Contenu connexe Similaire à SR&ED: What you need to know about the changing landscape - MaRS Best Practices (20) Plus de MaRS Discovery District (20) SR&ED: What you need to know about the changing landscape - MaRS Best Practices2. MaRS Centre
June 14, 2012
John Sutherland
Scientific research and
experimental development
incentives
3. © Deloitte & Touche LLP and affiliated entities.
Presenter contact info:
Scientific research and experimental development incentives3
John Sutherland BA, CGA
Senior Manager – Tax
Global R&D and Government Incentives
Phone (416) 643-8048
Cell (905) 379-3261
josutherland@deloitte.ca
4. © Deloitte & Touche LLP and affiliated entities.
Agenda
• Overview of the Canadian SR&ED program
• Budget updates – Federal and Ontario
• CCPCs
• Program Criteria
• Ontario Technology credits
• Stretching SR&ED dollars
4 Scientific research and experimental development incentives
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Canadian SR&ED Program
• Canadian Controlled Private Corporations (CCPC)
Benefits:
– SR&ED Deduction pool
– ITCs
• 35% of eligible expenses
– Refundable on the 1st 3m of SR&ED expenses
– Taxable Income and Taxable capital thresholds to be maintained for
refund-ability
– Provincial refund ability
• 20% of eligible expenses
– 40% refund ability on SR&ED expenses in excess of $3m
– Taxable Income and Taxable capital thresholds to be maintained
for refund-ability
• Provincial Credits also available
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Benefit of the program
• Other benefits
– Accelerated write-offs
– Timing on utilization of expenditures
– Unused credits carry forward
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Federal update
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Federal budget
• Non-CCPC
– 15% non-refundable for taxation year ending after 2013
– Reduce proxy calculations to 60% for 2013 and 55% thereafter
– Arm’s length subcontract expenses to be reduced to 80% after 2012
– No lease expenses after 2013
– No capital expenses made after 2013
– No shared use equipment after 2013
• CCPC
– 35% rate remains unchanged though the base of qualifying
expenditures will be smaller – as per above
– 15% for non-qualifying CCPC or for expenses in excess of $3m or
expenditure limit
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Federal budget – Impact
• Reduction in total benefit in Ontario will range from 6% to 40%
– Depending on:
• CCPC small corporation status
• Mix of employees versus contractors
• Capital component of claims
• Materials component of claims
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Federal budget – Other SR&ED and research Items
• Conduct a pilot project to determine the viability of a formal
pre-approval process
• Enhance the existing online self-assessment eligibility tool
• Make more frequent and effective use of “tax alerts”
• Improve the Notice of Objection process to allow for a second review
of scientific eligibility determinations
• Divert “savings” from reduced SR&ED ITC% to direct incentives
– Make the Canadian Innovation Commercialization Program permanent
– Provide support in 2012-13 to the NRC to refocus on business-led, industry
relevant research
– Double the IRAP Internship program
– Launch the Western Innovation Program
• Similar to such programs in other provinces
– Other plans not yet clarified
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Program criteria &
qualifying expenditures
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Program criteria
Definition of SR&ED
• Three types of eligible development:
1. Basic research
2. Applied research
3. Experimental development (90%+ of all claims)
− Work undertaken… for the purpose of creating new, or improving
existing materials, devices, products or processes, including
incremental improvements
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Program criteria (Cont’d)
Eligibility criteria
• Three essential elements
1. Technological advancement
2. Technological uncertainties, and
3. Technical content
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Program criteria (Cont’d)
Technological advancement
• Typically a new characteristic or capability
• The knowledge gained
• Transferability of this new knowledge
– Examples:
– Integration of disparate technologies
– Algorithms, methods or capabilities
– e.g. special caching techniques to improve performance
– Tools (e.g. speed up development, load balancing)
– Any technological improvements in proprietary systems
– Faster, more data, smaller footprint, cheaper, etc
• Note that success is not a requirement, only an attempt
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Program criteria (Cont’d)
• “Technological uncertainty” may occur in either of two ways:
– Uncertain that goals can be achieved; technological obstacles exist that must
be overcome through experimentation or analysis.
– Goals can be achieved; however, what path, route, approach, equipment
configuration, etc., will work.
• Need for experimentation and analysis
• SR&ED Project STARTS when uncertainty is identified
• SR&ED Project ENDS when uncertainty is resolved
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Program criteria (Cont’d)
Scientific or technological content
• Qualified people involved
– Employee records can support qualifications
– Professional, academic, technical training and work experience are all
relevant credentials
• Systematic investigation
– Departure from application of proven approaches
– Experimentation and analysis
– Testing and evaluation
– Conclusions reached
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SR&ED activities include
• Technical feasibility studies
• Review of competing technology
• Design
• Prototype build and evaluation
• Programming
• Component, system and integration testing
• Technical documentation
• Support activities undertaken directly to help
resolve the uncertainties that make the
project R&D
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SR&ED activities exclude
• Market research
• Routine testing
• Routine data collection
• Social sciences or humanities
• Commercial production
• Style changes
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Other criteria
• Development must be in a field of science or technology
• Work must be performed physically in Canada
• Work must be performed by Canadian taxable entities
• Claimant and claimed subcontractors
• Claim must be submitted within 18 months of fiscal year end
• Expenditures must be paid within 6 months of fiscal end
• Work contracted by another Canadian entity may be subject to
reduction of eligible expenses by the amount paid
• And many other less common rules which we will deal with on a case-
by-case basis
– e.g. Salaries of “specified employees”
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SR&ED in a nutshell
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Point A
‘base level’
Point B
‘target level’
• Faster
• Increased yield
• More efficient
• Better performance
• New capability
• New application
• Knowledge
• Better tools
Barriers,
Constraints,
Obstacles,
Challenges
Advancement
Knowledge base
Technical objective
1. Idea generation
2. Idea selection
3. Prototype, analysis, testing, simulation, modeling, FEA, etc.
4. Results/conclusions
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SR&ED industry examples
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Industry Example of SR&ED
Software/ IT Improvements to customized software
Manufacturing Process improvements to reduce production time
and cost
Consumer Goods Production formulations with restricted ingredients to
achieve sought specifications
Pharmaceutical/Biotechnology Improving processes to reduce material waste
Chemicals Developing custom equipment to improve process
performance
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SR&ED – What can you claim?
1. Salaries and wages
2. Materials consumed and transformed
3. Contract SR&ED payments (80% after 2012)
4. Lease expenses (until 2013)
5. Third party-payments for other people performing SR&ED that taxpayer
can exploit
6. Overhead (2 methods of calculation)
7. Certain capital expenditures (until 2013)
• Less SR&ED contract payments received
• Less Government Assistance (grants, credits)
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Overhead
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Traditional or proxy method of calculation
Each year taxpayer can choose between:
• Traditional Method
– Calculation of actual overhead directly attributable to SR&ED, or
• Proxy Method
– Notional calculation of overhead based on 65% * of directly engaged
labour
* (60% for 2013 and 55% thereafter)
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Salary and wages
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Salary and wages
• Employees Directly engaged (proxy)
• Employees Directly attributable (traditional)
Ø Incremental and related to SR&ED
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Materials
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Materials consumed vs. transformed
Consumed
• Implies materials are absorbed, used
up or broken into small pieces
• Destroyed or rendered virtually
useless as a result of SR&ED
Transformed
• Materials are incorporated into
product that has some value to the
taxpayer or to another party
• Subject to ITC recapture when a
disposition occurs
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SR&ED Contract payments
(80% after 2012)
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127(9) – Definition of contract payment
“Contract payment” means
• An amount paid or payable to a contractor taxpayer for SR&ED
performed
• on the claimant’s behalf
• on an arm’s length basis
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Leases (until 2013)
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Leases (until 2013)
• All or substantially all (ASA)
– 90% used for SR&ED
• Claim actual cost
• Primarily
– Used 50% to 90% for SR&ED
• Claim 50% of cost
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Third party payments
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Third party payments
• Payments to any one of the following entities which carry on SR&ED
activities in Canada:
– An approved association that undertakes SR&ED
– An approved university, college, research institute or other
similar institution
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Capital expenditures
(Until 2013)
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Eligible capital expenditures
• “All or substantially all” (ASA)
• Intent test
• “Shared use equipment” (SUE)
• Use test
Ø Must be new for ITC purposes
Ø Excludes buildings and leasehold interest in buildings
Ø Must be available for use
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ITC Recapture
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What does it apply to and when?
• The “property” subject to the recapture rules include:
• Materials, all or substantially all equipment (“ASA”),shared use
equipment (“SUE”)
• When sold or converted to commercial use, the itc’s related to these
items may be recaptured
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Ontario technology
tax credits often
overlooked
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Ontario tax credits
• Ontario innovation tax credit
• Ontario research and development tax credit
• Ontario interactive digital media tax credit
• Ontario computer animation tax credit
• Ontario business research institute tax credit
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OITC
• 10% Ontario Innovation Tax Credit (OITC) for eligible expenditures
incurred in Ontario
• Available for all corporations with operations in Ontario
• Refundable
• Qualified expenditures up to the expenditure limit ( $3M)
– Canadian taxable income of the group of companies
– World wide taxable capital of the group of companies
– Planning:
• No 18 months deadline
• Contract payments from customers outside Ontario
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ORDTC
• Replaces pre – harmonization Ontario deduction for federal ITC
• Catch: considered to be assistance Reduce ITC
– Reduce SR&ED pool à ORDTC attracts federal and Ontario tax
• Unused ORDTC can be carried back 3 years (but not to taxation year
ending before 2009) and carried forward 20 years
• Taxpayer can waive this non-refundable tax credit –presumably to
increase federal ITC
• If waived, no immediate difference on cash flow compared to O161 in
companies with losses
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Ontario Interactive Digital Media Tax Credit (OIDMTC)
• Refundable tax credit of 40% since March 27, 2009 for non-specified
products
– 35% for “specified products” (fee-for-service)
• Eligibility based on product, which must be complete
• Educate, inform or entertain
• Interactive (What info and how info is displayed)
• Multimedia (2 of text, images and/or sound)
• Available to non-exempt corporations only
• For work done in Ontario
• Must obtain a Certificate of Eligibility
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OIDMTC: Funding for eligible product
• Eligible expenditures
– Salaries and wages
– Contractors (only 50% of cost eligible before March 27, 2009)
– Marketing and distribution costs (capped at $100k per product)
• Benefits
– 40% regardless of size (after March 26, 2009) – non specified product
– 35% specified product
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OIDMTC – Digital media game corporations
• 35% tax credit rate for qualifying digital game corporations
• Incur a minimum $1 million of eligible Ontario labour costs over a 3 year period for
fee-for-service work done in Ontario that is directly related to the development of a
digital game
• Not required to be at arm’s length with the purchaser corporation
• Not required to develop all, or substantially all, of the eligible product
• 35% tax credit rate to specialized digital game corporations
– 80% of Ontario payroll or 90% of annual revenues attributable to interactive digital
media game development
• Minimum of $1 million of Ontario labour expenditures in the taxation year directly
attributable to the development of eligible digital games
– Entitled to file an annual OIDMTC application
– Not required to contract with an arm's length purchaser
– Not required to develop all, or substantially all, of products included
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Computer animation and special effects tax credit
• 20% refundable tax credit
• Ontario labour expenditures for development of computer digital
animation and digital visual effects for use in television or film
• A certificate of eligibility must be obtained from the Ontario Media
Development Corporation and filed with tax return
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Ontario Business – Research Institute Tax Credit
(“OBRITC”)
• 20% refundable tax credit
• For SR&ED expenditures through a PE in Ontario
• SR&ED payments made to an Ontario Eligible Institute
• Business should be entitled to exploit the results of the SR&ED
• An eligible research institute includes most universities and colleges in
Ontario, hospital research institutes and certain non-profit research
organizations
• OBRITC is in addition to OITC credit
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Stretching your SR&ED dollars
Agreements with suppliers/customers
• Proactively reviewing agreements to ensure SR&ED tax credits are
maximized
• Invoices should have proper segregation of materials and services
to avoid/minimize recapture
• Clear terms regarding performance and ownership of SR&ED
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Stretching your SR&ED dollars (Cont’d)
Tracking SR&ED on a contemporaneous basis
• Meets CRAs requirements
• Capture additional activities
Purchase of Capital Assets for SR&ED purposes
• Purchase requisition should state intent
• Ensuring available for use by the year end
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Who is Deloitte?
• Largest service provider in this field in Canada
• Integrated team of engineers, scientists, accountants and tax specialists
• Adaptable work models
– “A la carte” to full outsourcing capability
– We provide support from opportunity qualification, through all CRA
technical and financial approvals
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Practice overview
Canada GTA
SR&ED Partners 8 3
SR&ED Associate Partners 11 5
SR&ED Senior Managers 58 9
Other Professional Staff 75 31
Total number of SR&ED practitioners 152 48
Professional/Graduate Engineers 71 22
CA’s, CGA’s and CMA’s 81 26
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Questions?
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