SR&ED How to respond to CRA Requirements Tax and R&D Teams Working Together Paul G Leroux 23 October 2014
Agenda Introduction Recent financial changes to the Program Program requirements that impact claim success How does a Tax Professional respond? Specific considerations for reviews Help CRA with summary Other Filing considerations Questions Deloitte LLP and affiliated entities. 2
The SR&ED Program has been reduced in value. CRA is requiring claimants to support their SR&ED claims with increasing levels of technical and financial documentation. Tax professionals can improve the quality and likelihood of success of SR&ED claims by understanding the CRA requirements, and by working closely with R&D performers across the company to plan, record, document and substantiate the critical information CRA expects to find. Deloitte LLP and affiliated entities. 3
Recent financial changes to the Program Reduction of Investment Tax Credits for Public Companies and large private companies Affects Public Companies 20% 15% (as of 2014) ITCs for qualified Canadian Controlled Private Corporations ( CCPC ) remain the same at 35% Reduction of prescribed proxy amount Affects all companies 65% > 60% (2013) > 55% (2014) Deloitte LLP and affiliated entities. 4
Recent financial changes to the Program (cont.) Reduction of SR&ED contract and Third Party Payments ( TPP ) amounts 80% for ITC calculation (as of 2013) Removal of SR&ED capital expenditures & leases (as of 2014) The SR&ED program no longer allows SR&ED capital Lease of premises, facilities and equipment no longer qualify for SR&ED Deloitte LLP and affiliated entities. 5
Program requirements that impact success Increased documentation requirements Evidence of planned research, prepared in advance and while work is undertaken Demonstration of systematic investigation, proof that standard technologies cannot achieve your objectives Strong and clear technological uncertainties and advancements Clear linkage between costs (hours, materials) and direct work to overcome uncertainties and achieve advancements Specific contracts for work directly related to the advancements Explicit linkage between support work and the advancements, and clear substantiation of those costs Deloitte LLP and affiliated entities. 6
How does a Tax Professional respond? Understand the CRA requirements Be proactive and manage the SR&ED process throughout the year, not at year end Develop relationships with your R&D performers and build their trust and confidence Help everyone understand the importance and value of the program to your company Increase your understanding of your business, and the drivers that impact planned R&D, and changes to the plan that take place during the year Deloitte LLP and affiliated entities. 7
Specific considerations for reviews CRA will be asking why the costs you have claimed are eligible Salary: Qualifications of employees claimed Activities performed by the employees for hours claimed Materials: Tracking of what happened to materials post SR&ED (details of sales, location of storage, confirmation of disposal) Contractors: Brief summary of services provided by each contractor within the period Overhead: How expenditures are directly related and incremental Deloitte LLP and affiliated entities. 8
Help CRA with summary One page summary of costs by category by location for multi-jurisdictional claims (including claims with work outside Canada) Summary of impact of SR&ED claim on tax return (particularly for amendments) Summary of government assistance/other assistance/contract payments, including: Total amount received, receivable or reasonably expected to be received in relation to the year s work Related SR&ED costs Any amounts to carry forward/carry back to other claim years Deloitte LLP and affiliated entities. 9
Other Filing considerations CRA standards of service for processing of refundable claims: With current tax return: 120 days Claimant-requested adjustments: 240 days Incomplete claims/inconsistencies are more likely to be reviewed Yes/No questions in project descriptions to expenditures T661 Lines 307 and 309: Work performed outside Canada T661 Part 2 Line 265: Are you claiming any salary or wages for SR&ED performed outside of Canada? Fields on T661 and T661 can be easily missed or have data entry errors Inconsistency between federal and provincial claims may increase likelihood of review (specifically in Alberta) Deloitte LLP and affiliated entities. 10
Questions? Paul Leroux, M.A.Sc Partner, Global R&D and Government Incentives Calgary, Alberta, Canada paulleroux@deloitte.ca Mobile +1 403-618-7285 Deloitte LLP and affiliated entities. 11
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