Archive for the ‘SR&ED News’ Category

The Office of the Taxpayer’s Ombudsman released word on their investigation into the Canadian SR&ED program this week. The OTO committed to looking into the program’s service and administrative fairness after hearing of “dissatisfaction” with the SR&ED program from claimants and representatives. The OTO set out with a firm objective: “Through research and analysis, we had hoped to assess whether the CRA is administering the SR&ED program fairly and providing professional service to claimants. We expected that our investigation of complaints and analysis of the issues would result in the publication of a Special Report with recommendations.”

The results of the study were somewhat surprising following the Jenkins report – the OTO released no recommendations or complaints with the program. The OTO comments: “Although we heard numerous accounts of discontent with the SR&ED program among claimants, we were unable to validate many of the criticisms due to a lack of complaints to investigate.” During consultations with tax intermediaries and claimants, the OTO “urged them to file formal complaints with our Office,” but most declined to do so.

The OTO released an Observation Paper, containing observations on issues raised by stakeholders within the OTO mandate. Issues examined include:

-          Regional comparisons

-          Preliminary Eligibility Discussions

-          Rationale provided for ineligible claims

-          Administrative Second Review by the CRA

-          Appeals Process

Read the Observation Paper in full here for detailed findings.

The Alberta Scientific Research and Experimental Development (SR&ED) program provides a tax credit to Alberta corporations for eligible expenditures incurred after December 31, 2008. The credit is worth 10% of a company’s eligible SR&ED expenditures in Alberta up to a $4 million expenditure limit, for a maximum credit of $400,000, and it is refundable for all companies.

The Alberta government reviewed the SR&ED program in 2011, and based on feedback from all stakeholders, it was determined that the program is working as intended. Currently, the federal SR&ED investment tax credit associated with expenditures in Alberta reduces the eligible expenditure base used to calculate the Alberta credit in the following year.  In the 2012 budget, in order to increase the effectiveness of the SR&ED program, it has been proposed that this “grind” will be eliminated, effective for tax years ending after March 31, 2012.

On February 16^th 2011, Health Canada announced new regulations to strengthen labelling requirements by necessitating the use of clearer language and declaration of specific priority allergens, gluten sources and added sulphites for prepackaged foods sold in Canada.  

Canada’s new food allergen labelling regulations will come into effect on August 4th 2012.

Currently, prepackaged foods must carry a label listing ingredients in decreasing order of proportion, although components of certain ingredients or classes of ingredients are exempt from the list.

In accordance with the new regulations, the following foods or proteins derived from the following foods are considered priority food allergens in Canada and as such will be required to be listed on the label:

- Almonds, Brazil nuts, cashews, hazelnuts, macadamia nuts, pecans, pine nuts, pistachios, walnuts and peanuts

- Sesame seeds

- Wheat and triticale

- Eggs

- Milk

- Soybeans

- Crustaceans, fish and shellfish

- Mustard seeds

In addition, foods containing gluten protein or modified gluten protein from barley, oats, rye, triticale or wheat, including kamut or spelt will need to declare the gluten source. Lastly, added sulphites will have to be declared when sulphites in the product exceed 10 parts per million or when directly added to a food.  

With consideration of food shelf life and the difficulty involved in implementing the new requirements for existing products, the food industry was given 18 months by Health Canada to implement the new requirements.

In order to ease the transition to the new labelling requirements, Health Canada and the Canadian Food Inspection Agency is continuously working with members of the food industry and providing updated information regarding the new requirements on the Health Canada Website.

The implementation of new regulations into existing products can often be an overwhelming endeavor for food producers who are forced to invest in product improvement and reformulation. Working towards the elimination of these or other obstacles can be a costly endeavor, making the Scientific Research and Experimental Development (SR&ED) program extremely beneficial to Canadian food producing companies. The SR&ED federal tax incentive program provides annual tax refunds to offset the costs of product improvement and development.

Your company may be eligible for SR&ED tax refunds if you have:

- made changes to eliminate allergens or to improve the nutritional properties of your product

- altered your product to increase its quality or shelf life

- upgraded production to a commercial scale

- invested in any projects to decrease water consumption, or improve heating/cooling processes.

To see how the experts at NorthBridge can help you with your SR&ED claim, or if you are unsure whether the work you do qualifies for the SR&ED program, contact us now for a [peanut-]free consultation.

The Ontario Power Authority (OPA) is “moving forward with its commitment to review the Feed-In Tariff (FIT) Program” (read here), concerning the FIT review (scheduled for every two years) announced October to investigate price reduction, long-term sustainability, clean energy job creation and the renewable approval process. Renewable Energy World predicts late February will bring about provincial government directionality for changes to the FIT program, allowing Ontario’s renewable energy sector to resume momentum.

The feed-in tariff, similar to the standard offer contract, advanced renewable tariff or renewable energy payments, is a system conceived to incentivize development of renewable energy-fueled distributed electrical generation projects and stimulate economic development of associated industry. Renewable energy sources include biomass, biogas, landfill gas, on-shore wind, solar photovoltaic (PV) and waterpower. The Ontario FIT program enables individuals and businesses generating electricity to sell the energy generated back to the province at a fixed rate over a 20-year contract.

Nova Scotia is the second province to introduce a feed-in tariff incentive through its Community Feed-in Tariff (COMFIT) program, and the first policy in North America to specifically pay for community-owned tidal power plants, with the initial round of approvals having been in December 2011.

In light of possible rate reductions in the OPA’s FIT program, renewable energy development costs could be offset by taking advantage of the SR&ED program as a means of funding, with the potential of receiving tax credits of up to 72% of labour and overhead costs related to eligible scientific research and experimental development endeavours. As a burgeoning, R&D-heavy industry, companies within the renewable energy sector have a prime opportunity to take advantage of the innovation federal and provincial tax incentives. NorthBridge is a board-approved Canadian Solar Industry Association (CanSIA) and Ontario Sustainable Energy Association (OSEA) member, advocating SR&ED within the renewable energy sector through workshops, webinars, and the development of industry-specific eligibility guidelines.

 If Ontario has to wait with baited breath for renewable energy policy reform – let’s hope it’s with clean air.

SR&ED and NRC IRAP are both substantial business support programs offered by the Canadian federal government.  However, one of the major differences between the 2 programs is that NRC IRAP endorses direct up-front funding, whereas SR&ED is a tax credit for expenses that have already been incurred.

In light of the recent Jenkins report, there has been significant discussion over the benefits and drawbacks of direct funding.  Direct funding allows the government to “pick winners” and scrutinize where funding is allocated, according to government policy.  Because companies who receive direct funding have to present a business case for each and every funding application, it allows the government to put “checks and balances” in place to ensure that the funding will be utilized for its intended purpose.  Direct funding mechanisms were pivotal in building capabilities in what became leading sectors in Ontario.

However, the downside of direct funding models, is that, according to a research paper by Nelson and Langlois (1983), the practice of “picking winners” by the government was the least successful form of government support.  Direct funding generally creates a larger administrative burden, especially to smaller enterprises and start-up ventures, who can ill afford to have an in-house grant writing team.  A Canadian firm intent on bringing its technology to market will likely be deterred from seeing assistance through direct funding because the lengthy approval process can delay the onset of time-sensitive work.

Secondly, a move towards direct funding could threaten the global competitiveness of Canadian enterprises.  International trade agreements, such as the World Trade Organization Agreement on subsidies and Countervailing Measures, cap direct subsidies to business.  For example, the controversial US-Canada lumber dispute revolved around Canadian stumpage fees being too low, making the fees de facto subsidies.

Finally, under a direct funding model, there is no legal process to appeal or obtain redress for disagreements between the administrators and the applicants for the funding.  A direct funding approach has no legislative support, and applicants can easily be discriminated upon if their objective does not directly advance government policy.  On the other hand, the tax credit system provides legislated rules so that any dispute about eligibility or payment can be heard by the courts.

There are arguments to be made for both tax credits and direct funding.  However, at the end of the day, it is important to keep in mind that entrepreneurs (and the start-up ventures they create) are the backbone and future of our economy.  It is paramount that these start-up ventures obtain the upfront capital necessary in order to undertake risky ventures, some of which will evolve and transform the economic landscape both in our country, and around the world.  Will the next RIM please stand up?