new technology companies being established in Ontario and positions them for further investment by angels and venture capitalists. </li></ul>
    39. 39. Thank you <ul><ul><li> </li></ul></ul><ul><ul><li>647-588-7777 </li></ul></ul>