Is a bonus paid to a specified employee an eligible SR&ED expense?
Does your taxable income have an impact on the rate of the tax credits and on your eligibility for a refund?
Is the salary of an administrative project manager eligible as a SR&ED expense?
How do you structure a contract with a subcontractor or a client to make sure that it can be claimed for SR&ED
Is it necessary to own the intellectual property of the finished product to claim SR&ED?
Is work done outside Canada eligible for SR&ED?
Are SR&ED expenses that have yet to be paid eligible?
Can SR&ED tax credits be pre-financed?
If you don’t have the answer to all of those questions, you risk losing your full potential for tax credits.
This event will be held on Wednesday, November 17, 2021, from 9 am to noon at Emergex’s head office. As per public health requirements, a valid vaccine passport will be required to assist and participants will be required to wear a mask.
Please note that this event will be held in French. To reserve a spot, contact 514-765-3333 #320.
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 income: [$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)
• Can hours spent on project management, training and writing documentation be claimed as SR&ED expenses?
• Can you claim work performed by subcontractors? Under what conditions?
• Must you absolutely use timesheets to claim SR&ED?
• What tools can simplify your contemporaneous documentation?
• How to answer correctly to Canada Revenue Agency5 SR&ED eligibility questions?
• What is your role in the SR&ED claim process ? And why is it so important?
• What defines the start of a SR&ED project?
• What activities qualify for the SR&ED program?
• Can a technical resource be automatically claimed in SR&ED?
• Do you know what CRA auditors expect?
If you don’t have the answer to all of those questions, you may be losing your full potential for tax credits. Therefore register now for the next Emergex webinar on the technological aspects of the SR&ED program.
This event will be held on Tuesday, June 15, 2021, from noon to 3 pm (EDT) online. Login information will be sent to you a few days before the event.
We have the privilege to offer a second webinar on September 23rd with our partners from AInBC, The Artificial Intelligence network of British Columbia! This webinar highlights best practices and common errors to avoid in order to survive a potential audit. You will learn how to document, structure and present your SR&ED projects from your customer projects while answering the CRA 5 eligibility questions.
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!
Although we will only be receiving the audit results from the CRA examiner in a few months, it is absolutely clear that the multiple and spot-on interventions by Emergex were of great help in securing a favourable response to our SR&ED claim. Big thanks for your excellent work!
