In our practice we find that at times clients don’t fully understand why after claiming SR&ED investment tax credits the cheque they receive from the government or the amount of available tax credit carry forward is different from the amount claimed. To understand this, let’s look at SR&ED differently. Instead of exploring how SR&ED is treated from the income tax act perspective and what gets deducted from where, let’s look at SR&ED from a practical, business point of view. The view offered in this post will equally apply to OIDMTC, IRAP, SDTF, CIIRDIF, Telefilm and any other form of government assistance. As soon as we switch from looking at SR&ED as an investment tax credit (an accounting term) to viewing SR&ED as a payment for the services rendered to the government (see our blog posting entitled SR&ED Advice: Treat the CRA Like a Customer), the rest becomes very easy to understand. […]
Monthly Archives: February 2015
To paraphrase the Canada Income Tax Act, Section 181.2, taxable capital (for companies that are not financial institutions) is the excess capital a company has in its possession that exceeds its investment allowance for the year. Taxable capital includes capital stock, retained earnings, long term debt, advances received, surpluses, reserves, etc. The exact definition can be found in the full text of the Income Tax Act available online at http://laws.justice.gc.ca/en/frame/cs/I-3.3//20090714/en or http://www.iijcan.org/en/ca/laws/stat/rsc-1985-c-1-5th-supp/latest/rsc-1985-c-1-5th-supp.html. Historically, taxable capital has been used to identify and tax “large corporations” that hold excess cash. Because the tax on capital is often viewed as a punitive tax, Canada and its provinces are phasing it out. While some provinces still levy this tax, the federal government has administered a 0% rate beginning in 2008. Despite the 0% tax rate of taxable capital, taxable capital remains an important parameter because it is a determinant for tax deductions and tax […]
Individual IT consultants developing software for clients on a subcontract basis that also develop their own proprietary software regularly approach us at MCN. Quite often the proprietary software they develop is of an experimental nature and qualifies as SRED eligible work. The amounts owners-managers can claim is limited by their company’s structure, or the manner in which they compensate themselves. While the selection of a particular business structure as well as the choice of a given compensation arrangement are often seen as a tax planning exercise, SRED is rarely factored into the equation. Here are some things you may want to consider: Incorporate. As a Canadian Controlled Private Corporation (CCPC) your business can take advantage of substantially higher SRED return rates. As a CCPC, your SRED benefits may be refundable whereas as a sole proprietor you are only eligible for a non-refundable tax credit. Pay yourself a salary. In 2008, an […]