2012

Our President, Ken Cudmore, CA, answers questions posed by the House of Commons Standing Committee on Finance regarding the changes proposed to the SR&ED program in Bill C-45. The proposed changes will severely reduce SR&ED benefits by:
– Reducing the general ITC rate from 20% to 15%
– Removing capital from the eligible expenditure base
– Gradually eroding the proxy overhead rate from 65% to 55%
– Reducing the eligibility of arm’s length and third party contracts (e.g. universities) to 80%

The negative impact of Bill C-45 on Western Canadian companies, particularly large claimants in the Energy Sector, will be dramatic. Our simulations and third party anecdotal reports lead us to believe that corporations will experience a 30%-60% drop in SR&ED investment tax credits.

Ken’s participation as an expert witness to the Committee provides a unique opportunity for Western Canadian firms to have their concerns heard directly by the country’s financial legislators.
 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

Our President, Ken Cudmore, CA, addresses the House of Commons Standing Committee on Finance regarding the changes proposed to the SR&ED program in Bill C-45. The proposed changes will severely reduce SR&ED benefits by:
– Reducing the general ITC rate from 20% to 15%
– Removing capital from the eligible expenditure base
– Gradually eroding the proxy overhead rate from 65% to 55%
– Reducing the eligibility of arm’s length and third party contracts (e.g. universities) to 80%

The negative impact of Bill C-45 on Western Canadian companies, particularly large claimants in the Energy Sector, will be dramatic. Our simulations and third party anecdotal reports lead us to believe that corporations will experience a 30%-60% drop in SR&ED investment tax credits.

Ken’s participation as an expert witness to the Committee provides a unique opportunity for Western Canadian firms to have their concerns heard directly by the country’s financial legislators.

 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

Our President, Ken Cudmore, CA, will address the House of Commons Standing Committee on Finance regarding the changes proposed to the SR&ED program in Bill C-45. The proposed changes will severely reduce SR&ED benefits by:

• Reducing the general ITC rate from 20% to 15%
• Removing capital from the eligible expenditure base
• Gradually eroding the proxy overhead rate from 65% to 55%
• Reducing the eligibility of arm’s length and third party contracts (e.g. universities) to 80%

The negative impact of Bill C-45 on Western Canadian companies, particularly large claimants in the Energy Sector, will be dramatic. Our simulations and third party anecdotal reports lead us to believe that corporations will experience a 30%-60% drop in SR&ED investment tax credits.
Ken’s participation as an expert witness to the Committee provides a unique opportunity for Western Canadian firms to have their concerns heard directly by the country’s financial legislators.
 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

Further to the proposed changes to SR&ED announced in the 2012 Federal Budget, our interpretation
of Bill C-45 reveals that taxpayers will now be eligible to claim only 80% of their payments to approved
universities, colleges, research institutes, or other similar institutions for conducting research and
development on their behalf. This change was not highlighted at the time of the budget announcement,
and would seem to be counter to the government’s emphasis on increasing collaboration between
industry and academia.

If you would like more detail on the potential impact on your SR&ED claim or on our interpretation of
the legislative changes, please contact your TSGI team or info@tsgi.ca.

 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

On October 10th, 2012, the CRA is hosting an Oil & Gas and Mining Industry Forum on “Emerging Directions and Issues of Relevance to the SR&ED Program” in Calgary, Alberta. Attendance is by invitation only. TSGI-Chartered Accountants personnel will be attending this event and our Vice President of Business Development, Graham Smith, will be participating as a panelist for the joint CRA/Industry Q&A session.
 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

In an effort to encourage industry and SR&ED professionals to contribute to the debate on SR&ED Advisory Services and related fees, the Department of Finance began a period of public consultation starting Q3 2012. TSGI is happy to contribute our considered opinion and viewpoint on the matter – our letter to the Minister and Department of Finance is linked to below.

 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

 
As part of the Economic Action Plan 2012, the Federal government has committed to undertake consultations to better understand how and why SR&ED claimants hire external advisors. The consultations are specifically intended to assist the Department of Finance in understanding the following questions:

• why firms hire third-party tax preparers on a contingency-fee basis;
• why these tax preparers charge contingency fees;
• the prevalence of this practice;
• the amounts charged; and
• the impacts of this practice on the effectiveness of the SR&ED tax incentive program.

The deadline for submitting comments to the Department of Finance on these topics is October 1, 2012. All stakeholders in the SR&ED program should speak out now:

Visit this link to have your voice heard about these issues and how any proposed changes will impact you.

Further information can be obtained at the following websites: Announcement of the consultation process and Background information and guidance for submissions
 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

Graham Smith, VP of Business Development for TSGI-Chartered Accountants, will be presenting at the 4^th Annual Northeast British Columbia Natural Gas Summit being held in Calgary, September 20-21, 2012. The presentation will be entitled: The Role of SR&ED Tax Credits in the Development of Natural Gas Technology and will include:

• an overview and history of the SR&ED program as related to natural gas technologies,
• a case study of a successful SR&ED claim for shale gas technology in Northeast BC,
• and a discussion of the massive impact the 2012 Federal Budget is expected to have on SR&ED claims in the natural gas industry.

Graham is a frequent presenter on this and other SR&ED topics, and authored the first SR&ED claim to be approved for shale gas technology.

Discount for TSGI Clients: Clients of TSGI-Chartered Accountants are eligible for a 10% discount on attendance fees for the summit. To benefit from this offer, please contact graham.smith@tsgi.ca for further information.

 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

 
Scope of this Article
This article summarizes the SR&ED changes proposed in the 2012 provincial budgets for Alberta, British Columbia and Saskatchewan. None of these proposals become law until passed by their respective legislatures.
 
SR&ED Changes Proposed in the 2012 Alberta Budget
Current Alberta legislation requires that SR&ED benefits received from the Federal government be deducted from the qualified expenditures for the purposes of computing Alberta SR&ED in the subsequent year. The net effect of this framework is a “double-grind” procedure that erodes the net SR&ED benefits received by companies through a multi-year, iterative, calculation. Under the current law, the ultimate, combined, Federal and Provincial ITC benefit to a CCPC is 39.4% while non-CCPC corporations benefit at a rate of 26.5%

In their 2012 Alberta budget proposal, the Progressive Conservative government has proposed to eliminate the double-grind aspect of the Alberta SR&ED program. This will result in ITC rates of 41.5% for CCPCs and 28% for non-CCPC corporations. The change will also bring a welcome reduction in complexity to users and administrators of the Alberta program.
 
SR&ED Changes Proposed in the 2012 Saskatchewan Budget
Saskatchewan currently offers a 15% refundable SR&ED benefit on qualifying expenditures to all corporations. In their 2012-2013 budget proposal, the Saskatchewan government has proposed to exclude non-CCPCs from receiving refundable benefits and to limit refundable benefits CCPCs to an annual maximum of $3 million in qualifying expenditures. CCPCs with qualifying expenditures in excess of $3 million annually will receive the balance of their ITCs as non-refundable tax credits which can be carried forward up to 10 years (or back 3). The changes are to be effective for expenditures incurred on or after April 1, 2012.
 
British Columbia SR&ED Program Anticipated to Extend Past August 2014
The British Columbia SR&ED program, as currently enacted, expires on August 31, 2014. The 2012/13 -2014/15 budget assumes that the BC SR&ED program (with a 10% ITC rate) will be continued in its current form past this date but stops short of extending the program’s mandate.
 
 
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.

Overview of Changes to Federal Innovation Funding
This document outlines how the proposed Federal 2012 budget changes are likely to affect technology focused businesses in Canada. One of the key goals for the Budget was to achieve a revenue-neutral redistribution of research and development (R&D) incentive funding. In general, the proposals reallocate a portion of the financial innovation resources away from tax credits and curiosity-based research and toward direct government grants, access to capital programs, government procurement methods, and increasing private-public research collaborations.
Increased Funding of Government and Private Venture Capital
The Government recognizes the critical importance of access to capital in promoting high-growth, innovative businesses. It is commonly acknowledged that a “valley of death” exists in Canadian innovation funding at the point where new technology has been demonstrated as feasible but is not sufficiently proven to gain enough investment to achieve commercial viability. In light of this, the 2012 Budget proposes two measures to address Canada’s limitations in this area:
• $400 million in funds to support private sector early-stage and venture capital investing,
• $100 million in funding to the Business Development Bank of Canada (BDC) to support its venture capital activities (previously announced).

The structure of the private sector funding is yet to be determined but it is proposed to span the range from seed investment to large-scale venture capitalism.

Expanded Financial Support for and Re-Focusing of the National Research Council (NRC)
The Budget proposes that the National Research Council Industrial Research Assistance Program (NRC-IRAP) receive an additional $110 million per year in funding, doubling the support the program distributes to small and medium sized businesses.

It is also proposes that the NRC redirect its own research efforts more towards business-driven, industry-relevant areas. The Budget provides a separate allocation of $67 million to assist the NRC to make this shift.

Increased Support for Innovative Businesses in Western Canada
A section in the 2012 Budget observes that Western Canada does have a regionally targeted development program that is equivalent to those available in other areas of the country. To address this limitation, the Budget announces the upcoming launch of the Western Innovation Program, to be administered by Western Economic Diversification. Program details will be forthcoming.

Partial Redirection of SR&ED Funds to Other Programs
In keeping with the Government’s objective to shift a portion of its innovation incentive funding away from tax credits and into direct funding methods, the 2012 Budget proposes to reduce SR&ED spending by roughly 14%. It should be noted that the proposals to date do not appear to substantially decrease the complexity of the program. For further information refer to the TSGI post discussing the affect of the Budget on the SR&ED program found here.

Increased Support for Private-Public Research Collaboration
A number of initiatives are included in the 2012 Budget to improve the general level of private-public research collaboration. A number of industry specific initiatives are also targeted for increased funding. These changes include the following:
• $14 million over two years to the Industrial Research and Development Internship program (largely delivered by Mitacs).
• $12 million per year in funding to make the Business-Led Networks of Centres of Excellence program permanent. This program focuses on linking innovative businesses to Canadian research resources.
• $105 million over two years to support innovation in the forestry industry. The Budget proposes to cut the number of funded initiatives from five to the following two: The Expanding Market Opportunities Program and the Forest Innovation Program.

Increased Support for Innovation Through Government Procurement
The Canadian Innovation Commercialization Program (CICP) currently promotes technology commercialization by assisting small and medium sized businesses to sell goods and services to Government agencies that have needs for innovative products. The focus of the program has been civilian until this point but a military component is proposed for the future. The Budget allocates $95 million in additional funding to support the CICP for the three years starting in 2013. Thereafter, additional funding of $40 million per year is proposed.

Support for Research, Education and Training
In addition to the changes in funding for research and development in the commercial setting, the Budget proposes funding changes for academic research, education and training. The most relevant of these changes to the business community is the provision of $37 million to the post-secondary granting councils to support industrial-academic research collaborations.

Other Commercial Innovation Funding Measures
The 2012 Budget includes other proposals for changes to research, education and training funding. Interested parties should contact the Government of Canada for further information.

Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.