The changes to the Scientific Research and Experimental Development (“SR&ED”) program announced in the 2012 Federal Budget may have an impact on your 2013 SR&ED claim. Here’s a short summary of the main changes and some possible planning points to allow you to maximize your SR&ED claim.
1. Reduced Investment Tax Credit (“ITC”) Rate for Non-Qualifying CCCPs
The SR&ED ITC rate for certain public, non-resident, and large private companies has been reduced from 20% to 15% for fiscal years ending after December 31, 2013. The enhanced 35% ITC rate for small-to-medium sized Canadian-controlled companies remains unchanged.
2. SR&ED Contract Payments
From January 1, 2013, only 80% of payments to contractors for SR&ED will qualify for ITCs.
- Consider hiring R&D contractors as “employees”; and
- For ongoing contracts, allocate as much of the work as possible to 2012.
3. Reduced Proxy Overhead Rate
The proxy overhead rate has been reduced to 60% from January 1, 2013 and 55% from January 1, 2014. For 2013 fiscal year ends with a year end other than December 31st, the proxy rate will be calculated proportionately based on the number of days that fall in each calendar year.
- More companies may need to consider using the “traditional” method of calculating SR&ED overhead. This method is much more complicated however would be worthwhile in situations where actual SR&ED overheads exceed the amount calculated using the proxy method.
4. SR&ED Capital Expenditures
Purchases and leases of capital property made after December 31, 2013 will no longer qualify for ITCs.
- Consider acquiring SR&ED equipment or other SR&ED capital property before December 31, 2013. The new rules are complex, so they should be reviewed in detail before considering the timing of purchases or possible re-wording of leases or contracts.
5. SR&ED Policy Changes at Canada Revenue Agency (“CRA”)
CRA recently published new SR&ED guidelines and there has been a noticeable difference in their interpretation of what activities qualify as SR&ED. Some of the reviews by CRA have also become more contentious from both a financial and technical perspective. It is not yet clear if the new interpretations are supported by the Income Tax Act and there are more changes expected in the near future.
Contact Sean Tait or Carrie Fenton at Secker Ross and Perry LLP for further information about SR&ED and the current and upcoming changes. Sean and Carrie have combined over 20 years of experience filing SR&ED claims for Central and Eastern Ontario businesses and they work with an experienced firm of engineers to assist clients with all aspects of SR&ED. Sean and Carrie can be reached at 613.544.1517 or firstname.lastname@example.org and email@example.com.