Couillard government cuts tax credits

Facing the prospects of a much larger deficit than anticipated, the Couillard government tabled its first budget on June 4, 2014. Given the realities of the current environment, it comes as no surprise at all that he announced major spending cuts, as he has to meet his balanced budget objective. Businesses will be particularly hard hit. Welcome to the era of austerity!

20% reduction in tax credits

The 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    
SR&ED salary 17.5% to 37.5% 14% to 30%
University research 35% 28%
Private partnership 35% 28%
Research consortium 35% 28%
E-Business 30% 24%
Multimedia titles 26.25% to 37.5% 21% to 30%
Industrial design 15% to 30% 12% to 24%
The various scientific research and experimental development (SR&ED) credits have not escaped this cut. However, the impact will be less significant, as the federal credit will partially compensate for the loss of assistance. In fact, the Quebec credit reduces the qualifying expenditure amount for calculating the federal credit. With a smaller provincial credit, the federal credit will consequently be higher. In the example of a $100,000 eligible SR&ED salary expenditure, a Canadian-controlled private corporation (CCPC) would have received $78,625 in credits (federal and provincial combined) in 2014. Now, with the new rate it would receive $73,750, representing a 6.2% reduction.
For a CCPC claiming $100,000 in salaries under the proxy method.
  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
Total $78,625 $73,750 – $4,875
These reductions will apply to expenses incurred as of June 5, 2014. Finally, the government announced that it will be reviewing all tax credit programs over the course of the coming year. The expectation is therefore that it will be modifying certain measures and getting rid of others altogether.

Abolition and suspension of certain measures announced since September 2012

Minister 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 workers

And 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.

2014 Ontario budget: no changes to innovation tax credits

The Ontario budget tabled on May 1st didn’t bring any changes to R&D tax credits and the Interactive Digital Media Tax Credit. It does, however, mention that business spending on R&D  in the province is lagging behind the U.S. As such, the government is studying ways to restructure tax support for R&D, including the possibility for an incremental incentive. Under such a system, companies that increase their R&D expenditures would benefit from enhanced credits while those that decrease them would see their benefits reduced. Ontario would join other jurisdictions such as the U.S. and Japan in offering incremental tax credits. This system could provide long-term benefits to the economy by encouraging R&D and innovation, and by boosting productivity. The government will consult with businesses and research organizations on this approach.

Seminar on the technological aspects of the SR&ED program (in French)

  • Can you claim hours spent for project management, for training or for writing documentation as eligible SR&ED expenses?
  • Do you know how to define the start of a SR&ED project?
  • Must you absolutely use a timesheet system to claim SR&ED?
  • Can you claim work done by a subcontractor?
  • What tools can you use to simplify the collection of data to prepare your SR&ED claim?
  • Do you know what activities are eligible for the SR&ED program?
  • Do you know what your role is in SR&ED?
  • Do you know what inspectors expect?
  • Do you know if a technical resource can automatically be claim in SR&ED?

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 Tuesday, May 20th 2014, from 9 am to noon at Emergex’s head office. Please note that this event is reserved for our clients and will be held in French. To reserve a spot, contact Lysanne at 514-765-3333 #590. Because places are limited, reservations are taken on a first-come, first-served basis. We hope to see you there.

Seminar on the financial aspects of the SR&ED program (in French)

  • 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 Thursday, May 15th 2014, from 9 am to noon at Emergex’s head office. Please note that this event is reserved for our clients and will be held in French. To reserve a spot, contact Lysanne at 514-765-3333 #590. Because places are limited, Reservations are taken on a first-come, first-served basis. We hope to see you there.

New version of T661 form used for claiming SR&ED

On October 31, 2013, the Canada Revenue Agency (CRA) published a new version of the T661 form used to describe projects and claim expenses for scientific research and experimental development (SR&ED). These changes follow the announcements made in the March 2013 federal budget.

Simplification of project data

Some 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 B

The 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 preparers

Information 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.

Seminar on the technological aspects of the SR&ED program (in French)

  • Can you claim hours spent for project management, for training or for writing documentation as eligible SR&ED expenses?
  • Do you know how to define the start of a SR&ED project?
  • Must you absolutely use a timesheet system to claim SR&ED?
  • Can you claim work done by a subcontractor?
  • What tools can you use to simplify the collection of data to prepare your SR&ED claim?
  • Do you know what activities are eligible for the SR&ED program?
  • Do you know what your role is in SR&ED?
  • Do you know what inspectors expect?
  • Do you know if a technical resource can automatically be claim in SR&ED?
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 Tuesday, February 18th 2014, from 9 am to noon at Emergex’s head office. Please note that this event is reserved for our clients and will be held in French. To reserve a spot, contact Lysanne at 514-765-3333 #590. Because places are limited, reservations are taken on a first-come, first-served basis. We hope to see you there.

Seminar on the financial aspects of the SR&ED program (in French)

  • 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 Tuesday, February 4th 2014, from 9 am to noon at Emergex’s head office. Please note that this event is reserved for our clients and will be held in French. To reserve a spot, contact Lysanne at 514-765-3333 #590. Because places are limited, Reservations are taken on a first-come, first-served basis. We hope to see you there.

Get the best results from SR&ED, CDAE and multimedia tax credit changes

Mr. Pierre Savignac is the founder and CEO of Emergex SR&ED Subsidies. This expert consulting firm specializes in tax credit claims in the software and IT industries, particularly the tax credits for scientific research & experimental development (SR&ED), e-business development (CDAE) and multimedia titles. At the seminar to be held on February 6, Mr. Savignac will talk about the last changes in tax incentive programs for IT companies, in force since January 1: New version of T661 form: managing inspection risks

  • Changes in rates and eligible expenses
  • Extension and indexation of the E-Business (CDAE) program
  • Credit for the production of multimedia titles: expenses will now be eligible to the credit during the entire lifecycle of the product
  • Optimization of additional credits : tips for maximizing tax credits

Reserve your spot on the web site of Développement Économique Saint-Laurent.

Seminar on the technological aspects of the SR&ED program (in French)

  • Can you claim hours spent for project management, for training or for writing documentation as eligible SR&ED expenses?
  • Do you know how to define the start of a SR&ED project?
  • Must you absolutely use a timesheet system to claim SR&ED?
  • Can you claim work done by a subcontractor?
  • What tools can you use to simplify the collection of data to prepare your SR&ED claim?
  • Do you know what activities are eligible for the SR&ED program?
  • Do you know what your role is in SR&ED?
  • Do you know what inspectors expect?
  • Do you know if a technical resource can automatically be claim in SR&ED?
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 Thursday, October 3rd 2013, from 9 am to noon at Emergex’s head office. Please note that this event is reserved for our clients and will be held in French. To reserve a spot, contact Lysanne at 514-765-3333 #590. Because places are limited, reservations are taken on a first-come, first-served basis. We hope to see you there.

UPDATE : Seminar on the financial aspects of the SR&ED program (in French)

Update : this event will be held on October 8th instead of September 19th.
  • 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 Tuesday, October 8th 2013, from 9 am to noon at Emergex’s head office. Please note that this event is reserved for our clients and will be held in French. To reserve a spot, contact Lysanne at 514-765-3333 #590. Because places are limited, Reservations are taken on a first-come, first-served basis. We hope to see you there.

Testimonials

Brett Patrontasch - Shyft

Brett Patrontasch – Shyft

You guys did an incredible job on our first SR&ED filing, so we are pleased to work with Emergex again this year. Thank you for your prompt assistance, especially considering how tight our deadline was. Great work !!!