Mike C. Evans, one of Emergex’s client managers based in our Toronto office, was asked for an interview by a journalist from Tech & Design. The article written provides an introduction to the government program of tax credits for SR&ED, as well as its challenges, especially for startups. Emergex is mentioned several times, especially for its ability to assist startups and other companies of all sizes in the claims process. Emergex also plays a role of education for startups, which by definition would be the first beneficiaries of SRED, but often do not know the program. Here’s an excerpt of this interview:
If you’re a startup developing experimental technology – and that’s most startups in Canada – the government wants to help you recoup a good chunk of the costs that come with cutting-edge R&D.
Administered by the Canada Revenue Agency, the Scientific Research & Experimental Development program (SR&ED) offers a tax credit for eligible R&D expenses. The program has no fixed budget, so all eligible claims are approved. Mike Evans, Client Manager for SR-ED consulting firm Emergex, says that in 2012 alone the program processed 25,000 claims worth $3.6 billion in tax credits.
“The government is helping innovation in Canada by reimbursing some of the R&D investments that these companies have made,” says Evans. “SR&ED has been around for 25 years and yet, believe it or not, you’d be amazed how many people don’t know about it, and worse, how many think they’re not eligible.”
Emergex, which has been in this business for 20 years, helps tech startups determine their eligibility for SR&ED claims, and as well to put together and file those claims.
There are two parts to a claim. The first contains a 1400-word technical narrative describing why the R&D in question is eligible. The second part consists in a financial data collection that must be carefully right-sized (neither too much nor too little) to make sure the dollars being claimed match and support what’s actually been done. Success means recouping about 68% (for Ontario) of eligible salaries and in some case bonuses. A rejection or mishandled claim could lead to an audit, which Emergex is also well-equipped to defend.
“The biggest mistake startups make is when they try to file a claim themselves,” says Evans. “It’s a skilled, complex, sophisticated process. It’s not like filling out a T1 for your income tax return and 20 minutes later it’s done.”
Both parts are challenging. The technical narrative may seem straightforward, but “it’s where most of the claims are denied,” Evans says. “It’s knowing how to describe the technology in a way that meets some basic criteria: did the company have to overcome any technological uncertainties? Were there obstacles that had to be overcome that couldn’t be fixed by off-the-shelf solutions?”
The next step is to determine the number of eligible hours, a process which can often stall the claim. “What we find is that, especially with the smaller companies, they’re busy building and selling their product, and they’re not always the best administrators and accountants. So when we ask them to extract and compile the numbers – in other words, the efforts invested in hours and how much they pay people – that can be a challenge because they have no records, or poor records.”
A big hurdle Emergex is working to overcome is the 42% of companies that could file for SR&ED just don’t (according to Canada Revenue Agency’s own statistics), for lack of knowledge.
“Just about anybody that is a startup could be eligible,” says Evans. “They’re innovators who believe they have an idea that’s new, or else they wouldn’t be doing it. So by definition that means they could be eligible for SR&ED, and I wouldn’t discourage anybody from giving us a call and inquiring.”
You can reach Mike Evans by e-mail at email@example.com or by phone at 905-849-3033 #645.
Our Client Manager based in our Toronto office , Mike C. Evans, was asked for an interview by Tech & Design. This article, published on June 10th, provides an introduction to the government program of tax credits for SR&ED, as well as its challenges, especially for startups. Emergex is mentioned several times, especially for its ability to assist startups and other companies of all sizes in the claims process, but also for its work of information with startups, which by definition would be the first beneficiaries of these grants, but often do not know the program.
The Government Is All But Giving Away Money To Startups – And You’re Missing Out
Is increasing your sales one of your resolutions for 2016? Well, you’re not alone! Now is the time to start exporting outside Canada. Good news: the federal government can help.
After the Quebec government’s assistance program (Export Program), whose budget was exhausted before all applications could be met, it’s the federal government’s turn to institute a grants program to help Canadian businesses export their products. We’re talking about the new CanExport program, which officially launched on January 5, 2016, and will help small or medium-sized businesses to exploit export opportunities. This grant can refund 50% of expenses, up to $99,999.
Eligible activities covered under the program include:
- business travel abroad
- participation in trade fairs and trade shows
- market studies
- adaptation of marketing tools to new markets
- legal fees related to distribution or agency agreements
- have between 1 and 250 employees
- have no less than $200,000 in annual revenue declared in Canada
CanExport is being co-delivered by the Government of Canada through an administrative arrangement between Global Affairs Canada’s Trade Commissioner Service (TCS) and the National Research Council of Canada’s Industrial Research Assistance Program. CanExport is a five-year, $50-million program. This generous program will very likely be a huge hit, so you’d better hurry before the funds run out!
For more information
Emergex SR&ED Subsidies, the expert in SR&ED and E-Business programs (CDAE), can guide you to its partner specializing in claiming this grant and related services. Contact us for an introduction.
The SR&ED credit program attracts many companies operating in various sectors, from IT through life sciences to manufacturing. Rather than accelerating the processing of inspections, which are becoming ever more numerous, by boosting its teams, the Canada Revenue Agency seems to have adopted a strategy of extending processing times.
Is the CRA further removed from the reality of companies that develop R&D ? This is the question that comes to mind upon considering the new requirements which have to be met by companies which are not always prepared to do so. The government’s scientific research and experimental development program has been refined over the last thirty years, becoming more precise, but also, more complex. Out of necessity, an entire industry of consultants has grown to help companies. For the last two years, the industry has seen a real explosion in the number of verifications, as well as cuts, which are sometimes huge. On top of this, processing times for claims has been increasing. This can easily be explained: not only does the Canada Revenue Agency impose stricter criteria, it also lacks adequate human resources. The result? An extension of response times, which sometimes take up to a whole year! This can be clearly damaging to a start-up and its cash flow. To survive this severe blow, some companies turn to the services of specialised tax credit pre-financing companies, such as R&D Capital.
An ever increasing number of companies which used to prepare their SR&ED statements by themselves are receiving a letter from tax authorities informing them that they have to undergo an eligibility examination. This audit can easily become a nightmare. With the government’s requirements becoming even more stringent, some companies are simply unable to cope. Today, technological projects which would have been easily accepted in the past are rejected. Sometimes, even its cuts reach up to 100%! This means a total loss for the company.
Due to this radical hardening of the position of the CRA, R&D firms of all sizes are discouraged and just give up. They simply abandon the program, setting aside thousands of dollars owed to them. Others, on the contrary, decide to take the bull by the horns and seek the help of professionals. These SR&ED tax credit consultants have acquired enough expertise to make all the difference. Such is the case with Emergex SR&ED Subsidies which, thanks to its technology and taxation experts, is capable of taking charge of the entire SR&ED tax credit claim procedure, while rapidly adapting itself to constantly evolving constraints. Emergex can equally take over a problematic file prepared by another resource, and then rework and realign it so as to defend it during examination by the Canada Revenue Agency’s auditors. As Pierre Savignac, President and Founder of Emergex SR&ED Subsidies, which also claims e-business development tax credits (CDAE), explains, “An increasing number of companies are coming to us for help with their CRA inspections“.
With the hours and hours that must be devoted to each SR&ED tax claim, the CRA’s ever more stringent requirements, the increase in the number of verifications, endless processing delays, Revenue Canada seems to be moving further away from the realities of SMEs, whereas this grants programs is intended for them. SR&ED professionals firms offer a secure and effective solution for innovative companies.
For more information: www.emergex.com | Montreal 514.765.3333 | Quebec 418.907.9254 | Toronto 905.849.3033
A recent study reveals that almost half of startups don’t take full advantage of available government funding such as Scientific Research & Experimental Development (SR&ED) tax credits and Industrial Research Assistance Program (IRAP), even though they allow companies to recuperate a large portion of the salaries invested in R&D. One of the reasons given for not applying to these programs is the fact that many entrepreneurs believe that they are too small to invest time and money in such an endeavor. However, with the help of experts like Emergex, it is possible for very small companies to apply to these tax credits and subsidies with an investment on only a few hours by the entrepreneur.
The « intranet.montrealinc.ca » project developed by Symetris was nominated for the award of the « Coup de cœur TI » from the public. Emergex congratulates its client for this nomination in the Octas contest.
Symetris implemented its project at the Montreal inc Foundation. The intranet is in the center of all actions of the Foundation, enjoying multiple features. All steps are managed within the same system: the application process for different kind of professionals, volunteer management, and all services offered to the winners (training, mentoring, events). This centralization of data allows a variety of reports listing all the activities of the organization.
Congratulations to Symetris for this distinction!
Emergex is proud to highlight the performance of its client Gestisoft, an integrator of CRM solutions, for receiving the award for best « Business Solution – Packages », at the 29th edition of the Octas contest on May 28th. Gestisoft was rewarded for its project « Personal Customer Relationship Management » for the Musée de la civilisation de Québec using the Pivotal/CRM solution and integrated by the team of Pier Lemyre
Gestisoft, with the implementation of the Pivotal/CRM solution allows the Musée de la civilisation de Québec to enhance its global management by substituting around fifty databases and systems. This project helped the Museum to manage 30.000 contacts, mass mailings, unsubscriptions management, consents (in respect of the C-28 law), online profiles, resources managements (places, human, hardware) and a lot of functions!
Congratulations to Gestisoft and its team for this great success!
In an article published in The Globe and Mail, we learn that the number of notices of opposition by tax payers claiming SR&ED credits has increased by a factor of 25 between 2007 and 2014. It is a direct result of measures to tighten the program started by the Canada Revenue Agency in 2008. The notice of opposition an administrative mechanism which allows a tax payer to object to a decision taken by the Agency, and is a required first-step before suing the CRA at the Tax Court of Canada.
In the last few years, the CRA has increased its requirements relating to documentation and to following the scientific method during SR&ED projects. The new audit procedure reflects this approach with the use of the five key questions.
Another sign of the increased difficulty of claiming SR&ED credits is the number of new cases in front of the Tax Court of Canada. In 2014, it jumped to 42 from only 20 in 2012. In total, it’s 80 cases regarding SR&ED that are waiting at the tribunal.
To avoid being a victim of these statistics, it is important to put in place a good work methodology, including maintaining sufficient documentation and hypotheses and hours logs. Do not hesitate to contact Emergex for any help. We offer, at no charge, a specially designed timesheet system to compile SR&ED activities and hours.
In its budget released on March 18th, the Saskatchewan government has decided to cut tax credits for scientific research and experimental development (SR&ED). The rate companies enjoyed will be reduced from 15% to 10%. As well, the province is eliminating the refundability of the incentive program, meaning companies will only be able to use the credits to pay their income taxes. This will be a major blow to startups and small companies who relied on the program to generate cashflow.
These changes are effective starting April 1st 2015.
During his economic update of December 2, 2014, Finance minister Carlos Leitao announced a second wave of cuts to the Research and Development (R&D) program in 6 months. For the fiscal years beginning after December 2, the first $50,000 in eligible expenses incurred by businesses will now be excluded in calculating the credit. This threshold could be up to $225,000 for companies with assets exceeding $75 M.
These cuts come on top of the 20% cut in credits for businesses announced in Quebec’s budget of June 4, 2014, and of the gradual 65% to 55% drop of the replacement amount the federal government announced in its 2012 budget.
For the 40% of SR&ED claimants with expenses under $50,000, one-third of their credits will disappear in three years. While they could expect an 82% return on their R&D investments in 2012, this amount will have dropped to no more than 54% at the end of 2015.
Wealthier companies fare a lot better. For example, those that are capable of investing $250,000 will only see a 15% drop, with their effective tax credit rate dropping from 82% to 70%.
In just a few months, Quebec will therefore have brought its R&D program to a level equal to or lower than what exists for most businesses in Ontario, where the effective rate for businesses stands at 68%.
Reduction of the effective rate of SR&ED tax credits for a CCPC with a fiscal year-end of December 31st based on the level of eligible expenditures.