Jul

2023

Support the growth of IT

E-business tax credit to support the growth of IT firms

If your main activity is in information technology (IT), such as :

Computer systems design,
Software publishing,
IT consulting service,
Development, integration, maintenance or evolution of systems,
Design or development of e-commerce solutions.

Then, the e-business development tax credit program (CDAE) is for you. Get 30% of the salaries paid to your IT resources each year to increase your business and support your competitiveness.

Get 30% of the salaries paid to your IT resources

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Looking for financing for IT? The SR&ED tax credit is more rewarding but also more intimidating. Do you really do experimental development?

Investissement Québec (IQ) manages eligibility for the program and issues certifications. Revenu Québec (RQ) manages the resulting tax credit.

When to file an application for the e-business tax credit

Applications for attestations for the company and employees must be submitted to IQ no later than 15 months after the end of your fiscal year.

The application for a tax credit for e-business must be submitted RQ no later than 18 months after the end of your fiscal year.

What to document

The key to ensuring the eligibility of a corporation and its employees for the e-business tax credit is the documentation of the:

Structure of this company,
Nature of the company’s revenues,
Activities carried out by the resources claimed.

The 1st application for the e-business tax credit is essential

The first application for the e-business tax credit is particularly critical in establishing your credibility with Investissement Québec. IQ thoroughly evaluates your application, your documentation, as well as public information about your company.

Do not be surprised by the extent of the assessment or the pitfalls as your e-business application may be rejected.

After a first refusal of a e-business claim, future applications become more difficult to accept.

Do you have doubts, or do you need help? Contact us R & D Action maximizes your success.

R&D Action are e-business experts

R & D Action is a team of experienced technical and accounting experts in e-business. Our resources have produced and obtained more than 50 e-business claims in recent years.

To new claimants we offer:

A screening process to quickly and safely assess your company’s eligibility for e-business, and
Practical recommendations appropriate to your situation.

The winning process:

In conclusion, R&D Action accompanies you through the whole process until the receipt of the checks:

Validate the eligibility of your company;
Build the necessary evidence to obtain sufficient comfort;
Prepare the documentation requested by Investissement Québec;
Represents you with Investissement Québec;
Prepares the tax schedules required to obtain the credit;
Represents you with Revenu Québec;
Assists you in financing your tax credits receivable.

Important note: the information contained in this blog is for information only. Before evaluating or submitting a claim, you must consult an accounting or tax specialist such as R & D Action, and the relevant policies available on the Investissement Québec (IQ), Revenu Québec (ARQ) websites.

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Mar

2022

Document your SR&ED

DocumentationMichel Rheault, M.Sc.

Document your SR&ED now

To claim tax credits for an SR&ED project, the Canada Revenue Agency (CRA) now requires contemporaneous documentation of the activities claimed. Document your SR&ED, how do we do that?

Document HOW?

It requires a new business discipline, a new system to document regularly because nobody will remember in detail what happened 12 or 18 months ago. When you start a new development project, immediately think about documenting it. How will you measure the work done? You will then find ways to incorporate these measures into your way of doing things. For example :

Mark these activities in your project or time sheet management software
Save the information in a separate directory for SR&ED
Save important emails in PDF format
Create a red folder marked R&D on your desktop where you discard your dated handwritten notes, hard copies of websites, blogs and other sites visited to understand and evaluate the technology, tools, alternatives, etc.
Prepare birth certificates and prepare tracking documents to show the progress of your projects that can be claimed as SR&ED
Initiate a logbook to record the progress of each project
Follow the expenses
Use simple communication tools and collaborative documentation, such as a Wiki, or voice recordings to build your virtual “collage”, on the network or even on the Web, and to:
Centralize the supporting information
Begin preliminary drafting of your technical projects.
Motivate some of your resources with the electronic format, often more effective.

These documents could become valuable at the end of the year to support your claim and the expenses claimed

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Document WHAT?

Review the information gathered at least two or three times during the year, to ensure the information is complete, dated, and related to key project events.

Concepts

Document initial concept discussions and initial documents explaining the requirements – why you felt the need to experiment with technical improvements in the first place. Photos, videos, prototypes or wrong codes can be worth gold to demonstrate significant changes and improvements to the experimental design. If you can demonstrate high-level needs, you will typically find that most companies generate a lot of detailed documentation – the trick is to trace the evidence of “unnecessary results of detailed failure” before they are thrown away.

Issues

Likewise, high-level issues are often the most difficult to document – the issue is often located between a learning attempt or a trial-and-error focus. Talk to your designers and analysts, have them describe their conceptual approach and the corresponding dates when they were always considered.

Typically, when something is missing, send an e-mail asking for a summary confirmation (eg a bulleted list rather than a text) of the conceptual alternatives considered in the early stages of development. Similarly, you can record an interview where you will be told the details of complex situations or concepts. Quantified technical specifications of specific targets that were known or unknown are important for defining and demonstrating technological issues.

Learning appears in the complexity of the details told by the people who did the work – managers are often too far away from the problems and they over-simplify the difficulties sometimes, for example to facilitate discussion. This can make the claim very difficult to defend. Go to the source, talk to those who did the detailed work, find out what their options were and what they were looking for. Build a global and close vision at a time. Too generic quotes lack credibility. Get specific, quantified or qualified conclusions.

Thoughts

Document your thought processes before experimentation. This is critical because if the problem can not be defined before the experiment, then the cost could be denied. Your need to experiment may be due to lack of time or resources. The experimental approach is perhaps the best method for the situation, although not the only one. However, be sure to draw sound conclusions after the experiment. For example, if you will not redo this design or experimentation, it may be a very significant lesson. Emphasis on the evolution of the design of the experiment can be exceptionally powerful.

Objectives

Relate to your objectives.

Similarly, if you can not show a change in your approach or direction, you may be in the process of developing a known technique. So be sure to keep the relationships to the original purpose in the documentation. “Tuning” may be a necessary step rather than actual “learning” for the future. Thus, presenting the evolution of the design of the experiment is often a critical and essential perspective for some start-up situations.

And how do you document your SR&ED projects? Do you have any tips to share? How do you make sure the right information is kept throughout the year?

How do you document during the course of your SR&ED projects? Do you have any tips? ways of doing things or ideas to share about it? How did the CRA respond to your documentation mechanisms?

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Sep

2021

E-business certificates

Other CreditsMichel Rheault, M.Sc.

E-business tax credits certificates

Applications for e-business tax credit certificates must be submitted to Investissement Québec (IQ) no later than 15 months after the end of your fiscal year.

Before claiming a tax credit, IQ must verify your application and provide the necessary certifications.

After analyzing the file for the CDAE, Investissement Québec issues two certificates: one for the company, valid for two years and one for the employees, renewable each year.

Investissement Québec issues two e-business certificates: one for the company and one for the employees

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The following explanations are taken from the IQ web site.

1- Company e-business (CDAE) certificate

An e-business (CDAE) company certificate means that the activities and revenues of the targeted company are in the IT domains recognized by the CDAE program.

To obtain an e-business certificate for a company, it must be shown that it maintained, at any time during the tax year, a minimum of six eligible full-time employees (40 consecutive 26-hour weeks). In exceptional cases, IQ will issue a company certificate and another one of employees when the company shows that the non-respect of the number of employees is related to a situation beyond its control (eg if an employee leaves office and he it is difficult to replace).

In addition, in order to obtain an e-business company certificate, it must be shown that it has met two revenue or activity requirements:

75% of gross revenue must come from the IT sector
50% of gross revenue must be tied to four (4) specific NAICS codes

A- 75% of gross revenue must come from the IT sector

75% of the gross revenues of the corporation must have been generated through activities related to the ten (10) NAICS codes described below.

NAICS Code Description

334110 Computer and Peripheral Equipment Manufacturing;

334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing;

334410 Semiconductor and Other Electronic Component Manufacturing;

417310 Computer, Computer Peripheral and Pre-Packaged Software Wholesaler-Distributors;

443144 Computer and software stores;

511211 Software publishers (except video game publishers);

511212 Video game publishers;

51821 Data processing, hosting, and related services;

541514 Computer Systems Design and Related Services;

541515 Video game design and development services;

561320 Substitute personnel hired (under certain conditions);

561330 Permanent staff hired (under certain conditions).

B- 50% of gross revenue must be tied to four (4) specific NAICS codes

50% of the gross revenues of the corporation must have been generated through activities related to the six (6) NAICS codes described below.

NAICS Code Description

511211 Software Publishers;

511212 Video game publishers;

541514 Computer Systems Design and Related Services;

541515 Video game design and development services;

561320 Hire of substitute personnel (under certain conditions);

561330 Hire of permanent staff (under certain conditions).

In addition, in order for a company’s operations grouped under NAICS 511211, 511212 or 541514 and 541515 to be considered eligible, at least 75% of these activities must be:

Services provided to a person with whom it deals at arm’s length;
Services relating to applications developed by the company that are used exclusively outside Québec,
A combination of these two elements.

2- E-business certificate for employees

A certificate for e-business confirms that the individual referred to in it is recognized as an eligible employee of the corporation for the taxation year for which the application is being made or for a part of a year indicated therein.

Eligible employees

An employee is eligible when both of the following conditions are met:

He holds a full-time job with a minimum of 26 hours of work per week, for a minimum of 40 consecutive weeks;
He devotes at least 75% of his time to undertaking, supervising or directly supporting work related to the performance of an eligible activity, including:

Eligible activities

Information Technology (IT) consulting services related to technology, systems development or e-business processes and solutions. Example: the development, integration, maintenance or evolution of information systems or technological infrastructures, or the design or development of e-commerce solutions or the development of security and identification services that can be done for that person;
Development, integration, maintenance or evolution of:

Information systems, such as software packages, software and computer programs;
Technological infrastructures, such as upgrading the technological architecture and integrating hardware components and software;

It should be noted that the maintenance and development activities must be ancillary to the development and integration activities carried out by the eligible corporation. These activities include any activity (other than a hardware installation activity) required to ensure the proper functioning of systems and infrastructure or to resolve or prevent problems or incidents, provided that it is:

A technical intervention, whether corrective or preventive, which modifies one or more technical aspects of the components, including the computerized processes;
A diagnostic activity, with remote intrusion or takeover of technological systems and infrastructures, leading, directly or indirectly, to such a technical intervention;

The design or development of e-commerce solutions, if such an activity consists of an e-commerce solution allowing a monetary transaction between those on whose behalf this design or development was carried out and its clientele;

For greater clarity, any activity for the design or development of a solution to which no monetary transaction is associated may nonetheless qualify as an eligible activity as long as it is linked to the development, integration, the maintenance or evolution of an eligible information system;

The development of security and identification services.

Important note

The information contained in this blog is for information only. You must consult an accounting or tax specialist such as R&D Action before submitting a claim. You must also review the relevant policies available on the Investissement Québec (IQ), Revenu Québec in French only(ARQ) websites.

R&D Action welcomes you to our blog and thanks you for your visit.

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Apr

2021

E-BUSINESS ELIGIBLE ACTIVITIES

Other CreditsMichel Rheault, M.Sc.

E-BUSINESS TAX CREDIT (CDAE) ELIGIBLE ACTIVITIES

With the e-Business Development Tax Credit (CDAE) program, you can get a refundable tax credits of 30% of your IT salaries. These credits can be claimed every year to grow your business and support your competitiveness.

To obtain this benefit, you must demonstrate that the activities performed by your resources are eligible. That is, these activities must:

Be performed in an site located in Québec;
Be connected to the development of the company’s e-business;
Transform a company’s core business processes. For instance by integrating Internet or any other network technologies (ex.: ERP).

The activities eligible for the e-business (CDAE) tax credit are related to the design and development of e-commerce solutions (such as portals, search engines and transactional websites).

It is sometimes difficult to distinguish a transactional site from an informational or institutional site. The last two types are not eligible for the CDAE;
When the company provides related services to transactional websites, portals, intranets, extranets or mobile applications
All work on non-transactional (informational) websites that do not change the process of the client company must be eliminated.

Examples of eligible activities for the e-business tax credit:

Design and programming of transactional websites;
Design, programming and integration of operations systems;
Consulting for the design of information systems;
Development of security and identification services related to e-business;
Technology-related IT consulting services;
Development, integration and, incidentally, maintenance and evolution:
Information systems;
Technological infrastructure;
E-commerce solutions for monetary transactions;
Security and identification services.

Examples of excluded activities from the e-business tax credit:

Activities that are not related to transactional web sites;
Operating an e-business solution (for example, processing electronic transactions through a transactional website);
Management or operation of computer systems.
Applications or infrastructure resulting from e-business activities;
The operation of a call center or CRM;
- Equipment installation and training activities;
- Management tasks;
- Activities related to a marketing information system
- Activities aimed at increasing the visibility of a business and promoting it to a current or potential clientele;
- Works for which the ultimate beneficiary is a government entity or department.

Important note: This blog is for information only. Before submitting a claim, consult an accounting or tax specialist such as R&D Action. You should also review the relevant policies available on the Investissement Québec (IQ), and Revenu Québec (in french)(ARQ) websites.

R&D Action welcomes you to our blog and thanks you for your visit.

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Mar

2021

2021 Budgets for Quebec and Ontario vs innovating SME

News about R&DMichel Rheault, M.Sc.

These two provincial governments released their 2021 budgets at the end of March. We summarize here five of the main measures that will affect innovative SMEs in these two provinces:

1- Quebec:

Quebec’s 2021 budget relies on technologies to help all industries increase their productivity by undertaking their digital transformation:

1.1 SME smaller tax rate

First, the Government announces reducing the small business tax rate to the same level as in Ontario, from 4.0% to 3.2%. More than 70,000 SMEs will benefit from a reduction in their tax burden.

1.2 Accelerated amortization of investments

Also, the budget announces accelerated depreciation measures that considerably reduce the cost of investments made by Quebec companies. The area targetted are, among other things for computer equipment, manufacturing and processing equipment, clean energy production equipment.

1.3 The C3i credit rate doubled to accelerate the acquisition of new technologies by companies

Thirdly, set up as part of the 2020-2021 budget, the investment and innovation tax credit (C3i) encourages companies in all sectors to acquire new technologies. These must allow the digitization of their processes. production and management. They can also allow the modernization of their manufacturing equipment such as: manufacturing equipment, computer equipment and for the acquisition of a management software package.

With this budget, the rates established will double from 20% to 40% depending on the regions concerned, until December 31, 2022.

2- Ontario

2.1 Doubling the Ontario Small Business Support Grant

First, Ontario launched the Ontario Small Business Support Grant in January 2021, which provides a $10,000 to $20,000 to help eligible small businesses. Approximately 120,000 small businesses benefit from $1.7 billion in relief through this grant.

With the 2021 budget, the Ontario government is announcing the doubling of this measure. Small businesses who have been recipients of this Grant will automatically be entitled to a second payment in an amount equal to the first payment they received. They will not need to apply again to receive this additional funding.

2.2 Enhancing the Regional Opportunities Investment Tax Credit

Finally, in March 2020, Ontario introduced the Regional Opportunities Investment Tax Credit. he objective was to encourage business investment in areas of the province where employment growth lagged the provincial average. This is a 10 per cent refundable tax credit for corporations that build, renovate or purchase commercial or industrial buildings in certain regions.

Ontario is proposing to temporarily double the tax credit rate from 10 per cent to 20 per cent for eligible expenditures on assets that become available for use in the period beginning on March 24, 2021 and ending before January 1, 2023. Doubling the tax credit rate would double the available tax credit support for regional investment from a maximum of $45,000 to a maximum of $90,000 in a year.

Conclusion

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Jun

2020

Frequent mistakes in SR&ED writing

Write-UpMichel Rheault, M.Sc.

Frequent and costly mistakes in SR&ED writing

Writing a project description to claim it as an SR&ED is a demanding exercise because it is the primary source of information used by the Canada Revenue Agency (CRA) Research and Technology Adviser (RTA).

Before submitting your descriptions, have your descriptions re-read by someone neutral and provide them with the following list of the most common errors. Better yet, call on SR&ED claims experts such as R&D Action. A quick and inexpensive analysis can save you a lot of trouble.

Is there an SR&ED project?

The vocabulary

First, often to do well and to comply with the requirements, one uses a vocabulary not adapted to the company. Of course these are words cited in the CRA policies. But if they do not match your reality, the vocabulary is confusing. Taken out of context, certain terms defined in the program may be suspect for the reader. For example, if “technological uncertainty” or “hypothesis” are not part of your current vocabulary, be careful before using them in each sentence because they have a specific meaning for the RTA. Similarly, for terms such as prototype, pilot plant, etc.

The project

Also, the RTA has a little interested in your commercial context and in your business projects, but he is mostly focused on your technological project. When you put too much emphasis on the business project or on topics that are not relevant to the experimental development project, it becomes like a background noise that masks the SR&ED eligible project.

Similarly, if you mix up the product with the technology involved (our machine will be more efficient, will cost less to produce, will respond to customer requirements, etc.). These are not the arguments sought by the RTA. Rather, you must emphasize the limitations of the technologies at our disposal, the standard approaches to address these limitations, and how your approach differs from these standard practices.

Section 242 of Form T661 asks for the definition of the technological objectives of the SR&ED project. Too vague a definition of these objectives may suggest that the project is too broadly defined. For example, “we want to get a higher rate”. Try instead to specify the current and desired rates, or mention by how much you want to grow.

Unnecessary details

Descriptions filled with superfluous details are also suspicious. It is best to describe the project and its activities in precise terms and to focus on the important elements. Too many unnecessary details can indicate an attempt to drown the fish, to hide the lack of eligible content. You must distinguish the essential from the superfluous.

Some descriptions regroup several small projects into one without clearly saying so and without specifying the activities for each sub-project. This approach is likely to attract the attention of the RTA, which may believe that it is a “catch-all” project that has nothing to do with experimental development.

Also, an identical description for the same project for two financial years, without segregating activities per exercise is a very bad indicator for the RTA.

The advancement

The technological advancement requested in section 246 of Form T661 is defined as:

“Production of information or the discovery of knowledge that advances our understanding of scientific relations or technology”

Too often the text only mentions the progress of the project, for example “this year we have built a prototype”, or the achievement of commercial objectives, for example “our unique technology stands out in the market”.

Advancement must be specified in relation to the technological base of the project and the technological uncertainties mentioned in section 242 of T661. What is the technological area where you intended to achieve an advancement? What have you learned, understood, demonstrated by your experimental work?

The uncertainty

Too often descriptions list product specifications as technological uncertainties eg “one needs to know which of the specifications has caused a technological uncertainty”.

Many people make their uncertainties more like concerns “we do not know if it will work”. The well-formulated technological uncertainties show the relationship with the uncertainties of the technological solutions sought and what was done to solve them, rather than with the success of the business project.

The systematic process

Also, describing a development process does not bring out the experimental and systematic process. The business project is often presented instead of the SR&ED activities.

You must show chronologically (dates or short periods) the work that has been done to resolve each technological uncertainty. It must be shown that the activities were carried out by experimentation using a systematic approach.

A systematic approach begins with the formulation of technological objectives, from which the desired advancements are derived. Uncertainties are then raised to achieve these advancements. Hypothetic solutions to these technological uncertainties are identified. Some of these hypotheses are tested, results are recorded and conclusions are drawn. Then you come back to the formulated problem and the hypothesis. You select another hypothesis or you use your new knowledge acquired during the previous tests and the results to formulate new hypotheses of solution which you put to the test, etc. This process continues until the conclusion, that is, technological uncertainty is solved, or that you find that you can not solve it. Both cases are acceptable. As a result of this process, what progress has been made towards achieving the stated technological or scientific objectives? This is the systematic experimental approach spiral process.

Other issues

Finally, several descriptions do not meet the RTA’s expectations:

No distinction between SR&ED and conventional development of a commercial product;
Difficulty in illustrating the work progress (for example, providing photos, schedules, etc.);
Activities not presented chronologically;
No mention of a documented systematic testing program;
No indication of the beginning or the end of the SR&ED project;

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Apr

2020

Value vs price of a consultant

ConsultantMichel Rheault, M.Sc.

Choosing a R & D consultant

Cheaper is not better

The relationship between the value and price of a consultant

The picture above says everything. I do not know who took this picture but I thank him.

There is always someone who will do it for less.

Many sayings essentially say the same thing:

” A picture is worth a thousand words “;
” You get your money’s worth “;
“You never get something for nothing”;
“Good is not cheap, and cheap is not good”;
“If it’s cheap, it’s a trap.”

Beware of searching only for a low price because you will often be disappointed with the end result

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Some organizations want to minimize costs and they limit their analysis to a reducing criteria such as he cheapest.

When selecting professional services there are other essential variables. You must take into account the qualities of the consultant and of his finished products and the professionalism of his services.

Value vs. Cost

There is a difference between the value and the cost of a product or service. Both are defined through the perceptions of the buyer and seller about a product or service. For a supplier to truly deliver value to its customer, it may not necessarily be at the lowest cost. For a customer to feel the value of a product or service, they need to define their expectations in terms of value.

Throughout the selection process the central difficulty will be to clearly express the expectations about the final product. It will be difficult for the customer and for the supplier. The value (expectations) of a given service must be defined and a cost may be associated with it, both must be aligned between buyer and seller.

For example, in the image above, the “customer” provided a very detailed picture of his expectations as the final product. But he made one or two of the following mistakes in the selection:

Three potential errors:

1: The client asked for a price for the job and jumped on the lowest price without considering the results or consequences;

2: The client did not perform any research on the consultant’s experience. Examples of previous results would have confirmed that skills matched expectations;

3: The seller grossly overestimated his abilities; he did not know the actual costs and he probably provided a disconnected proposition of the relationship between value and cost.

How to avoid these mistakes

To avoid the risks associated with one of those three errors, simply extend the analysis to other very important elements. Simply ask :

The consultant’s experience in your industry in relation to the expected result;
Examples of results, similar projects performed by the supplier, to validate value in relation to costs;
Evidence of recognition by industry, peers or the public;
An illustration of the methods used by the consultant;
What differentiates the supplier and who places him above its competitors and the standard practice.

With these answers, you can better evaluate the acceptable cost in relation to the value of a consultant.

Conclusion: Reality check beyond the price

Beware of the vendor trying to sell you only a low price because you will often be disappointed with the end result.

Customers and service providers must follow a joint process to reflect project costs related to the capabilities of the provider. It is often necessary for both parties to do a reality check. Once completed, the result becomes clear and the expectations can be aligned. This will allow a better experience for all parties involved.

R&D Action thanks you for visiting our blog on tax credits.

R&D Action is the choice of experience and expertise in tax credits.

Several other categories of practical and applicable solutions are available in the index to the right of this page.

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Mar

2020

How much e-commerce tax credits

Other CreditsMichel Rheault, M.Sc.

How much e-commerce (CDAE) tax credits?

A corporation eligible for the e-business tax credits program (CDAE) gives access to refundable (checks) and non-refundable credits (as a deduction from Québec taxes):

A refundable tax credit of 24% is granted for eligible salaries for a maximum tax credit of $ 20,000 per employee (maximum of $ 83,333 in salaries);
And a non-refundable tax credit of 6% for eligible salaries for a maximum tax credit of $ 5,000 per employee(maximum of $ 83,333 in salaries).

This annual repayment may become recurring in subsequent years if the corporation continues to meet the eligibility criteria requested by Investissement Québec (IQ).

The qualifying salary is the gross amount paid to an eligible employee who meets the eligibility requirements.

Who are the eligible employees?

To be eligible for this measure, the employee must meet the following conditions:

Not hold more than 10% of the shares of the company;
Have a full-time job (minimum of 26 hours per week) for a minimum of 40 consecutive weeks;
For at least 75% of his working time, undertake, supervise or directly support work related to the performance of an eligible activity, except administrative tasks.

Optimization of credits

Québec’s tax legislation includes several measures to prevent the accumulation of tax credits from the same expense.

For example, some employees are eligible for the e-business tax credit and the tax credit for scientific research and experimental development (SR & ED). But an information technology company can not claim the SR & ED (Quebec) and the e-business credit for the same salary expense. However, this legislation leaves the taxpayer with the option of determining which of the tax credits to apply to an expense. It is therefore important to make the right choices.

First, it is important to mention the minimum annual R&D expenses threshold of $ 50,000 introduced in Quebec. If the expenses are below the minimum threshold and they were made by an employee eligible for the CDAE, your choice is simple: CDAE.

If the expenditure exceeds this threshold, an optimization of your requests for tax credits is necessary. This optimization must be done individually for each employee. It must take into account credit rates, the effect between the federal and provincial credits, and the refundable or non-refundable amounts of these credits.

Finally, the excess of $ 83,333 in salary of an employee can be claimed as SR&ED if he qualifies.

Important note:

The information contained in this blog is for information only. Consult an accounting or tax specialist such as R&D Action before submitting a claim. Review the relevant policies available on the Investissement Québec (IQ) and Revenu Québec (ARQ) websites.

R & D Action welcomes you to our blog and thanks you for your visit.

Several other categories of practical and applicable solutions are available in the index on the right of this page.

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Feb

2020

Standard Practice

Write-UpMichel Rheault, M.Sc.

How do you define standard practice?

To be eligible for SR&ED, a company must demonstrate that it is seeking technological or scientific progress in its development. It is necessary to expose an experimental process that attempts to go beyond standard practice. Therefore, establishing what is standard practice, is an essential step for any SR&ED claim.[1]

However, certain prerequisites must be met:

The R&D activity must require a creative operation for an individual normally competent in this scientific or technological field.
This operation must have been launched following the absence of existing solutions, that is to say, be justified by a study of the state of the art.
R&D can not be explained by a lack of internal technical know-how.
The solution should not appear trivial for a domain expert.

To define the knowledge base one must consider its connexion to the technology or the progress sought.

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Establishing the state of the art – A matter of specialists!

The state of the art is the state of existing technologies. It consists of all the knowledge accessible at the beginning of the work and usable by an individual normally competent in the field. It can be compiled from a variety of sources, including scientific and technical publications, patents and technical databases.

The preparation of the state of the art is an iterative process in three stages:

Make a bibliography as complete as possible in relation to the object of study. You should also establish a list of keywords, collect relevant elements and of select them. Keywords are grouped from general to specific and structured. This organization is very useful for collecting and referencing articles, and specialized publications. The references thus found must be recent, but if there are relatively old reference articles in the field, they must also be considered.
Summary of relevant information contained in the references. The objective is to remove from publications or patents consulted what is important for the work to be done and to bring attention to the elements of analysis and interpretation: we must focus on what makes us think rather than at the mere presentation of the data. It is therefore a refinement of the network of keywords, its structure and its organization. For each reference, it is necessary to underline the problem it deals with, the solution it proposes and the results obtained. Then, a structured summary of the main definitions, consensus and standards is drawn up, orienting it more precisely on the research problem to be solved.
Write-up the state of the art. The researcher must synthesize the main elements of the content, classify approaches according to criteria to be set, draw conclusions and lessons, and finally suggest hypotheses and recommendations.

The state of the art makes it possible to position the problems as well as the R&D objectives in relation to other existing works in the same technological and scientific field. This confirms the originality of R&D ideas and the surpassing state of the art. Moreover, this makes it possible to verify that the uncertainties and technological walls have not been solved in previous R&D work and if so, how they have been. Do the R&D problem solving approaches you found meet the needs of the technological and scientific walls you encountered?

It is the attempt to go beyond the state of the art that demonstrates the eligibility for SR&ED credit.

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Documenting the state of the art requires more than just selecting the most relevant R&D items and work in the intended field. This also requires understanding these works and analyzing them so as to draw advantages, disadvantages, scientific and technological walls and to draw inspiration to develop new lines of research and hypotheses.

Establishing the state of the art ensures that the company has identified and exploited the knowledge available to carry out its project. It is the attempt to go beyond the state of the art that demonstrates the eligibility for SR&ED credit.

How to identify and remove technological walls?

According to information circulars issued by the Canada Revenue Agency, experimental development activities are eligible for SR&ED only after the identification of a scientific or technological wall.

There are two main families of walls in an R&D program: Scientific Walls and Technological Walls.

The scientific wall is an obstacle coming from the very nature of domain science. For example a theory not applicable to answer a particular problem. This type of uncertainty is generally encountered in basic research, but also in applied R&D programs. The scientific wall justifies the need to design a new approach to meet the needs and problems of research, which surpasses the state of the art.
A technological wall is a barrier related to a particular technology. The inability of technology to meet R&D needs is a technological barrier. The project will be qualified as SR&ED if the work done to achieve this alternative technology aims to lift the identified technological walls. The development of an alternative technology to achieve a level of performance comparable to that of an existing technology can also qualify as SR&ED.

It is therefore necessary to examine the existing scientific or technological knowledge base of the project. If a solution exists on the market or is an accessible result, then one does not go beyond the standard practice and this work can not be considered as SR&ED activities even if this solution was not mastered by the company at the beginning of the project.

It is then necessary to establish and quantify objectives to exceed this standard practice. .

Conclusion for qualifying SR&ED work

In conclusion, it does not matter whether or not one overcomes these objectives. What is important for qualifying experimental SR&ED work (scientific or technological) is:

HOW are the activities executed in a systematic way?
and especially WHY we do this work. One must aim for an advancement,

“which implies an attempt to resolve what is called scientific uncertainty or technological uncertainty. Basically, the advancement is the targeted outcome of the SR&ED work while the uncertainty is the impetus for the SR&ED work. Therefore, an attempt to achieve advancement is an attempt to resolve uncertainty. “

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[1] Note: In this text we use the terms “standard practice”, “knowledge base” and “state of the art” as interchangeable synonyms.

Jan

2020

IRAP or SR&ED?

Other CreditsMichel Rheault, M.Sc.

How do you select the one for you ?

Is your technology innovative? You are surely looking for financing sources. Do you do research and development? You have probably already studied many government funding programs and tax credits. How can you evaluate the program that suits you, the one that offers the best return for your investment in time and for your efforts? SR&ED or IRAP ?

This article compares two of the most popular federal programs: the Industrial Research Assistance Program (IRAP) and the Scientific Research and Experimental Development (SR & ED) Program.

SR&ED generates more money, but the IRAP is faster to generate liquidities

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Important Notice: This information is presented briefly for presentation purposes only. Before evaluating or submitting a claim you should contact a tax specialist and such programs, such as R&D Action, to validate the calculations in your specific situation. We also suggest you consult the relevant policies available on the Canada Revenue Agency (CRA) and the National Research Council of Canada (NRC) websites.

1- THE IRAP

IRAP is a federal program administered by the National Research Council of Canada. It provides research and development grants to innovative and qualified small and medium-sized businesses in Canada. The IRAP budget is limited (approximately $ 400 million in 2019/20). It receives hundreds of submissions each year, making it a very popular financing option.

IRAP is a large program of the federal government (after SR&ED) to help innovative businesses. This program manages a network of resources across the country. This approach aims at supporting the rapid progression of companies by developing new products in all kinds of technological fields, including mechanical engineering, chemical, software, etc. The fairly fast processing of their files is unmatched by any other government program.

The “hands-on” approach with IRAP’s Industrial Technology Advisors and their influence in project management can be a welcome source of value for some companies. To our knowledge, however, better strategic, business and operational advice can be found elsewhere. Government representatives are not always the best coaches and mentors for entrepreneurs.

IRAP can fund up to 75% of certain costs in the form of a repayable loan based on future results, or a grant, or a combination of both.

2- THE SR&ED

2.1 Federal

The SR&ED program is administered by the Canada Revenue Agency (CRA) and provides a tax credit for eligible R&D expenditures. This tax credit is refundable (a check) for most SMEs. The rate of tax credits for SMEs is 35% for eligible expenses.

Eligible salary expenses are increased by 55% overhead (overhead), so that $ 100 of federal salary is calculated as $ 155 of expenses.
For subcontractor expenses, the federal credit is 28% (80% * 35%) of the eligible invoices. For the materials consumed, the rate is 35%

Since the SR&ED program does not have a fixed budget, each eligible application is approved. In 2016-17, the program processed approximately 21,000 credit applications representing approximately $ 2.7 billion in federal tax credits. This is more than 6.5 times the budget of the IRAP program

Also, any IRAP funding reduces your federal eligible expenses for SR&ED claims.

The federal SR&ED program is duplicated by a similar program in several provinces:

2.2 In Quebec

In addition, Quebec’s supplementary SR&ED credit is always refundable. For SMEs, the higher rate of tax credits is 30% for eligible expenses exceeding $ 50,000. This means that the federal + Quebec combined credit rate is 54% on the salary of the first $ 50,000 of eligible expenses and 73.75% on salaries exceeding the first $ 50,000 of expenses.

For subcontractor expenses, the combined rate above the initial $ 50,000 is 37.75%. Material expenses are not eligible in Quebec, so the combined rate is 35%.

2.3 In Ontario

In Ontario, the additional non-refundable SR&ED credit is 3.5%. Non-refundable means the credit is deducted from payable taxes.

Ontario Innovation Tax Credit (OITC)

The CIIO is a refundable tax credit of 8% for small and medium-sized businesses on eligible R&D expenditures. The following table illustrates how it is possible to increase the rate of the CIIO.

R&D Expenses/Gross Revenues	OITC Rate
< 10 %	8 %
Between 10 % and 20 %	Raises linearly between 8 % and 12 %
> 20 %	12 %

3- Differences IRAP vs SR & ED

IRAP and SR&ED differ in many ways:

The agreement with IRAP may be partially or fully refundable. You will not be requested to refund the SR&ED tax credit;
IRAP is limited to businesses with fewer than 500 employees. SR&ED has no limit on the size of the business;
IRAP considers only future research and development projects. SR&ED covers eligible expenditures already incurred;
IRAP benefits are usually paid in installments as you report project progress. SR&ED tax credits are paid in lump sum and approved once your end-of-year tax return has been accepted by the CRA;
SR&ED accepts more extensive categories of expenditures than IRAP;
IRAP provides a network of advisors across the country who can:
Guide some companies;
Deliver timely approvals to businesses seeking funds, contrary to the lengthy waiting period for SR&ED approvals;
IRAP uses an additional “criterion”: sales potential, SR&ED does not take into account this potential

4- Final verdict:

In conclusion, R&D Action advisors, experienced experts, recommend SR&ED credits for three main reasons:

SR&ED provides more financial return;
SR&ED is available to any eligible business; and
IRAP funding will be deducted from your SR ED claims.

On the other hand, if you have cash restrictions, you may be interested in IRAP. In fact, IRAP quarterly payments are made as you report the progress of the project, whereas the SR&ED credit is approved once your end-of-year return has been accepted by the CRA, which can take several months.

Thank you for visiting the R&D Action blog. Look at the index on the right of this page. It contains several other categories of practical and applicable solutions which are also for you.

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