In the March 29th, 2012 budget, the federal government announced certain changes to the Scientific Research and Experimental Development Program (SR&ED).
Some of these measures have been in effect since January 1st, 2013.
Here are the key changes brought to the calculation of federal tax credits for SR&ED in effect since January 1st, 2013:
As of January 1st, 2013, only 80% of the cost of outsourcing contracts concluded between persons at arm’s length shall be eligible for the SR&ED credit.
SR&ED Overhead Expenses
Overhead expenses directly imputable to execution of SR&ED are eligible to the calculation of the SR&ED tax credit. However, instead of itemizing overhead expenses, taxpayers can use a proxy method according to which overhead expenses are estimated at 65% of SR&ED salaries. As of January 1st, 2013, the rate of 65% is reduced to 60%.
For calendar years overlapping January 1st, 2013, the rates used shall be pro-rated based on the number of days in each of the calendar years.
SR&ED Credits – Quebec
On the provincial level, the new government of Quebec announced in its November 20, 2012 budget that from now on, all refundable tax credits shall be taxable. Hence, SR&DE tax credits in Quebec which pertain to an expense incurred in a taxation year beginning after November 20, 2012, are taxable.
In addition, Canada Revenue Agency, has just published twenty newly revised policies for the application of the SR&ED program. This revision was done in view of consolidating and clarifying existing policies developed over the years, based on needs.
The most crucial document concerns eligibility of work. In principle, the notions explained in previous publications have not changed. Therefore, the three criteria of a project’s eligibility that is, advancement, uncertainty and scientific or technological content, remain unchanged even if a new, five-question method to assess them is proposed. However, it is possible that the text of the new policies may limit the scope of the SR&ED program. The implementation of these new consolidated policies shall allow to determine if this is indeed the case.
Do not hesitate to contact us to optimize your SR&ED tax credits in view of supporting your growth.