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.
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Pierre Savignac, Founder & CEO of Emergex SR&ED Consultants
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.