You know this already: it’s in your business’s best interest to innovate in order to grow and remain competitive. To help you finance your innovation initiatives, you can rely on several tax advantages, including scientific research and experimental development (SR&ED) tax credits.

Each year, more than 20,000 Canadian businesses share in $3 billion in tax incentives in connection with the federal SR&ED program, which is leveraged by provincial programs, especially in Quebec.

Would you also like to fully benefit from these tax credits? Here are some main points to know about this topic.

1. Any business qualifies

Generally speaking, regardless of the legal form of your business, size and activity sector, you could benefit from the SR&ED program as long as you carry out activities that meet the eligibility criteria.

In other words, no need to be a scientific or technological business to qualify. Furthermore, most claims relate to practical applications, i.e. creating products, processes and devices, including incremental improvement. This is what is known as experimental development.

2. The three criteria to satisfy

Your project must meet the three major criteria to be considered SR&ED:

• It must seek a scientific or technological advancement.
• There must be scientific or technological uncertainty.
• It must include scientific or technical content.

3. Main eligible expenses

The federal SR&ED program offers two tax incentives:

• The deduction of SR&ED expenses to reduce your taxes payable for the current or future tax years.
• An investment tax credit in the form of a cash refund or reduction in taxes payable, or both.

Tax credits may be claimed for four major types of expenses:

• Wages for time worked by employees on SR&ED projects.
• Material used or manufactured during trials.
• Subcontracting expenses (e.g. specialized companies testing your prototypes).
• Third-party payments (essentially, payment to research institutes and consortiums, including universities; in this case, expenses do not have to relate to a specific project undertaken by your business).

4. Thoroughly document your work

The Canada Revenue Agency (CRA) could decide to audit your claim based on different factors. In order to be able to defend your point of view should your claim be contested, we recommend carefully documenting all of your SR&ED work as the project progresses (using timesheets, test reports, prototypes and pictures, among others).

It’s also the best way to precisely assess your SR&ED efforts, and consequently, maximize the tax credits to which you are entitled.

We suggest appointing one or more people to document the process.

5. Obtain guidance

There is too much money at stake and too many nuances in the interpretation of SR&ED support program rules to leave things to chance.

At Raymond Chabot Grant Thornton, we have an experienced team of technical, tax and accounting experts dedicated to SR&ED tax credit claims. We can help you build a strong case and benefit as much as possible from tax incentive programs.

Do you own a farming or forestry business? Here are some changes to consider when preparing your next income tax returns.

Corporate tax rates:

Federal:

The rate is 10% for 2018 and will drop to 9% on January 1, 2019 on net business income under $500,000.

Provincial:

In Quebec, the tax rate for corporations in the primary sector is 4% of net business income under $500,000 since January 1, 2017.

Contribution rate to the Health Services Fund:

Since August 16, 2018, the rate is 1.25% for businesses in the primary sector.

Eligible capital property:

Since January 1, 2017, there are new rules for eligible capital property (e.g. dairy and poultry quotas as well as maple syrup quotas).

The total amount of the value of your eligible capital property will become the opening balance of the new Class 14.1.

Expenses incurred before 2017 can still be depreciated using the declining balance method at a rate of 7%. Expenses after 2017 are added in full in Class 14.1 and depreciated using the declining balance method at a rate of 5%. The half-rate rule applies to expenses after 2017.

If you plan on selling part of your quota, it is very important to consult your tax specialist to plan for all consequences.

If you create a new business, the first $3,000 of incorporation fees is now a deductible current expense.

Forestry:

The threshold for the tax on forestry operations is now $65,000 (formerly $10,000).

Certain criteria apply to these changes. To ensure having a consistent tax return that takes into account all of the aspects specific to your business, get the most out of our experts’ services.

This article was drafted in October 2018. The tax rules change regularly. In case of doubt, don’t hesitate to contact an expert.

Online Tax Strategies–October 2018

On June 21, 2018 the Supreme Court of the United States released its verdict on the landmark South Dakota v. Wayfair case, ruling that individual states have the ability to require that businesses collect sales taxes from consumers, should they meet a certain volume of sales in that state, regardless of whether the business itself has a physical presence in that state.

While it may seem that this ruling will only affect businesses and residents of the United States, instituting reporting requirements that are based on volume of sales as opposed to physical presence will surely mean that Canadian businesses selling to the United States will also be impacted.

Read the document below for more information.