NorthBridge Consulting Services

March 2011

Issue 29

This Issue: What’s New with the SR&ED Program TestimonialEmployee ProfileDates to RememberWord on the Street Grant and Loan GuideThe Growth of the Wind Industry Ask the Experts

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What’s New with the SR&ED Program

Recent activities at the federal level with respect to the SR&ED program have increased dramatically, and we are entering 2011 with numerous ongoing initiatives. At the CRA’s largest stakeholder event of the year, many of these initiatives were updated. There was also clear discussion by the CRA regarding their increased focus on and measures they are taking to improve the perceived drop in the integrity of claims that are received from applicants at the national level. Numerous ongoing items that have been on the radar entering into this month include:

  • The Federal R&D “Jenkins” Review Panel (an independent expert panel chaired by Thomas Jenkins that is targeted towards investigating which federal initiatives are most effective in increasing business research and development) finished conducting its analysis with stakeholder data collection on February 18th, 2011. Recommendations by the panel are due in October of this year.
  • The Coalition for Action on Innovation in Canada, an independent panel chaired by John Manley, recently released a report setting out 10 steps toward a more innovative Canada. Its first step calls for reform of the SR&ED program, both in scope and administration.
  • A report is to be issued by the Taxpayers’ Ombudsman with focus on the state of the appeals process for SR&ED claims along with a general review of perceived systemic issues in the SR&ED program, as noted by stakeholders. This report has been delayed due to the volume of comments from stakeholders and follow-up consultations with the Canada Revenue Agency (CRA).
  • The CRA SR&ED Policy Review Project continues with the expected release of revised policy documents pertaining to salary and wages, shared-use equipment, capital expenditures, and lease expenditures to be released very shortly. Within this project, the CRA aims to rewrite the policy information provided to SR&ED program users to improve both consistency and reference value. Each publication is intended to consolidate the information on that topic in all of the current SR&ED policy and guidance documents. All of the reference material is being re-evaluated and rewritten within this project with the goal of producing a comprehensive unified set of project policy documents.
  • Confirmed cases of the application of 163(2) penalties towards taxpayers and tax-preparers for failure to provide basic support of claimed expenditures and/or misrepresentation of information available on the T661 (Part 2).

All of these initiatives are geared towards improving the program as whole for the country and are, of course welcomed by the NorthBridge team. The CRA’s increased focus on the integrity of claims is, in our opinion, both very timely and welcomed as we have seen many new clients suffering from the effects of dealing with tax practitioners short on integrity.

Be assured that with NorthBridge, we hold the interests of our clients first. We welcome those who haven’t always had good experiences with the SR&ED program, and we work with those clients to ensure their future experiences are much more successful.

We at NorthBridge will continue to provide feedback by means of available avenues to help ensure that program changes are of a long-term benefit to our clients with your voices clearly heard and considered.


"We hadn’t claimed for the SR&ED program before working with NorthBridge, and were unsure what to expect through the claiming process. Working with a company that knows the program inside and out made the claiming process much easier for us, and allowed us to keep our focus on our business activities, while still being able to take full advantage of the benefits of the SR&ED program. We look forward to continuing to work with NorthBridge for future claims."

- Laurie Orser, Vice President at Elite Awards and Gifts

Elite Awards and Gifts have been manufacturing and selling corporate awards, corporate gifts, and promotional products for over 40 years.

Employee Profile: Wally Yacoub

Position Business Development
Industry Experience 1.5 years
Educational background Bachelor of Science, Applied Computer Science, Ryerson University
Hobbies/Interests Cooking, soccer, travel, cars
Biggest non-work-related accomplishment Bowling a 259 point game

Dates to Remember

March 31 September 2009 FYE claims due now


March 2 Seminar in Brantford, ON

Word on the Street

Recipe for Success

As I was searching for my next subject to talk about, I did a quick search for merger, acquisition and divestiture transactions that happened during the last 12 months in Canada. Among the notable transactions, George Weston Limited’s (“GWL”) acquisition of ACE Bakery (“ACE”) caught my eye for a number of reasons — it was a start-up bakery that grew to become one of Canada’s top independent bakeries, it partnered with private equity firms for growth capital and then it ultimately sold to a strategic purchaser. This was a text book example of how to start, grow and exit your business.

ACE Bakery is truly a Canadian success story, which was initially started by the owners as a hobby, then a passion, and subsequently a successful business. When I read that ACE was formed in 1993 using approximately $250,000 of capital and then sold 17 years later to GWL for $110 million, two words that came to mind were “VALUE CREATION” – that translates into a 17 year compounded annual growth rate of over 40%!

To get a full appreciation of ACE’s path to success, you have to understand the significant events that occurred which enabled them to get to their end point. In 2004, to help finance the ongoing expansion, the shareholders sold a controlling interest in ACE to Birch Hill Equity Partners, a Toronto-based private equity firm (I’m assuming this is the case as Birch Hill always requires a controlling interest).

With Birch Hill’s help, ACE almost doubled its sales by introducing par-baked bread (partially baking the bread and flash-freezing it) across Canada and to the United States. However, with a weakening dollar and increased competition, the company believed that a U.S. player with retail experience would best execute the next level of growth. As such, the company was sold to Glencoe Capital, a Chicago-based private equity firm, in 2008.

In November 2010, GWL acquired ACE for $110 million or 9x LTM (last twelve months) EBITDA (earnings before interest, taxes, depreciation and amortization). The takeout valuation is at the high end of what one would expect for a private company transaction, but ACE is a good strategic fit for GWL. I believe GWL is paying up for a complementary business with above-industry revenue growth and margins — ACE generated approximately $55 million in sales and EBITDA of $12 million due to its premium brand, higher quality and innovative products.

On the surface, it seems like GWL paid a premium for ACE; however, when you have over $30 billion in sales and sitting on $3.5 billion of cash, $110 million is just a drop in the bucket.

NorthLinkWord on the Street is written by James Ro, a founding parnter at NorthLink Capital Advisors. The opinions expressed in this article are the views of the author of the article and not necessarily the views of NorthBridge. For more information on NorthLink Capital Advisors, please visit or contact James Ro at 416.302.9580 or

Grant and Loan Guide

Atlantic Canada Opportunities Agency – Business Development Program

The Business Development Plan is run by the Atlantic Canada Opportunities Agency (ACOA). The program is designed to help small to medium sized companies in Atlantic Canada set up, expand or modernize their business by providing access to capital in the form of interest free, unsecured repayable contributions.

For a project to qualify, it must provide economic benefit to the area/community, demonstrate a need for financial assistance and must be economically viable. The ACOA can provide up to 50% financing on costs associated with the purchase or construction of a new building, machinery and equipment needed for a project, site/leasehold improvements, patents, trademarks and licences and other various start-up costs.

The ACOA can also provide up to 75% financing on:

  • Marketing costs including the development of a marketing plan, labeling & packaging costs, advertising & promotional materials costs and costs related to product demonstrations & trade shows.
  • Training costs such as the implementation of a training program, training materials and seminar fees.
  • Productivity & Quality Improvement costs including the costs related to obtaining proper certifications and needed technical equipment.
  • Innovation costs related to developing new or improved products such as labour costs, materials, special equipment, testing and patents.
  • Consultant Advice required in preparing a business plan, feasibility study, costs related to investigation of licensing opportunities and general business improvement advice.
  • Business Proposal Development costs incurred while turning an idea into a viable business proposal.

For more information on the ACOA’s Business Development Program, please visit their website at

This is information of a general nature only; NorthBridge does not necessarily assist companies applying for the grants and loans listed above. Projects may not be eligible for more than one grant or loan; receiving funding from one grant or loan may disqualify that project from others, including the SR&ED program. Please speak with your Account Manager for more information.

The Growth of the Wind Energy Industry

The wind energy business is growing at an exponential rate. In 2005 alone, it was worth over $25 billion. Aside from creating electricity, the wind energy industry also creates many employment opportunities. Many of these jobs are in manufacturing the turbines components themselves, with large multinational companies providing majority of the demand as “there are over 100,000 people employed in the wind energy industry in Denmark, Germany and Spain.” Canada is home to four manufacturers of turbines in the 30-100 kW size range, which is more than half of the world’s total, and another seven building smaller machines. Together these four companies captured 15 per cent of the global market last year, however very little of that came from Canadian customers.

Recently, Canada has grown exponentially, with over 4,000 MW of installed wind energy capacity (compared to the 400 MW from six years ago) as well as more than 5,000 MW of additional wind energy products that have already been contracted to be built in the next few years. “Between 2005 and 2010 wind energy capacity has grown by an average of 46 per cent per year in Canada and we don’t really foresee that slowing down anytime soon,” says President of the Canadian Wind Energy Association, Robert Hornung. Although, Nova Scotia and Ontario are the only provinces that have outlined a vision for wind energy development beyond 2015, Canada is still forecasted to have 12,000 MW of wind energy in place by 2015 and by 2025, 20 per cent of all of Canada’s electricity demand will be met by wind energy.

Ask the Experts

Dear NorthBridge,
I know that you can claim for creating prototypes when making an SR&ED claim. What about testing them? Could we include that in an SR&ED claim, and if so, what part of our claim would those costs be included?
- A Concerned Business Owner

Dear Concerned Business Owner,
Prototyping is often a great place to find claimable expenditures for the SR&ED program. They show that design work, testing, redesigning and more testing has been done on a product that you are manufacturing. Oftentimes, after a prototype has been used, the materials used to make are scrapped and aren’t used again.
Costs that have been brought about by the design, development and testing of prototypes can all be included in your SR&ED claim.

As for where exactly the costs for testing prototypes are included depends entirely on the process that you use to test these prototypes: if you send the prototype out to another company to be tested, these costs would be included as one of your subcontracting costs. However, if you test the prototype in-house, the costs associated with testing it would be included with materials costs.

Your NorthBridge account manager would be happy to take a look at how you are handling the testing of your prototyping in order to help you more fully understand where the costs for testing prototypes can be included in your SR&ED claim.

You have received this newsletter because of your interest in NorthBridge Consulting Services. If you feel this has been sent to you in error, you can unsubscribe. While we endeavor to ensure accurate information through this newsletter, it is not a definitive analysis of legislation, or a substitute for professional advice. Please seek professional advice if attempting to relate specific situations to the information disclosed within.

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