The recent federal budget of 2013 highlighted several initiatives aimed at strengthening the competitiveness of the manufacturing sector. New sources of Canadian business funding and renewal of previous initiatives provides extra incentives for manufacturers to advance their business to the next level. One initiative that is especially beneficial for manufacturers is the renewal of the accelerated capital cost allowance (ACCA) for new investment in machinery and equipment. The initiative was renewed for additional 2 years and will run until 2017-2018, providing an estimated total of $1.4 billion in tax relief for Canada’s manufacturing and processing sector.

ACCA allows companies that purchase new machinery or equipment to depreciate the asset at 50% using the straight line method. In the absence of ACCA, the machinery would be depreciated at 30% declining-balance rate, which will result in lower annual deductions from income over a much longer period of time. Let’s take the example that a manufacturer purchases new machinery for $10,000 that has zero salvage value.  See the below table which compares the two depreciation methods:

As illustrated, straight line depreciation allows for a faster write-off of machinery and equipment. The declining balance depreciation results in lower annual deductions from income over a longer period of time.  In the above example, it would take nine taxation years to deduct 95% of the value of the machine. By allowing for a faster depreciation through the straight line method, ACCA provides support to the manufacturing sector to help them be competitive with the global economy.

There is no denying that Canada has one of the best programs as far as funding for companies that perform R&D goes. And while it is promoted frequently for Canadian Controlled Private Corporations, there are many other companies that can take advantage of this program.

Take, for instance, an American-owned company that has a branch in Canada. This Canadian branch manufactures custom products for its customers, and regularly has to work through technological obstacles to create the final product that was required.

Because this American-owned company has a branch that operates in Canada, and pays taxes to the Canadian government, this foreign-owned company would be eligible for the Scientific Research and Experimental Development program. Unlike privately-owned businesses, however, this foreign-owned company would be eligible to receive 20% of their claim in the form of tax credits. These tax credits can be applied retrospectively ten years, or can be applied forward three years.

Nortel is in the news again!

A giant in the IT Industry and Canada’s one time largest employer have been force to sell off it’s assets due to bankruptcy. This time it is their wireless network infrastructure to Nokia Siemens Networks. IT is an industry ripe with innovation and Canada needs innovation in order to compete in the world marketplace. How can Canadian Industry compete with cheaper overseas labour and the economic down turn? Many companies turn to government programs like the SR&ED (Scientific Research and Experimental Development) tax credit program to help fund their innovation.

Many SME’s in Ontario capitalize on the 41.5% return on labour and material costs incurred from R&D. It is important to talk to an expert in SR&ED to gain the most from a your claim. An SR&ED consultant can assess if you actually have SR&ED eligible projects, what you can expect to get in return and prepare you for future SR&ED claims. Claiming SR&ED on a yearly basis can reap financial rewards for your company’s innovation and keep you manufacturing in Canada.

Without a consultant you could end up claiming less than you otherwise would have. The CRA, who administers the program, has said that a majority of the claims they see claim far less than what they should. You may not be able to identify all the projects that qualify, where a consultant can be that second pair of eyes that can catch any additional projects. A consultant should look at all the areas in your business and not the areas that are most prevalent with SR&ED activities. Areas that have SR&ED some of the time may incur the most labour and material expense because SR&ED does not happen there regularly. Most importantly a consultant works for you and it is in their best interest that you have a viable SRED claim – that way you will continue to claim for years to come.

Have you ever wondered how much you would be eligible to claim for the SR&ED program? You may think that you wouldn’t get enough back to justify making the claim in the first place – after all, claiming on your own could take a lot of time just to put the claim together. But you may be surprised by how much you would be eligible for claiming.

We’ve put together a handy SR&ED calculator that will calculate how much you could get back with this program. After filling out a few questions in the SRED calculator, the range that your claim would most likely fall in is e-mailed immediately to you.

Our SR&ED calculator takes into account how many employees work for you, the hours that were spent on SR&ED and the amount that you spent on R&D materials to help calculate your range.

If you’ve ever wondered how much you could qualify for claiming, now is the best time to find out – just head on over to our SR&ED calculator!

Usually when we talk about claiming for SR&ED, we talk about how it affects CCPCs. For this reason, I wanted to touch specifically on public companies today. In the future, I will also be dedicating posts specifically to partnerships, foreign-owned and other types of companies eligible for SRED.

While being a public company may not be as attractive as a CCPC when it comes to the SRED program, there are still some benefits that the SR&ED program provides for public companies that conduct research and development in Canada. Public companies can earn an ITC (investment tax credit) of 20% of qualified SR&ED expenditures.

This means that 20% of the claim will go towards any taxes that the public company owes; the tax credit is non-refundable, but can be applied to taxes owing up to three years or 10 years forward. While it’s not as exciting to get tax credits as it is to get a refund, this can still help out a company quite a bit.

There are also the provincial SRED programs to take a look at. Most provinces have their own programs to help companies (both private and public) perform R&D in the province. We’ve outlined what provincial tax credits are offered in a previous article that we had published.