The Ontario Media Development Corporation (OMDC) has recently announced the creation of a new pilot fund. The Intellectual Property Development Fund is a new assistance program, designed to help qualified Ontario corporations bring screen-based content closer to production or market ready stage. Assistance is provided in the form of a 30% refund on eligible costs incurred between April 1, 2009 and March 31, 2010 in direct support of eligible projects. The refund is capped at $150,000 per corporate group (a group of associated companies each of which may apply individually for assistance), plus a possible 10% bonus capped at $20,000, based on specific criteria.

The Intellectual Property Development Fund is a $10 million pilot project, and applications are accepted on a first come first serve basis. It is not yet clear whether additional funds for the program will be allocated in the 2010 Ontario provincial budget. Given the limited funds, it is essential that companies considering filing an application do so as soon as reasonably possible.

MCN is pleased to offer corporations interested in applying for the IP Fund a comprehensive application service, whereby our consultants will prepare and submit an application for your organization. For more information about the Intellectual Property Fund, please visit http://www.omdc.on.ca/Page5575.aspx. To learn more about how MCN can assist your organization in filing an application, please Contact Us.

Hi Everyone,

Representatives from MCN will be leading a discussion tomorrow (January 13) at the Rich Media Institute. Specifically, we’ll be discussing how interactive media, game and advertising companies can claim SR&ED, and how it can also be used to convert sweat equity into real dollars. The discussion will last from 7PM-9PM.

We look forward to seeing you all there!

Rich Media Institute
156 Augusta Avenue
Toronto, Ontario
M5T 2L5

First, we would like to thank all of our clients, partners and families for helping make this a fun and exciting year for MCN. We would also like to wish everyone a Merry Christmas and Happy New Year.

We’re looking forward to working with you all in 2010!

The SR&ED program makes Canada one of the most competitive research and development jurisdictions in the world. Mobile Capital Network, along with its legal partners have the ability to help multinationals leverage the SR&ED program to its fullest. MCN Partner and Principal, Alexei Gavriline, co-authored an article which first appeared in The Canadian, the magazine of the Canadian Chamber of Commerce in Japan, and reprinted in China-Canada Exchange, the magazine of the Canadian Chamber of Commerce in Hong Kong. The article is about the Canadian SR&ED program and the advantages it presents for foreign corporations interested in conducting R&D in Canada while retaining their rights to the intellectual property being created. A copy of the article entitled, “The Moose That Roared” is available here.

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 credits including SR&ED, and thereby greatly influences the effective tax rate levied on the company.

For example, the small business deduction allows business income under $500,000 to be taxed at a lower rate (11%) for Canadian-Owned Private Corporations (CCPCs) as opposed to other types of corporations. However, CCPCs that have an excess of $10million in taxable capital, on an associated group basis in the prior fiscal year, will begin to have their small business deduction reduced. This will obviously result in a higher tax bill.

In respect to SR&ED, taxable capital plays important role in determining the expenditure limit for SR&ED tax credits and whether these credits are refundable or not. Thus taxable capital in excess of $10million will reduce the benefit for CCPCs claiming SR&ED tax credits, as at this point the expenditure limit will begin to erode. In certain cases, the maximum tax credit rate of 35% will be reduced to 20% and the federal tax credits will no longer be refundable.

Provinces often administer their own programs and set their own thresholds in respect to the taxable income and taxable capital. A key example is Ontario which sets $25 million threshold for taxable capital in respect to calculating a company’s SR&ED tax credit. Thus an Ontario-based company, regardless of whether it is publically-owned, foreign-owned or private, may still receive a SR&ED refund provided that the company shows less than $500,000 in taxable income and less than $25million in taxable capital in its prior fiscal year. Even if the company shows income and taxable capital higher than these limits, the R&D tax credit may still be refundable depending on the circumstances.

High levels of taxable capital may seriously impinge a company’s tax competitiveness. There are avenues that can be taken to reduce taxable capital for the purpose of determining SR&ED tax credits. Obviously, there is no “one size fits all” solution and professional advice would be highly desirable. If you think your particular situation warrants a closer look, please contact us for a more detailed analysis. For more information, please, visit us at www.mobilecapital.net or contact us at info@mobilecapital.net.

We frequently encounter manufacturing companies that are significantly under claiming on their SR&ED tax credits. The biggest mistake we see is that many of these companies view their new product development efforts as the only area where SR&ED is occurring and forget to look at their manufacturing improvement efforts.

The methodologies of effective manufacturing process improvement, such as the Deming cycle or Six Sigma, often satisfy the requirements of SR&ED eligibility. Companies are quite surprised at how this can SR&ED eligibility can impact the real cost of their improvement projects.

Let’s look at an example: A manufacturing company uses a piece of equipment that has consumable wear inserts. During operation, these inserts are consumed (worn-out) and require monthly replacement. The company’s Manufacturing Engineer identifies a number of possible other materials or coatings designed to reduce the rate of wear on the insert but is uncertain how these other materials will perform in his application.  The Engineer designs a test protocol to evaluate each candidate material in the actual machine, the maintenance department carries out the required insert changes at the prescribed interval and the machine operator monitors and records wear rates as the new inserts are being evaluated.

In this above example all the necessary criteria for the work to be SR&ED eligible are met. A portion of the Engineering, Maintenance and Machine operators’ time will be eligible for tax credits.  Assuming the costs for this project included $20,000 labour and $5,000 the inserts, the company would be eligible for a tax credit of roughly $14,000.

For an assessment of weather your process improvement efforts qualify for SR&ED funding please contact Mobile Capital Network for a free consultation.