Posts Tagged ‘changes to SR&ED’

Summary of Provincial and Territorial R&D Tax Credits

The Canada Revenue Agency has recently released the most current summary of provincial and territorial R&D tax credits. Recent program developments by region include:

Manitoba

  • As of January 1, 2014, the definition of ‘eligible expenditures’ has been amended in line with the federal reduction in the prescribed proxy amount to 55%, and the reduction to 80% for contract payments (except contract payments to eligible educational institutions in Manitoba); however, despite the elimination of capital expenditures from the federal tax credit, these costs remain eligible under the Manitoba tax credit.
  • Currently, non-refundable tax credits can be carried back 3 years. Non-refundable tax credits can be carried forward 10 years for tax years ended after 2003 or 7 years for tax years ended before 2004 and applied against the Manitoba income taxes payable. The Manitoba 2015-2016 Budget and Bill 36 propose to extend the carry forward period for non-refundable tax credits to 20 years for tax years ended after 2005.

Saskatchewan

  • The Saskatchewan non-refundable R&D tax credit rate was reduced from 15% to 10% for all eligible expenditures after March 31, 2015.

British Columbia

  • Credit has been extended three years to September 1, 2017.

Quebec

  • As per Quebec’s 2014 budget, all R&D tax credit rates were reduced by 20% for all eligible expenditures incurred after June 4, 2014.
  • A minimum expenditure threshold has been implemented for fiscal years beginning on or after December 3, 2014. With corporate assets below $50 million in the previous year, the first $50,000 of R&D is excluded from eligibility. This minimum threshold will increase linearly up to $225,000 for corporations with assets of $75 million or more in the previous year.
  • All R&D credits (including pre-competitive research, university and public institute research, and research consortium contributions/ rights) have been standardized with the R&D wage tax credit for fiscal years beginning on or after December 3, 2014 to a base rate of 14% (CCPCs with assets below $50 million will qualify for a rate of 30% on the first $3 million of eligible expenditures).
  • In line with amendments to the federal SR&ED tax credit, capital expenditures incurred after 2013 are not eligible. In addition, claims filed after 2013 will be subject to a $1,000 penalty for missing, incomplete, or inaccurate information.
  • As of June 4, 2014, the 10% increase in the R&D wage tax credit for biopharmaceutical corporations is eliminated (previously qualified corporations will continue to receive the benefit at a decreased rate of 8%)

 

The following table provides a breakdown of provincial R&D tax credits as of June 30, 2015.

 

Province/ Program Rate Deadline
Newfoundland and Labrador 15% refundable 12 months after year end
Nova Scotia 15% refundable 18 months after year end
New Brunswick 15% refundable (expenditures incurred after 2003)10% non-refundable (expenditures incurred before 2003) N/A
Manitoba 20% non-refundable (expenditures incurred after March 8, 2005)15% non-refundable (expenditures incurred before March 9, 2005); however, the 2010 Budget extended refundability of the Manitoba R&D tax credit to one-half of eligible expenditures for in-house R&D expenditures not undertaken by an institute in Manitoba and incurred after 2012) 12 months after year end
Saskatchewan 10% non refundable (expenditures after March 31, 2015)15% refundable for all eligible expenditures occurring between March 19, 2009 and March 31, 2012 N/A
Alberta 10% refundable (on up to $4 million in eligible expenses) 15 months after year end
British Columbia 10% non-refundable; refundable for CCPCs up to 10% of the expenditure limit 18 months after year end
Yukon 15% refundable 12 months after year end
Ontario Innovation Tax Credit (OITC) 10% refundable (annual expenditure limit of $3M: Phased out if taxable paid-up capital (PUC) for previous year exceeds $25M or is between $500,000 to $800,000; expenditure limit is eliminated when PUC reaches $50M) N/A
Ontario Business-Research Institute Tax Credit (OBRITC) 20% refundable (qualified expenditures are capped at $20 million annually among associated group of corporations) N/A
Ontario Research and Development Tax Credit (ORDTC) 4.5% non-refundable N/A
Quebec
R&D Wage tax credit; Tax credit on fees paid to a research consortium; Precompetitive tax credits
14% to 30% (after June 4, 2014)17.5% to 37.5% for costs incurred between April 22, 2005 to June 4, 2014  N/A

 

Upcoming Funding Seminar for the Agri-Food Sector

On Tuesday, June 16, 2015, from 1:00 p.m. to 2:30 p.m., NorthBridge Consultants and Excellence in Manufacturing Consortium (EMC) is hosting a free seminar in Mississauga, Ontario, to help companies in the agri-food sector better understand government funding programs and Scientific Research and Experimental Development (SR&ED) tax credits, and especially how multiple government funding programs can be leveraged to execute business strategies.

The seminar will provide an overview of the SR&ED program, including recent modifications to the program. This seminar will equip engineers, technical personnel, business owners, CEOs/CFOs, and senior managers with the right tools to ensure compliance with SR&ED regulations; it will also provide details on how to ensure that contemporaneous documentation is generated as per SR&ED best practices.

Additionally, the seminar will deliver information pertaining to provincial and federal government initiatives that target expansion, innovation, exporting, hiring, and training.  Instruction will be provided on how to allocate and separate costs between programs, and case studies will be reviewed to illustrate examples of various funding opportunities.

For more information or to register for this event, please contact Bren de Leeuw (Director – Field Operations Canada) at bdeleeuw@emccanada.org or 519-372-6009.

Linking Government Grants to SR&ED: Capital Equipment

The Canadian government spends approximately 24% of GDP on direct and indirect funding programs for businesses. Of that 24%, about 21% is available for indirect funding and 3% is available for direct funding. The indirect funding category is comprised of tax credit programs, while the direct funding category is comprised of repayable and non-repayable grants. The government is slowly shifting focus from indirect funding and introducing new direct funding programs for businesses.

The SR&ED program previously allowed businesses to claim capital equipment expenditures as part of their project submission. However, the new changes that came into effect January 1, 2014 removed capital expenditures as eligible expenditures.  The government has since introduced direct funding programs such as CME Smart and Investing in Business Growth and Productivity. The introduction of these new programs has allowed businesses to still apply for capital equipment funding and receive assistance alongside the SR&ED program.

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OECD Economic Survey: Research and Development Outlook in Canada

The Organisation for Economic Co-operation and Development (OECD) released the June 2012 results of the OECD Economic Surveys for Canada’s macro-economic state of affairs. The report indicates that the economy is picking up, with a positive outlook for continued moderate output growth and inflation. The OECD also cites innovation as a priority on the government’s agenda.

“Boosting innovation can raise historically weak productivity growth to sustain living standards… Competitive pressures, which spur innovation, have recently intensified because of the high exchange rate, but further market opening in sheltered sectors like network industries and professional services would be beneficial.”

Currently, innovation is lagging in Canada, with limited business R&D productivity and a low patenting quota. Fostering innovation can contribute to healthy multi-factor productivity (MFP) growth; innovation thus emerged as the overarching theme of the survey, with recommendations to improving the current policy framework. The OECD calls for support focused more on “sharpening incentives and raising performance,” through SR&ED strategies like unifying the higher enhanced ITC rate with the lower general ITC rate to encourage companies to grow. The OECD further recommended reinstating capital costs in the eligible expenditure base for SR&ED.

Aside from SR&ED, the OECD recommended subjecting the Industrial Research Assistance Program (IRAP) and other R&D programs to in-depth cost-benefit analysis. One suggestion was to implement user fees as a recovery method for the high costs of expert advice, especially for companies with products on the path to commercialization.

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Renewable Energy Incentives: Accelerated Capital Cost Write-offs and Canadian Renewable and Conservation Expenses (CRCE) Program

There is an interesting tax incentive for the renewable energy industry which could compensate for the removal of capital from the SR&ED expenditure base: a category of deductible expenses for companies undertaking project development through the Canadian Renewable and Conservation Expenses (CRCE) program.

At the moment, the CRA allows for accelerated capital cost write-offs on capital expenditures on systems that produce heat and/or power from renewable energy sources. Class 43.1 and 43.2 capital cost allowances allow taxpayers an accelerated write-off of specific equipment designed to generate more efficient or alternatively sourced energy.   This means that for new renewable energy and energy conservation projects in which 50% of the capital is designated to efficient/renewable energy associated equipment, the government is offering a category of fully deductible expenditures.

In addition to capital, some expenses incurred during the development and start-up of renewable energy and energy conservation projects (engineering and design work, for example)  qualify as Canadian Renewable and Conservation Expenses (CRCEs), and would thus be fully deductible  or could be financed through flow-through shares. The Canadian Revenue Agency (CRA) defines a Canadian Renewable and Conservation Expense to include “certain expenses incurred in respect of the development of a project for which it is reasonable to expect that at least half of the capital cost of the depreciable property to be used in the project will be the capital cost of property described in Class 43.1 or 43.2 of Schedule II of the Income Tax Regulations.”

The accelerated capital cost write-offs for capital expenditures, combined with CRCE, are important incentives which could help offset the elimination of capital from the SR&ED program expenditure base as announced in the recent federal budget, especially advantageous to capital-intensive industries like renewable energy. Contact NorthBridge Consultants for more information about how you can benefit from CRCE.

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