We proudly announce our participation in the STRATÉGIES PME 10th edition, which will take place on November 16 and 17. Join us at the event and meet our experts!
Each year, SME Strategies brings together approximately 6,000 SME managers and 450 participating experts. This event, dedicated to SME managers, will allow you to meet experts who stand out among SMEs, develop your leadership skills, and inspire you to build your business strategies.
Our president Pierre Savignac will be present at the event and will explain the advantages you can derive from the SR&ED program.
Our expert Chris Young will give a conference during the SME Strategy event on Thursday, the 17th, at 11:40 am in the “Entrechefs PME” room. Chris will present the following topic “Financing your innovation: how to take advantage of R&D tax credits while protecting your intellectual property?”. Be sure to attend, prepare your questions and learn more about SR&ED and intellectual property protection!
June 23rd is International Women in Engineering Day.
To honor this day, Emergex is offering a 10% discount in June on its fees to help women entrepreneurs (founder or co-founder of a business) with SR&ED tax credit claims.
In addition, Emergex offers free coaching to optimize your R&D financing.
Follow us on social networks to follow our campaign and discover the story of our ambassadors and their testimonials.
Join us on June 15th to watch the testimonial of Hanieh Mohammadi, instigator of this campaign at Emergex. Business consultant, Hanieh shares her vision and the reasons that pushed her to create this campaign.
Join us on June 20th to hear from Mariella Amoros, an Emergex client since 2006 and Director of Innovation at Dexco since 1995. Dexco is a leading global provider of law firm-specific ERP solutions and related services.
Join us on June 25th to watch Sophie Lymburner, President and Founder of Blue Communications, YogaTribes and L’Aquarium.
Sophie founded Aquarium by Blue in 1998, one of the first digital agencies in Canada to create websites, e-commerce sites, mobile applications, content and social media strategies. Sophie has been an Emergex client since 2018.
Eric Martin, Professional Services Director at Emergex, will present this brief introduction to raise awareness among universities, research centers, incubators, associations and companies working in the field of quantum information on how to finance university research contracts within the framework of SR&ED tax credit claims.
LThe Scientific Research and Experimental Development (SR&ED) program is an innovation funding assistance program funded by the federal government and most of the provinces. In 2021, roughly $ 5 billion was distributed to 18,000 companies. In Quebec, it refunds up to 74% of the salaries of eligible technology employees. Under university research contracts, 43.6% of the sums invested are refunded.
As in a familiar joke, there is bad news and good news for SR&ED in Alberta:
The bad news: since January 1, 2020, companies can no longer claim SR&ED tax credits from the Alberta government. The province previously offered a 10% refundable tax credit calculated on eligible R&D expenses.
The good news: on July 22, 2020, Alberta’s premier, Jason Kenney, announced a new provincial program effective as of January 1, 2021: the Innovation Employment Grant (IEG). Created to encourage innovation and economic growth in the province, the IEG provides small and medium-sized businesses with a refundable tax credit of up to 20% on their SR&ED expenses.
The IEG is calculated in two steps:
First, an 8% refundable tax credit on the SR&ED expenses for the current taxation year, PLUS:
An incremental 12% refundable tax credit on the portion of the SR&ED expenses that exceeds the “base spending level” for the company. That base level is defined as the average spending calculated over the two preceding years: (Y1 + Y2) / 2
Eligible expenses are identical to those that qualify for the federal SR&ED program. Expenses must be incurred after December 31, 2020, up to a maximum of $4M.
First time SR&ED claimants, for example startups, automatically benefit from the 20% tax credit. The maximum 20% rate also applies to claimants that have not submitted SR&ED claims in the preceding two years.
Conditions
Companies with a taxable capital of $50M or more are not eligible for this tax credit. Those between $10M and $50M will receive a lower percentage of the tax credit rate. That percentage is calculated based on the corporation’s prior year taxable capital: [$40M – (prior year taxable capital – $10M)] / $40M.
Examples :
Year
SR&ED Expenses
2019
$0
2020
$0
2021
$200,000
Company “StartupCo Inc.”
This company will benefit from a tax credit based on this calculation:
Current year eligible R&D expenses X 8%: = 200,000 X 8% = 16,000
Plus: current year eligible R&D expenses minus the average R&D spending calculated over the two previous years X 12%: = {200,000 – [(0 + 0) / 2]} X 12% = {200,000 – 0} X 12% = 24,000
Total credit to be received = 16,000 + 24,000 = $40,000 (20% of the 200,000 in expenses)
Year
SR&ED Expenses
2019
$50,000
2020
$100,000
2021
$200,000
GrowingCo Inc.
Current year eligible R&D expenses X 8%: = 200,000 X 8% = 16,000
Plus: current year eligible R&D expenses minus the average calculated over the two previous years X 12%: = {200,000 – [(50,000 + 100,000) / 2]} X 12% = {200,000 – 75,000} X 12% = 125,000 X 12% = 15,000
Total credit to be received = 16,000 + 15,000 = $31,000 (15.5% of 200,000 in expenses)
Year
SR&ED Expenses
2019
$200,000
2020
$150,000
2021
$100,000
MatureCo inc.
Current year eligible R&D expenses X 8%: = 100,000 X 8% = 8,000
Plus: current year eligible R&D expenses minus the average calculated over the two previous years X 12%: = {100,000 – [(200,000 + 150,000) /2]} X 12% = {100,000 – (350,000 / 2)} X 12% = 100,000 – 175,000 = (75,000)
Since the current year expenses are lower than the average of the two preceding, there will not be any additional grant tax credit.
Total credit to be received = 8,000 + 0 = $8,000 (8% of 100,000 in expenses)
Magnificient offices in a historic building located in Old Montreal. From 156 to 965 square feet (out of 3400) available to subrent for one or more subtenants. Ideal as a coworking space!
• Half of the main floor for up to 8 people (27′ x 16′) • 1 semi-open space for 2 to 5 people (19′ x 11′) • 1 medium-size closed office for 2 to 3 people (14′ x 12′) • 1 small closed office for 1 person (13′ x 12′) • Stone walls, exposed beams, 24′-high ceilings, 2 skylights and 6 windows giving plenty of light • Shower for active commuters • Security: alarm system and key-locked elevator • 500 m from Place-d’Armes subway station (5′ walking distance), 300 m from paid parkings and many Bixi stations nearby • Close to many good restaurants and 500 m from downtown • Common spaces: meeting room and fully-equipped kitchen (fridge and dishwasher) • Shared utilities: electricity, heating and A/C • We can also share our high-speed Internet and phone system (additional fees) • Ideal for a quiet IT or Web developer team!
Available as soon as the lockdown is lifted! Reserve now! Renting price: to be discussed according to your needs Lease: flexible, short or long term, with or without end notice period
Contact Benjamin at 514-765-3333 #322 or benjamin@emergex.com for more information
We already covered the impacts of the Canada Emergency Wage Subsidy (CEWS) in a previous article. However, the federal government announced that it would be extending the program to June, 2021, and that major changes would be made to both the program eligibility criteria and subsidy rates. Full details are available on the Department of Finance website.
The changes that have been announced will have a greater than previously anticipated impact on your future Scientific Research and Experimental Development (SR&ED) and E-Business (CDAE in French for crédit d’impôt aux Affaires Électroniques) tax credit claims. It should be recalled that, normally, such subsidies are excluded from tax credit calculations, given that the same salary expenditure cannot be funded by the public sector twice (no double dip).
To fully understand your specific situation, and thus provide you with the best possible advice, we have created a simulator which allows us to obtain a relatively accurate computation of this impact and of how much your tax credit will be. The Emergex financial coordinator assigned to your company will be able to answer any related questions you may have.
What precisely is that impact, in concrete terms?
Regarding the SR&ED credit, the wage subsidy paid to each employee eligible for the credit should be deducted from the eligible wage when calculating the tax credit, at a rate proportional to the time spent on SR&ED activities. The calculation of general costs (commonly known as proxy) remains unchanged since the aid received is only deducted after this calculation. In analyzing the results obtained from modelling different potential revenue losses, we can conclude that, on average, a company benefiting from the CEWS will face a loss of 30% of SR&ED tax credits for the entire duration of the program.
For the E-Business, the full subsidy received for each employee will be deducted from their salary. For the credit calculation, the eligible salary cap ($83,333) will apply, and remains unchanged. That means there could be a very low to no impact for high-wage employees, whereas the impact will be greater for lower-wage employees. Our analyses lead us to conclude that there will be a reduction of about 40% for the E-Business.
We will conclude by reiterating our recommendation that you make sure you retain all documents pertaining to any emergency aid you receive. These documents are invaluable when it comes to calculating your SR&ED and E-Business tax credits, as well as their justification in case of an audit by the fiscal authorities.
Contact us! Our simulator is available now. Together, we can thus prepare and plan for your future claims as thoroughly as possible. That’s one of the multiple added values you get from Emergex, at no additional cost!
We had the privilege last week to present a new webinar in partnership with AInBC, The Artificial Intelligence Network of British Columbia.
This webinar, specially designed for the AI companies, highlights the best practices to apply and the common mistakes to avoid in order to optimize your SR&ED tax credit claims. It also explores the impact of Covid-19 and government emergency grants on your amounts claimed in SR&ED.
If you want to view this presentation, you can find it here.
Continuing with our series of articles on government emergency measures, we will now continue by talking about non-subsidy COVID-19-related aid programs. Once again, we will look at the likely impact of any such aid on your future Scientific Development and Experimental Development (SR&ED) and E-Business (CDAE in French for crédit d’impôt aux Affaires Électroniques) tax credit claims.As already recommended previously, it is important to keep any emergency aid documents you will receive safe and handy. They will be needed when calculating future SR&ED and E-Business tax credits and could be requested by tax authorities in the event of an audit.
Emergency aid resulting in reduction of time spent on eligible activities
Laid-off employees who earned wages totalling at least $5,000 over the last 12 months and who did not receive any income for a consecutive period of 14 days due to COVID-19 can receive the CERB. This benefit provides $500 per week for a maximum of 16 weeks. What this means for the employer is that employees receiving this benefit are no longer in the company’s payroll.
The work sharing (WS) program is designed to help employers and employees avoid lay-offs when the company is experiencing a temporary slump in its business operations. The benefit provides employment insurance (EI) to eligible employees who agree to a reduction in their normal working hours and to share work with their colleagues as the company recovers. Self-employed workers and shareholders holding more than 40% of voting shares are ineligible.To receive this aid, the targeted employees must consent to a 10% to 60% reduction in their working hours. The employer will continue to pay the employees for the regular hours worked. EI fills the gap by paying such employees directly for the hours not worked. These direct payments are generally equal to 55% of the employees’ weekly wage and can go up to a maximum of $573.To apply for the program, the employer needs to complete the appropriate forms available on the Service Canada website and submit them by e-mail. The e-mail address differs according to the province in which the company is located. Employers are requested to submit their application 10 calendar days before their requested program start date. Simplified measures implemented by Service Canada during the crisis should reduce the processing period to 10 calendar days. Application forms and relevant documents must be preserved carefully for future reference.Conclusion:These two programs will have an impact on eligible SR&ED activities, which will either see a drop in volume or could be completely put on hold. As companies emerge from the crisis, they will therefore be faced with two possible scenarios. SR&ED activities may recover at a pace exceeding the normal growth rate during regular periods, with minimum impacts on credits, or conversely, such activities may lag significantly, which may in turn have a major negative impact on credits. In any case, it is crucial that any effort invested in eligible SR&ED activities be properly documented.Temporary lay-offs and the work sharing program greatly affect the E-Business tax credit and its eligibility criteria (which require a minimum of 6 employees, 40 weeks of employment and 26 working hours per week). Investissement Québec has not yet made any official pronouncement on the matter, but our experience tells us that it could be relatively relaxed if everything is well documented. We will communicate details as soon as we have an official response on the issue.It should further be noted that your company could be eligible for the work sharing program as well as the two subsidies covered in our previous publications (CEWS and 10% temporary subsidy). If that is the case, the CEWS shall be reduced by the amounts paid or reimbursed under the 10% temporary wage subsidy and the work sharing program for the same period.
Emergency aid potentially affecting your E-Business claim
The Ministère du Travail, de l’Emploi et de la Solidarité sociale du Québec has set up the above program, which enables reimbursement of 100% of expenses for eligible employee training and competency improvement activities totalling $100,000 or less and 50% of those between $100,000 and $500,000. The program will remain in effect for the duration of the crisis. The program’s eligibility criteria are expansive, which means many companies can apply for it.Reimbursable expenses include wages of employees in training up to $25/h, professional trainers, and on-line course registration fees up to $150/h, or the cost of training equipment and supplies. To apply for this aid, contact your Local Employment Centre.If your company is receiving government subsidies (CEWS and 10% subsidy), the reimbursement will not be up to 100%, but 25 or 90%, depending on the subsidy received.This program deals with training, which is an ineligible activity under the E-Business tax credit. As a reminder, employees must spend more than 75% of their time on eligible activities to maintain eligibility for the credit. Under this aid, employees could be excluded from the credit if they spend too much time in training.Again, Investissement Québec has not announced a decision on the matter. Our advice remains the same for such situations: retain proper documentation in order to prove and support any action taken, if needed. We will communicate any details as soon as we have an official response on the issue from Investissement Québec.
Closing remarks
Since we are currently living through very exceptional and fluid conditions, the programs discussed and information provided in this article could change at any time. Eligibility criteria and approved expenses are equally likely to change.We ask you to rest assured that Emergex SR&ED Subsidies is closely monitoring the situation and is always on top of any new information put out by the governments that could have a significant impact on your claims. We remain available to support you and secure the highest possible returns in your future tax credit claims, considering any potential emergency aid obtained and the unique situation your business will face.
As experts in financing technology companies, Emergex SR&ED Consultants closely monitors ongoing government announcements concerning business subsidies. In a previous article, we had mentioned the different actions taken by the Canada Revenue Agency (CRA) regarding the processing time of your current Scientific Research and Experimental Development (SR&ED) and E-Business (CDAE in French) tax credit claims. It is now Revenu Quebec who is changing its processing delays for current claims.
In order to increase the cash flow of businesses, the provincial agency is speeding up the payment of refundable credits. A portion of the SR&ED and E-Business tax credits is thus paid in a very short time without going through the usual examinations. The balance will be paid at a later date after the necessary reviews. So, do not be surprised if you receive a lower-than-expected refund.
Based on information provided to our team, Revenu Quebec pays an initial amount corresponding to 50% or 80% of the total amount of refundable credits requested while reserving the right to review the claim at a later date. This allows, in some cases, to accelerate the payment of a portion of the credits by up to five months (i.e. 30 days instead of the usual 180 days).
Our recommendations therefore stay the same. Do not delay the filing of your SR&ED and E-Business claims. You can receive your refunds very quickly, either from the CRA or Revenu Quebec.
As the situation we are experiencing is exceptional and constantly evolving, the information contained in this article may be subject to change. Emergex SR&ED Consultants is closely monitoring the situation and staying apprised of any new information that could significantly impact your claims. We remain at your disposal during this crisis and are ready to answer any questions you may have.
The Government of Canada’s emergency support plan for businesses facing hardship as a result of the COVID-19 crisis is quite generous and will benefit a large number of businesses.
We would like to share our first impressions about these government subsidies with our clients, especially as concerns any likely impact the subsidies may have on your future Scientific Development and Experimental Development (SR&ED) and E-Business (CDAE in French for crédit d’impôt aux Affaires Électroniques) tax credit claims. Normally, such subsidies are excluded from tax credit calculations, given that the same salary expenditure cannot be funded by the public sector twice (no “double dipping”, to use this expression popularized by the TV show, Seinfeld).
We therefore believe that this guideline should always be followed when calculating your future tax credits. However, given that exceptional situations call for exceptional emergency measures, a question therefore arises: will the government not also make an exception to this rule in the near future? This is one of several questions we are closely monitoring from the government’s regular announcements.
Before delving too deep into the various subsidies available, we recommend that you keep any emergency aid documents you will receive safe and handy. They will be needed when calculating future SR&ED and CDAE tax credits and could be requested by tax authorities in the event of an audit.
Canada Emergency Wage Subsidy
Under the Canada Emergency Wage Subsidy (CEWS), eligible employers can request a wage subsidy of 75%, with a maximum weekly limit of $847. Granted for a maximum period of 24 weeks and retroactive from March 15, 2020, this subsidy is aimed at preventing job losses. Eligible employers can apply for the CEWS through the Canada Revenue Agency’s My Business Account portal from April 27.
Eligibility for this program is subject to demonstrable income loss. Depending on the application and reference times, a drop in revenue due to COVID-19 must be shown of at least 15% in March 2020 and at least 30% subsequently. As indicated by the Finance Minister last April 11, processing timelines could range between 3 and 10 days once the application is submitted.
In addition to the 75% wage subsidy, employers are also entitled to claim the total refund of some employment insurance payments and contributions to the Canada Pension Plan, the Quebec Pension Plan and the Quebec Parental Insurance Plan for eligible employees on paid leave. This reimbursement can be requested concurrently with the CEWS claim for any period during which workers are eligible for paid leave.
If you wish to apply for the CEWS as soon as it opens, but have not yet created a My Business Account, you are advised to create one as soon as possible. This tool has become essential.
10% Temporary Wage Subsidy for Employers
The 10% temporary wage subsidy is a three-month measure (from March 18 to June 19, 2020) enabling eligible employers to reduce payroll deductions payable to the CRA. This grant amounts to 10% of the wage paid for the period cited above, with a maximum of $1,375 per eligible employee and $25,000 per employer. Once the 10% calculation is made, the employer can directly deduct this sum from federal tax deduction remittances at the usual moment for their payment.
However, to be eligible for this subsidy, a very important criterion must be met. A for-profit corporation must be a Canadian-controlled private corporation (CCPC) with a business limit greater than zero over the most recent tax year ending March 18, 2020.
Conclusion: The two subsidies above are government aid and should be subject to the usual tax credit processing. Therefore, the wage subsidy paid to each employee eligible to the SR&ED tax credit should be deducted from the eligible wage when calculating the tax credit at a rate proportional to the time spent on SR&ED activities. The calculation of general costs (commonly known as proxy) remains unchanged since the aid received is deducted only after this calculation.
The overall impact on the tax credit amount could be less than expected. In effect, the CEWS aid carries a limit of $847 per week. This means that for all employees with an annual wage of more than $58,000, only this weekly $847 will be paid. For example, for a resource with up to a 40% SR&ED involvement and an annual wage of over $58,000, the weekly SR&ED deduction shall be $339.
For the E-Business, the entire subsidy received for each employee that will need to be deducted from their wages. For the credit calculation, the eligible wage limit then applies and remains unchanged.
Note further that your company may be eligible for the two subsidies as well as the Work-Sharing Program (to be discussed in our next article). If that is the case, the CEWS will be reduced by the amounts paid or refunded under the 10% temporary wage subsidy and the work-sharing program for the same period. We therefore believe that if a business is eligible for the CEWS, the 10% temporary subsidy would no longer be of interest.
Final Word
Since current conditions are very exceptional and fluid, the subsidies discussed and information provided in this article could change at any time. Eligibility criteria and subsidy rates are equally liable to change.
Rest assured that Emergex SR&ED Subsidies is closely monitoring the situation and is always on top of any new information put out by the governments that could have a significant impact on your claims. We remain available to support you and secure the highest possible returns in your future tax credit claims, considering any potential emergency aid obtained and the unique situation your business will face.
As a company from France newly established in Quebec, we would have had little chance of obtaining our R&D credits without the help of Emergex. Thanks to their expertise and support during the presentation of our project to government officials, our claim was accepted beyond our expectations!
