Manitoba’s budget, announced on March 23rd, made changes to how the provincial refund would be given to companies. Starting in 2011, all SR&ED performed in Manitoba will be eligible for a partially refundable tax credit – previously, only companies working with institutions in Manitoba were eligible, all other companies received a non-refundable tax credit. (A non-refundable tax credit is applied directly to your taxes, so if a company did not have a profitable year and did not owe any taxes, then they would not have access to the tax credit.) In 2011, companies can receive a quarter of their tax credit; in 2012, companies can receive half of their tax credit.

Quebec’s budget, announced on March 30, made changes to what was eligible for their provincial refund. Additional costs that are now applicable for this provincial credit are costs to use pharmaceutical companies or clinical research organizations. As well, the wage credit has been modified slightly so that owner-managers of eligible companies can be treated as an eligible employee.

These changes reflect that the Manitoba and Quebec governments are improving their provincial budgets in order to help companies in those provinces who are involved with doing innovative work in their field.

• This year, Canada will have the lowest overall tax rate on new business investment in the G7.
• By 2012, Canada will have the lowest statutory corporate income tax rate in the G7.
• Canada’s federal tax-to-GDP (gross domestic product) ratio is at its lowest level since 1961.
• As a result of the expiration of the Economic Action Plan and the measures in this budget, the deficit is projected to decline by almost half over the next two years to $27.6 billion in 2011–12, and by two-thirds to $17.5 billion in 2012–13. In 2014–15, the deficit is projected to be $1.8 billion.
• Finance minister predicts real growth in economy of 2.6% in 2010 and 3.29% in 2011.
• One objective was to maintain or create 220,000 jobs – Action Plan has contributed to the creation of over 135,000 jobs recorded since July, 2009.

Budget Highlights

• Under Year 2 of Canada’s Economic Action Plan, $19 billion has been allotted in new federal stimulus to create and maintain jobs, complemented by $6 billion from provinces, territories, municipalities and other partners;
• Over $4 billion in actions to create and protect jobs. This includes additional Employment Insurance (EI) benefits and more training opportunities to help unemployed Canadians through this difficult period, and help ensure they are equipped to re-enter the workforce and prosper in the future.
• $7.7 billion in infrastructure stimulus to create jobs. This will modernize infrastructure, support home ownership and improve social housing across Canada. This builds on the $8.3 billion investment in infrastructure and housing delivered in 2009–10.
• $2.2 billion to support industries and communities. This will support adjustment and provide job opportunities in all parts of Canada that have been hit hard by the economic downturn. It provides support for affected sectors, including forestry, agriculture, small business, tourism, shipbuilding and culture.
• Providing $3.2 billion in personal income tax relief to support growth and job creation.
• Delivering $1.6 billion to strengthen benefits for the unemployed.

Business Relief

• Making Canada a tariff-free zone for industrial manufacturers by eliminating all remaining tariffs on machinery and equipment and goods imported for further manufacturing. When fully implemented, this will provide $300 million in annual duty savings for Canadian business to support investment and growth and create jobs.
• Providing $7.2 million over two years to improve Canadian fish and seafood industry access to the international marketplace.
• Delivering $75 million over three years to support investments by Canadian cattle processing plants to help improve their operations to ensure cattle producers have access to competitive cattle processing operations in Canada.
• Launching a new Small and Medium-sized Enterprise Innovation Commercialization Program with $40 million over two years.
• Satellite and cable set-top boxes acquired after March 4, 2010 will qualify for a 40% declining balance capital cost allowance rate.
• Freezing the Employment Insurance premium rate at $1.73 per $100 of insurable earnings to the end of 2010—the lowest rate since 1982—in order to leave more money in the hands of employers and employees.

Research and Development

• Providing $45 million over five years to establish a post-doctoral fellowship program to help attract the research leaders of tomorrow to Canada.
• Doubling the budget of the College and Community Innovation Program with an additional $15 million per year.
• Delivering $222 million in funding over five years to strengthen the world-leading research taking place at TRIUMF, Canada’s premier national laboratory for nuclear and particle physics research.
• Increasing the combined annual budgets of Canada’s research granting councils by an additional $32 million per year, plus an additional $8 million per year to the Indirect Costs of Research Program.
• Renewing and making ongoing $49 million in annual funding for the regional development agencies to support innovation across Canada.
• Establishing the Next Generation Renewable Power Initiative, with $100 million over the next four years to support the development, commercialization and implementation of advanced clean energy technologies in the forestry sector.
• Providing Genome Canada with an additional $75 million for genomics research.

Environmental Measures

• Expand the types of property that are included in Class 43.2 (specified clean energy generation and conservation equipment) generally for assets acquired after March 3, 2010
• Allowing more corporations to transfer or “renounce” Canadian Renewable and Conservation Expenses to an investor using flow-through shares, retroactive to taxation years ending after 2004.
• Establishing the Next Generation Renewable Power Initiative, with $100 million over the next four years to support the development, commercialization and implementation of advanced clean energy technologies in the forestry sector.
• Expanding eligibility for accelerated capital cost allowance for investment in clean energy generation assets.

Strengthening the Financial Sector

• Canada’s financial sector has been widely acknowledged as being one of the strongest in the world. Budget 2010 will further strengthen the sector by moving forward with the majority of provinces and territories toward a Canadian securities regulator, extending access to financing for Canadian businesses, and enhancing disclosure and financial institutions’ business practices to better protect consumers. Moving forward with the majority of provinces and territories to establish a Canadian securities regulator within the next three years.
• Extending access to financing through continuation of the Business Credit Availability Program (BCAP) and the creation of the Vehicle and Equipment Financing Partnership under BCAP.
• Moving ahead with a Code of Conduct for the Credit and Debit Card Industry in Canada and proposing legislation to provide the Minister of Finance with the authority to regulate the market conduct of the credit and debit card networks, if required.

Interest on overpaid taxes

• Effective July 1, 2010, the interest rate payable to corporations in respect of income tax, Goods and Services Tax/Harmonized Sales Tax among other things, will decrease by 2 percentage points.

Taxation of corporate groups

• The budget announces that the government will explore new rules for the taxation of corporate groups, including a formal loss transfer system or consolidated reporting.

The Budget stills needs to pass through Ascension so nothing is written in stone just yet, but there are very positive steps being taken to ensure the recovery and growth of Canada. There is a big focus being placed on Canada’s financial status with initiatives being put in place to ensure that Canada stays on track with the plan to reduce our deficit, and also to rank Canada as a powerhouse in the G7 group. Each of the major industries had certain requests to lighten the stress that has been placed during the recession, and although not all demands will be met, the government has introduced some progressive plans and things are certainly looking up.

Canadian Manufacturers

• More than 239,000 jobs lost in 2009
• Sales of Canadian produced goods fell from monthly peak average of $54B mid 2008 to a low of $34B mid 2009 (consumers stopped buying, foreigners stopped importing, and banks stopped lending in 2009)
• According to Canadian Manufacturers and Exporters (CME) foreign merchandise sales from August 2008 to August 2009 fell 31.6%
• Canadian manufacturers want Ottawa to start cutting the deficit and national debt without boosting taxes
• Also asking for tax changes to allow money spent on employee training to be applied towards reducing company’s EI premiums

Lumber and Pulp-and-Paper

• Rising Canadian dollar negatively impacted the industry’s exports
• US housing starts dropped 38% in 2009 (National Association of Realtors)
• Softwood lumber shipments down 21% and Pulp-and-Paper down 18% during first 11 months of 2009 compared to same period in 2008
• Canadian log cutters looking to emphasize new products rather than new markets
• Asking Ottawa for a switch to production of bio-fuel and bio-products through tax incentives and a made-in Canada energy policy that will enable them to better tap into the fast expanding green market

Information Technology

• The IT sector was hit far less than other industries – PC shipments down 2% in 2009 (source: Gartner)
• Gartner predicts that PC shipments will increase by 12.6% in 2010
• The Information Technology Association of Canada (ITAC) is asking the federal government to stick to their plan of expanding the country’s broadband network
• Also want to extend 2011 deadline to end favourable tax treatment of computers and software (temporary 100-per-cent capital cost allowance (CCA) rate for computers acquired after January 27, 2009 and before February 1, 2011)

Oil and Gas

• At 2008 peak, barrel of Brent oil from North Sea cost $144.95 US and that same barrel went for $38.12 US a year later
• US Energy Information Administration predicts that a barrel of West Texas Intermediate crude (average price of $61.66 US/barrel in 2009) will be $79.78 in 2010 and should rise to $83.50 in 2011
• Canadian Association of Petroleum Producers (CAPP), which measures oil activity in terms of capital spending forecasts that members will invest $40B in exploration and production in 2010 compared to $34B that the same companies spent in 2009
• CAPP asking Ottawa to allow oil drillers to write off 100% of exploration costs in the first year (to delay phase-out of accelerated tax write-off treatment for oil sands development costs) and to expand existing scientific tax credits

Banks

• In 2008, the top 8 Canadian banks earned $474B which is a drop of 35% or $25B from a year earlier but saw a gain of 33% for the 3-month period ending October 31,2009
• Canada avoided most of the turmoil because our major banks weren’t huge buyers or sellers of exotic debt instruments
• Bankers want to see Ottawa stick to their current plan of cutting corporate income tax to 15% by 2012 and to implement recommendations that came from a 2008 advisory panel concerning international taxation
• Also asking that the federal government allow for consolidated tax reporting by Canadian companies

Stay posted for more updates on the Federal Budget and how your business could be impacted!

Lines of credit have almost completely dried up in this recession, and it’s harder than ever for businesses to fund their new development projects.  Ontario’s Advanced Manufacturing Investment Strategy (AMIS) is a great venue for Ontario manufacturers to pursue. What’s more, AMIS is available to companies from all manufacturing sectors in Ontario. The $500 million dollar provincial program focuses on:

• industrial R&D
• design/prototyping/engineering
• new/ advanced products/materials
• advanced manufacturing processes
• robotics/software development
• waste reduction
• energy conservation

AMIS, when granting a loan, can provide up to 30% of the total eligible costs of a project (up to a limit of $10M). This funding is given in the form of a repayable loan. The loan is interest free and principal free for up to five years, providing the company receiving it meets job and investment targets mutually agreed upon between the company and the province. After that period, the repayment rate is the province’s cost of borrowing, plus an additional 1%.

To be eligible, projects must create and/or retain at least 50 jobs. Alternatively, the projects must invest $10 million over the 5 year period. The costs eligible for the loan (excluding ongoing costs of production or operations) include:

• research and development
• equipment and machinery
• materials
• construction/facility improvements
• training
• overhead
• labour (one time only)

The terms for the loan are negotiated individually. After completing the application process, most companies receive word of the province’s decision within a relatively speedy 45 calendar days. This sometimes may take longer for the more complicated applications. The Minister of Finance, along with the Minister of Economic Development, approve or deny applications based on the guidelines of the AMIS Assessment Committee.

What’s more, for those manufacturers who regularly claim for SR&ED, receiving an AMIS loan has no impact on SR&ED eligibility. The AMIS loan is not affected if a business has already received an SR&ED return or income tax credits.  Companies that have received AMIS funding often include extra cash procured by SR&ED towards their projects. In fact, any business that has received SR&ED credits is more likely to be meeting the AMIS eligibility requirements.

For more information about AMIS, visit http://www.ontariocanada.com/ontcan/en/progserv_amis_en.jsp

Buying foreign has become of great interest to our company recently, especially as we have the order quantities to justify the purchases and save significantly. We also do not have the local manufacturing resources for particular products.  We, like any company, are in search of the benefits of having quality goods produced from offshore countries at a competitive price.

For example, China manufacturers have progressed a great deal in recent years in terms of quality, technology and overall management; therefore there is reason to have more faith in their service, quality and overall handling of orders.

Below are some of the reasons as to why China is so successful on a global economic scale, and why importers around the globe are looking to purchase more and more from China to maximize their buying power:

1. Low overheads & labour rates
2. Large population
3. Huge industrial base
4. Supportive government
5. Growing infrastructure

There are obviously great benefits to buying offshore, but at the same time there are also potential risks and disadvantages. That is why it’s critical to establish your suppliers in business-developed countries such as China and Italy. By working closely with your foreign sources, you can gain that trust, partnership, quality, service, and profitability as long as communication is kept clear and flowing between you and your suppliers/sources.

There are only two ways to find an overseas supplier. One is to purchase directly from the supplier, the other to go through a procurement Specialist/third party. We utilize both options. Going the direct route, however, poses many difficulties. Besides the obvious language and cultural barriers, there is the issue of distance. For example, I cannot see a product or test it while it’s all the way in Italy. However; if my agent is located in Italy he or she can go and analyze the product on my behalf. Furthermore, if I lack experience in sourcing a particular product, the agent can assist.

Locating the perfect supplier is only the first step. Monitoring, quality control, and punctual delivery are all equally important. None of them can be handled effectively alone long distance.

Therefore, in most cases, unless a company is planning to hire knowledgeable staff and set up an offshore-based procurement office, the direct approach can be a tricky proposal for most.  That is why more and more businesses are using a third party agency. These agencies charge a small fee, but are very helpful when facilitating your offshore purchasing initiatives. They will connect with the right people and communicate between you and the suppliers to obtain the best value, optimum product and best services for your company’s dollar.

Some points to keep in mind when purchasing foreign:

• Do your research on the suppliers and products.
• Visit sources if feasible, see what their facilities look like, what technology they are utilizing, what type of staff they have , their capabilities etc.
• Negotiate everything, payment terms, pricing, freight, lead-times, as nothing is in stone. Ask for references from the potential suppliers, visit their website, see product reviews, testimonials from customers etc.
• Check to see if they have quality standards set in place, and what their procedures are. How long they been in business?
• Always get samples for your own testing purposes prior to purchasing anything offshore.
• Always keep in mind currency differences, freight charges, customs fees, long lead-times and duties for any product or service that is purchased from overseas as this might determine if purchasing offshore is suited for your company or not.