|Assets (in $M)||Exclusion||Lost credits QC||Additional federal credits||Net loss|
|Table 1 – Net SR&ED loss according to company assets for a CCPC (Canadian-controlled private corporation) with taxable income of less than $800,000 The reduction of the Quebec credit gives rise to an increase in federal credits.|
|SR&ED expenses||Credits before exclusion||Credits after exclusion||Net loss||Loss in percentage|
|Percentage loss for a CCPC with taxable income of less than $800,000 and assets valued at less than $50 M|
|SR&ED expenses||Provincial credits||Federal crédits||Total credits|
|Table 3 – Quebec vs. Ontario credits for a CCPC with taxable income of less than $800,000 and assets valued at less than $50 M.|
20% reduction in tax creditsThe most significant measure is the generalized 20% cut in business tax credits. This will allow the province of Quebec to save upwards of $625 million between now and March 2017. However, it could prove a risky gamble in industries whose jobs are easily transferable from one jurisdiction to another. For example, the credit for the production of multimedia titles will be reduced from 37.5% to 30% for products that have a French version, whereas the equivalent tax credit in Ontario is 40% (with no restrictions on the language of the product). We may thus end up witnessing an exodus of video game companies to Toronto.
|Tax Credit Program||Before June 5, 2014||After June 4, 2014|
|SR&ED salary||17.5% to 37.5%||14% to 30%|
|Multimedia titles||26.25% to 37.5%||21% to 30%|
|Industrial design||15% to 30%||12% to 24%|
|Before June 5, 2014||After June 4, 2014||Difference|
|Quebec SR&ED Credit||$37,500||$30,000||– $7,500|
|Federal SR&ED Credit||$41,125||$43,750||+ $2,625|
Abolition and suspension of certain measures announced since September 2012Minister Leitao also announced the abolition of certain measures proposed by the Marois government last September. Enhanced R&D tax credits for biopharmaceuticals have now been scrapped, as has the planned increase in the refundable Tax Credit ceiling for the Development of E-business (CDAE), which was scheduled to kick in in January 2016. The extension of the program to 2025 is however maintained. The axe is also falling on the Tax Credit for the Integration of IT in Manufacturing SMEs, for which no new certificate will be issued starting June 4, 2014. Enhanced investment loans for companies located in resource regions and for manufacturing SMEs are also facing a similar fate.
Holiday on the contribution to the Health Services Fund for hiring of some specialist workersAnd now for some good news. SMEs with a payroll of less than $5 million will be able to take a holiday on the contribution to the Health Services Fund when hiring new specialist workers, including computer scientists. The holiday will only apply to the salaries attributable to the new hires, and will be full for companies with a payroll of less than 1 million dollars, and partial for those with payrolls of between 1 and 5 million dollars.
ConstructBuy.com developped by our client ECC Solutions was selected as best web solution at the 28th edition of the Octas which was held on May 24th. ConstructBuy.com is a social network for companies in the construction industry. This communication platform allows for the exchange and filling of information in real time between organizations involved in various renovation or construction projects.
Congratulations to Steve Piché and his entire team for this success!
Simplification of project dataSome changes were made to Part 2 (Project Data). Certain ancillary matters have been eliminated such as the place where the work took place and the purpose of the work (e.g. creation of new processes and materials, or their improvement, etc.) The most important change, however, in this part is the amalgamation of Sections B and C (description of experimental development projects and those of scientific research, respectively). Henceforth, the descriptions of both types of projects must respond to the same three questions. The difference between “SR” and “ED” is slowly disappearing, with the question being asked only for statistical purposes.
Reorganisation of the questions in Section BThe new T661 form presents the three sections for describing each project in a different order, though each section is subject to the same limitations as before in terms of the number of words. One more now begin by describing the “Scientific or technological uncertainties” in 350 words, then the experimental “Work” in 700 words (which reflects the relative importance of this section), and finish with the “Scientific or technological advancements” in 350 words. The first and third sections have been inverted. Without being a drastic change, this new organisation of project descriptions is more logical and natural in a usual development cycle, because the project starts with meeting a technological barrier that leads to work in order to overcome it. Ultimately, this work results in technological advancements corresponding to an increase in the knowledge base that existed at the beginning of the project. Note that the contemporaneous evidence to support any project for which a claim is made must permit corroboration of the work performed with 1) the resources involved, 2) the hours worked, 3) the salaries paid and ultimately, 4) the tax credits claimed. The trend that we are observing is that the CRA’s tolerance for a lack of documentation has dropped significantly.
Information about claim preparersInformation concerning the expert consulting firms that participated in the preparation of the SR&ED request will now be provided. The business name and number of the preparer will be required as well. The details about these firms’ fees will also be provided, including the type (fixed rate, hourly rate, contingency fee basis), the specific rate and the total amount paid or expected to be paid. The CRA may impose a $1000 penalty if the information is missing or incorrect. The collection of this information will permit the establishment of official statistics on the use of SR&ED consultant services. Recall that the Globe and Mail reported in 2011 and 2012 that a third of the $3.5 billion in SR&ED credits was “diverted” to consultant firms. Although there were some consultants who required fees between 30% and 50%, this assertion does not apply universally. The Jenkins report estimates the costs of compliance (including internal costs) at 14% for small and medium businesses and at 5% for large businesses. The data collected will confirm these facts as well as the findings of investigations conducted by the Quebec Technology Association (AQT) and the Canadian Institute of Chartered Accountants (CICA) indicating that the average rates charged are reasonable, according to the businesses which use their services. Additionally, the SR&ED expert consulting firms of good repute welcome these tighter controls which permit the detection and removal of those who abuse the system. The use of the new form will be mandatory for all SR&ED claims which are submitted starting January 1, 2014.
This article by journalist Emmanuelle Gril was originally published in French on Jobboom.com.
Pierre Savignac, having graduated with a bachelor’s degree in computer science from the University of Montreal in 1986, is running his third company. For as long as he can remember, he always wanted to go into business. “In my first job, I was told: ‘You, you’ll start your own business for sure!’ It was a strong and fundamental desire, and even when I became an employee again, I knew it was only temporary,” he recalls.
At the age of 28, he started his first company, then another that he formed a few years later. In 1994, he finally launched Emergex. Between two start-ups, he worked for Alis Technologies, MédiaSoft Télécom, Virtual Prototypes and Vidéotron.
Today, Emergex has fifteen employees and consultants, most of whom are computer scientists, engineers, or software architects. Their mission? To help companies, mostly in the IT sector, claim their tax credits for research and development. “These programs can subsidize up to 80% of the wages paid by a company. In Quebec, where there are many software development firms, they are often the most important source of revenue,” explains Pierre Savignac.
He believes that hierarchy, as traditionally conceived, is an outdated concept.
“Today, the role of management consists of helping employees to do their jobs. I see my role more as that of a coach. I assist and support individuals in achieving their tasks,” he explains. And for this, he is particularly well-equipped, because he has assumed all of the roles while his company grew, from managing finances to writing technological reports and from negotiating with Revenue Canada to managing a team spread all over the country. “My door is always open and I can always be consulted. My management style oscillates between trust and control, depending on the employees. Some take on their responsibilities very well, while others need more guidance. You should know how to adapt,” he says.
Obviously, this is a role that he understands and implements perfectly, since in 2012, Emergex reached the rank of 24th in Quebec in the annual PROFIT 200 list, which honours the 200 Canadian companies which have experienced the most growth in revenue during the previous five years.
We want to congratulate our client, Steeve Duchesne, president and founder of Axon Integration & Development, for his nomination as president of the board of directors of the Association Québécoise des Technologies.
Nicolas Marceau, the Quebec Minister of Finances announced on Monday, September 30th, improvements to the program for the production of multimedia titles. This program, created at the end of the ’90s, at a time when multimedia titles consisted mostly of CD-ROM products (like virtual tours of museums) and offline video games, was starting to be out of touch with the needs of the industry, notably in the sector of online gaming.
One of the main problems was the fact that the eligibility period was limited to three years after publication of the product. Such a limit made no sense for online games which continue to be developed for several years. For example, the massively multiplayer online role-playing game Everquest celebrated its fourteenth anniversary this year. Expenses will now be eligible to the credit during the entire lifecycle of the product.
New categories of activities will also be added to the eligibility list in order to better support this sector. The conception and the development of game hosting infrastructures as well as deployment and maintenance tools for these infrastructures will now be eligible. User relations will also give access to the credit since the development of user communities, technical services, animation and user care will be considered eligible activities.
These changes will be in effect for all claims submitted after September 30th 2013.
In your opinion, will these changes help consolidate Montreal’s position as one of the capital of video games?
What do you think of the cost for our governments or for Quebec’s society in general compared to the economic windfall that such tax breaks bring?
Will small businesses have the same access to these tax credits as large multinationals?
Is the administrative red tape required to satisfy the requirements of Investissement Québec worth it for startup companies?