Hélène Robitaille
Senior Manager | CPA, CA, LL.M. Fisc. | Tax

The federal and Quebec budgets did not provide for any changes to the research and innovation tax measures, including the SR&ED credit, however, there are some noteworthy measures.

Federal

The federal government proposes an Innovation and Skills Plan with four components:

Skills: Help young Canadians to kick-start their careers, make training opportunities more accessible to working Canadians and improve access to global talent through accelerated processing times.

Research, technology and commercialization: Increase investment in innovation by business in six key areas (advanced manufacturing, agri-food, clean technology, digital industries, health/bio-sciences and clean resources); invest in a number of superclusters; increase the number of collaborations between industry, post-secondary institutions and research institutions; reinforce world class research in certain area;s and assist Canadian innovators in finding a first customer.

Program simplification: Review innovation programs provide a client-centred approach.

Investment and scale: Create a Strategic Innovation Fund to consolidate and simplify existing programs. Make available up to $400 million in venture capital over three years through the Business Development Bank of Canada. The government also wants to increase export growth and the number of high-growth companies.

In the coming months, we’ll see how these plans will be put into action.

Quebec

Quebec announced investments of $830M to stimulate research and innovation:

An additional $115M will be injected into the Quebec Research Funds that provide bursaries to students and university research centres.

$115M to support the following research organizations:

  • Génome Québec;
  • National Optics Institute;
  • Nine industrial research sectoral groups;
  • Computer Research Institute of Montréal.

$190M to the Ministère de l’Économie, de la Science et de l’Innovation (MESI) to finance three areas:

  • Support emerging innovators, and enhance the culture of science and innovation;
  • Increase the ability to carry out world-class research;
  • Accelerate the transfer and marketing of innovations.

$100M to create an artificial intelligence supercluster in Montréal.

$150M will be invested to promote development in the life sciences sector. The MESI will reveal the strategy in the spring of 2017.

$46M to stimulate innovation in the forestry sector and $22M for the maritime sector.

The most interesting development is likely the $125M investment to promote the development of the innovative manufacturing sector. The budget proposes ten solutions, including creation of a one-stop portal: the Enterprises Québec online portal. An “innovative manufacturer” title is being created and financial support will be provided to businesses.

The government plans to invest a few million to promote entrepreneurship, particularly with young people, and to fund growing businesses.

25 Apr 2017  |  Written by :

Ms. Robitaille is a senior manager at RCGT. She is your expert in taxation for the Montreal office....

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We have called upon the contribution of tax experts from the Raymond Chabot Grant Thornton network for a series of articles providing answers to questions raised by our clients doing business abroad.

A tax specialist is a professional who specializes in the application and interpretation of tax rules and regulations. These often complex rules are constantly evolving. The tax specialist’s role is to advise clients so that their tax burden is minimized to the extent permitted by law. The courts in all jurisdictions have long recognized that, unless otherwise provided by law, taxpayers are entitled to arrange their affairs to attract the minimum amount of tax.

Q: If I rent out real property located in the U.S. (condo/house), do I have to file a U.S. tax return?

A: A non-resident of the U.S. who receives rental income from property located in the U.S. is technically subject to a U.S. withholding tax of 30% on the gross rental income. To avoid this holdback, the taxpayer must make an election to file a U.S. tax return (1040NR, U.S. Nonresident Alien Income Tax) and pay U.S. tax on his net rental income. The net rental income is also taxable in the U.S. As applicable, the tax payable in the U.S. may entitle the taxpayer to a foreign tax credit in Canada, thereby avoiding dual taxation.

Q: If I rent out real property located in Florida (condo/home) for less than six months, do I have to collect the Florida sales tax?

A: Yes. As far as the State of Florida is concerned, you must collect and remit, within the prescribed time limit, the applicable sales tax for rental periods of less than six months. The current sales tax rate in the State of Florida is 6% but could be higher in certain counties. The tax liability and applicable tax rates vary from State to State.

Q: If I sell real estate located in the U.S. (condo/home), do I have to file a U.S. tax return?

A: Yes. A U.S. tax return (1040NR, U.S. Nonresident Alien Income Tax) must be filed in the U.S. to report the capital gain earned on the disposition of the property, and, if applicable, to pay U.S. tax on this gain.

Q: Must I also report this capital gain in my Canadian income tax return?

A: Yes. This capital gain is also taxable in Canada and must be reported by the Canadian resident in his tax return. As is the case for rental income, the Canadian taxpayer will be entitled to a foreign tax credit for the U.S. tax paid on this capital gain.

Q: I sold real estate in the U.S. and a 10% or 15% U.S. withholding tax was applied to the proceeds of sale. Is this right?

A: The sale of U.S. real estate by a non-resident is subject to a 10% or 15% withholding tax on the gross proceeds of sale under the FIRPTA rules (Foreign Investment in Real Property Tax Act of 1980). The buyer may not be required to deduct the withholding if both of the following conditions are satisfied::

  • The property is sold for less than $300,000 US; and;
  • The buyer intends to use the property for personal purposes.

Do you have questions relating to U.S. tax issues? The tax experts of Raymond Chabot Grant Thornton can help you!

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Pierre Laberge
Manager | Tax

A good number of SME leaders in the forest industry make decisions without objective, accurate information.

To improve the performance of their businesses, it’s essential that they measure the factors affecting the main stakes.

It’s important to do a real time follow up of the key indicators of operations management, such as: the overall rate of return (availability, efficiency, quality), the equipment’s utilization rate, workers’ productivity and the unit cost of production. With this information, work methods can be quickly and efficiently adjusted.

Current technology makes it possible to acquire a substantial amount of information, at low cost, for both forestry entrepreneurs and those performing harvesting, transportation and road work. The use of GPS data, digital forms, forest inventory results and geomatics data provides appropriate accuracy for analyzing a wide range of key indicators.

While using Excel to present scorecards is obviously the most affordable method, the program has its limitations in terms of data presentation options and security. Furthermore, users must be fairly proficient to develop complex scorecards. When the databases grow and information comes from numerous sources, the use of a spreadsheet presents further risks of error and requires manipulation time.

An increasingly interesting option to consider is the use of cloud Web platforms. Data can easily be stored and secured online and the rights can be controlled from users’ accounts at different access levels. The results are available in real time on a webpage and can be consulted from any device, e.g. a computer, phone, tablet computer or even a television. Furthermore, this formula is much more flexible from a visual presentation point of view and is much less restrictive than traditional spreadsheets.

However, while this solution offers a world of benefits, it incurs monthly implementation and maintenance costs. It must therefore be determined whether it’s preferable to acquire internal resources or call upon an external service provider. The quality of the platform and the maintenance cost will be the two deciding factors.

Integrating performance management tools takes time and effort, which represents an obstacle for most forestry entrepreneurs. They have to plan for communication issues with external systems and difficulties these might have with certain existing sources of data. Then this data would have to be measured, and the results monitored, and entrepreneurs would have to react accordingly. The Université Laval’s research project on forestry transportation and harvesting entrepreneurs, PRÉfoRT, demonstrated that without coaching, most entrepreneurs neglected their performance management system due to a lack of time and internal resources.

In conclusion, monitoring performance through scorecards would be beneficial for businesses. This would enable companies to not only to keep an eye on the different factors affecting profitability or attaining goals, but also to be able to observe trends in how these indicators are changing and respond faster, as applicable. Moreover, it would also be possible to measure the impact of certain organizational changes and report financial and operational anomalies.

References:

Antoine Larochelle Benoit, F.Eng. with LBprofor

LBprofor offers professional forestry services and supports businesses in complying with requirements and improving performance. LBprofor uses scorecards to monitor the performance of its operations and also encourages its clients to integrate these tools while making sure to carefully select indicators based on defined objectives.

To contact LBprofor, call us at 819-791-4449 or send an email to antoinelb@lbprofor.com.

29 Mar 2017  |  Written by :

Pierre Laberge is a manager at Raymond Chabot Grant Thornton. He is your expert in taxation for the...

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Rémi Fortin
Manager | Eng.

Tax legislation contains only a few paragraphs regarding SR&ED tax credits. Over the years, case law has completed the legislation by interpreting particular cases where the taxpayer opposed the Crown.

One of the greatest cases in the history of SR&ED is Northwest Hydraulic Consultants Limited v. The Queen, in 1997. One of the arguments bore on what did or did not constitute an eligible SR&ED project. Justice Bowman rendered a decision based on the three criteria (five-question approach) defining SR&ED activity:  scientific/technological uncertainty, scientific/technological advancement and the presence of a systematic investigation. This definition of SR&ED, subsequently reused and reconfirmed, has become a cornerstone of the program. Not all cases however have had as much impact as the Northwest Hydraulics case.

Further cases have recently enabled the tax authorities to clarify or confirm certain aspects of the scientific/technological point. We will take a brief look at one of these cases to illustrate the lessons to be learned from case law:

Joel Theatrical Rigging (JTR) Contractors (1980) Ltd. v. The Queen

Reference: http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/218140/index.do

In this case settled in July 2016, the company contested the CRA’s refusal of its SR&ED projects on the basis that the claims did not meet the scientific eligibility criteria.

One of the projects involved the development of a device comprising a motor that would activate a hydraulic system to control the rate of descent of a theatre’s fire curtain. Current practice in the field consisted in using counterweights to achieve the same function.

The Judge agreed with the CRA’s decision, which stated that the problems involved in attaining the objectives could be resolved by “routine engineering”; the term typically “describes techniques, procedures and data that are generally accessible to competent professionals in the field”.

When analyzing a case, the reasoning and the process used by the Judge are just as important as the ruling itself. From the arguments of this ruling, the following points should be taken into consideration when determining the eligibility of SR&ED activities:

  • It was not clear whether the project was carried out by competent professionals in the field: the employees who worked on this project did not have a technical diploma or experience in mechanical or hydraulic design. They also did not have recourse to specialized external resources. “(…) the research teams did not include any professional engineers or researchers who held a university degree in engineering, and as none of the researchers with limited engineering training were called as witnesses (…)”.
  • There was no correct formulation of hypotheses on the basis of several tests in the process. The Judge provided a number of definitions taken from various sources and retained a simple one stating that a hypothesis should be formulated as a statement to be tested: “In other words, a hypothesis is a statement to be tested by an experiment or a trial.”
  • There was a lack of thoroughness in the experimental process. For example, during trials, the rate of the curtain’s descent was not measured: “It seems to me that, if the scientific method had been used (i.e., if there had been systematic observation, measurement and experiment), Mr. Marineau and his colleagues would have determined the precise weight used in the experiments and would have precisely measured the duration of the descent in each experiment so that they could determine whether, as they moved from one experiment to the next, the duration of the descent was increasing or decreasing.”

With regard to Point 2, it could be assumed that these hypotheses could be implicit for each design iteration, but it is still possible to be able to reconstitute them from the facts and they must be specific and innovative. A good hypothesis at the basis of a trial is what mainly distinguishes a systematic investigation from a “trial and error” process.

Point 3 is an argument rarely used in case law to refute the presence of SR&ED. Note however that, in this particular case, the Judge does not set the bar very high in terms of scientific thoroughness.

Nonetheless, there is a positive aspect resulting from the comments of this ruling: the Judge reiterates that contemporaneous documentation, while beneficial, is not essential for demonstrating the existence of SR&ED: “Although Northwest Hydraulic indicated that one of the criteria of SR&ED is a detailed record of hypotheses, tests and results, some cases have suggested that this particular criterion may not be absolutely essential.”

This case constitutes another situation where SR&ED projects in applied mechanics are difficult to defend. The current practice in this field is quite vague and arguments must be convincing. Also, work must be performed by personnel at the cutting-edge of technology and a thorough development process must be adopted.

29 Mar 2017  |  Written by :

Mr. Fortin is a Senior Consultant at RCGT. He is your expert in corporate finance for the Sherbrooke...

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