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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  • IAF Invests in early stage, privately-held companies with no significant revenue or institutional investment. These companies must demonstrate their potential to achieve high growth and be enabled by truly innovative technologies that can provide the new venture with sustainable competitive advantage.
  • 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>http://www.waterloomin.com/blogs/financeblo/nrcirapano </li></ul></ul></ul><ul><ul><li>NRC Youth IRAP </li></ul></ul><ul><ul><ul><li>http://www.nrc-cnrc.gc.ca/eng/services/irap/youth-initiatives.html </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>http://www.ic.gc.ca/eic/site/sbip-pspe.nsf/eng/home </li></ul></ul></ul><ul><ul><li>Apprenticeship Training Tax Credit (ATTC) Ontario </li></ul></ul><ul><ul><ul><li>http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/prv/on/pprntcshp-eng.html </li></ul></ul></ul><ul><ul><li>MITACS Accelerate </li></ul></ul><ul><ul><ul><li>http://www.mitacs.ca/index.php?option=com_content&view=article&id=243&Itemid=6&lang=en </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>http://www.nrc-cnrc.gc.ca/eng/services/irap/youth-initiatives.html </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>http://www.ic.gc.ca/eic/site/sbip-pspe.nsf/eng/home </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: http://www.rev.gov.on.ca/en/bulletins/ct/3020.html#appendixa ) </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:// www.mitacs.ca /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>www.sredunlimited.com </li></ul></ul><ul><ul><li>647-588-7777 </li></ul></ul>

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