Archive for the ‘Linking Grants to SR&ED’ Category

Newfoundland and Labrador Interactive Digital Media Tax Credit

Originally announced as part of the 2015 Provincial Budget released in April, the government of Newfoundland and Labrador has recently finalized and implemented a new interactive digital media tax credit to support businesses in the competitive digital media industry. The Newfoundland and Labrador Interactive Digital Media (IDM) Tax Credit will offer a 40% refundable rate on eligible labour and remuneration costs incurred while developing an eligible product between January 1, 2015 and December 31, 2019.

The credit will be available to taxable, interactive digital media development companies with a permanent establishment in NL who have registered with the NL Film Development Corporation. For a product of such a company to be eligible for the new tax credit, the product will have to meet the following qualifications:

  • The interactive product has the primary purpose to educate, inform, or entertain;
  • The interactive product presents information using at least two of text, sound, and images;
  • The interactive product is intended to be used by individuals for purposes other than interpersonal communication and is non-promotional; and
  • The interactive product must provide feedback to the user, allow the user to control what information is presented and when, and the product must adapt to the user’s needs (if appropriate).

Not all products that meet the above criteria are eligible, so please consult the NLIDM website for a complete explanation of eligibility.

If a product is eligible, the credit can be awarded up to a value of $40,000 per employee, with a maximum of $2,000,000 in labour and remuneration claimable. While employee labour is claimable up to 100% of development time, it should be noted that remuneration costs will only be claimable to a maximum of 65%. Unlike other provincial IDM programs, the NLIDM credit must be claimed in respect of the year that the expenses were incurred and this claim must be submitted to the Minister of Finance within six months of the end of the taxation year.

While the tax credit is currently managed by the Ministry of Finance, it will transition to the CRA beginning in May 2016. This means that digital companies in Newfoundland and Labrador should try to not only take advantage of this new program, but also look at Scientific Research and Experimental Development (SR&ED) tax credits, which are also filed with the CRA. With a 15% provincial SR&ED top-up available, companies that submit claims under both these programs can benefit from significant tax returns to continue innovative product development.

Linking Government Grants to SR&ED: Digital Media Sector

Over the last twenty years, indirect funding has become the most common source of funding for eligible research and development (R&D) work. The Scientific Research and Experimental Development (SR&ED) tax incentive program has been used as one of the main indirect funding sources by countless companies performing R&D. Although SR&ED continues to help companies remain competitive through supporting innovative development, direct funding from repayable and non-repayable grants is beginning to gain momentum.

In Canada, companies in the digital media industry can benefit from both direct and indirect funding. Currently, digital gaming for online, mobile platforms is making major headway in Canada. Game development relative to improvements in concurrency, presentation, processing power, cross-platform development, simulation and motion capture, as well as mobile or online gaming are eligible for indirect funding through SR&ED. Moreover, interactive digital media (IDM) companies can receive direct funding through the Canada Media Fund (CMF) to cover expenditures related to the development, production, and marketing of IDM products.

There are two streams in CMF: convergent and experimental. The convergent stream is for development projects, whereas the experimental stream provides funding for development, production, and marketing and promotion. Technology infrastructure, project audit fees, research and content preparation, salaries and benefits, and travel and accommodation are eligible expenditures. Additionally, IDM companies can receive funding through the experimental stream for expenditures related to the cost to put digital content online, such as copyright clearance and translation costs.

Upcoming Digital Media Events in Ontario

Digital media professionals do more than create software and content that entertain the masses. They also play a big part in helping medical professionals work together to improve patient care and save lives. On October 14, Interactive Ontario is hosting Interact: Hacking Healthcare in Toronto. This two-hour event from 6-8 p.m. is for digital media professionals who want to gain more knowledge on new opportunities relative to digital media innovations in the health care industry. In addition to networking, presentations will be delivered on DementiaHack as well as on obstacles in design that are affecting medical technology innovation in Canada.

Another event hosted by Interactive Ontario on October 14 is iLunch 14.7 – Rights Clearances and Insurance for Digital Content. This session will help professionals better understand the legal and insurance intricacies of clearing digital media content in Canada, including Errors & Omissions insurance coverage. The doors open at noon.

Interactive Ontario helps boost the interactive digital media industry in Canada. This not-for-profit association helps hundreds of companies in this industry by offering informative events, government advocacy, and opportunities relative to business development and partnerships. These companies develop a plethora of technology innovations, such as eLearning and virtual reality, which can be eligible for funding through the Scientific Research and Experimental Development (SR&ED) program.

Linking Government Grants to SR&ED: Capital Equipment

The Canadian government allocates a portion of the Gross Domestic Product (GDP) to direct and indirect funding for businesses. Direct funding is made available in the form of repayable and non-repayable grants, while indirect funding is available in the form of tax credits. The most widely known indirect funding program is the Scientific Research and Experimental Development (SR&ED) tax credit- a $3 billion initiative, which supports companies that are investing in research and development; however, the Canadian government is starting to shift its focus from indirect tax credit programs to introduce new direct funding programs for businesses.

The SR&ED program previously allowed businesses to claim capital equipment expenditures but changes to the program, that came into effect January 1, 2014, eliminated capital equipment as an eligible expenditure. The government has since reallocated funds from indirect mechanisms towards direct funding programs like CME Smart and FedDev Ontario’s Investing in Business Growth and Productivity. The introduction of these programs has allowed businesses to apply for support for their capital equipment purchases alongside their yearly SR&ED claim submissions.  Furthermore, the purchase of capital equipment may be linked to the development of new (or the improvement of existing) manufacturing processes- the labour component of the process improvement projects may be eligible for SR&ED tax credits.

Our NorthBridge team of business analysts can help identify eligible projects for both SR&ED and grant funding programs. We also assist with the completion of application information, the preparation of financial information, the creation of business plans, and the required reporting after application submission.

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Linking Government Grants to SR&ED: Business Expansion

In order to sustain a thriving economy, the government of Canada continually invests in business growth and expansion through various direct and indirect sources of funding. Over the past five years approximately 35% of Canadian gross domestic expenditure on R&D was financed by both direct and indirect government funding initiatives. Although the majority of financing is in the form of indirect funding, such as the SR&ED tax credit program, the Canadian government has recently increased emphasis on direct government funding sources such as repayable and non-repayable grants. Direct and indirect funding sources can work together to provide solutions for business growth at various stages of advancement from product development to global market expansion, thereby, enabling businesses to continually improve and grow.

Large-scale business expansion projects may be eligible for direct funding in the form of a repayable, interest-free loan through the Investing in Business Growth and Prosperity (IBGP) program. The IBGP program helps established business with global market share potential and innovative prospects to increase competitiveness and growth as well as create jobs by supporting the implementation of new technologies/ processes in addition to expansion of existing markets and facilities.

After the expansion project is complete, eligible SR&ED expenditures related to experimental development can generate indirect funding via Investment Tax Credits (up to 35% of eligible expenditures for CCPC’s and 15% for foreign owned/ public corporations) for costs already incurred. This provides a source of annual funding or tax savings that can be re-invested into innovation and growth.

Various funding opportunities may be leveraged in conjunction to suit the specific objectives and needs of your company. Our NorthBridge team of business analysts can help identify eligible projects for both SR&ED and grant funding programs. We also assist with the completion of application information, the preparation of financial information, the creation of business plans, and the required reporting after application submission.

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