The Scientific Research and Experimental Development (SR&ED) Tax Incentive program allows businesses to claim tax credits or refunds on eligible research and development work conducted in Canada. Qualifying for SR&ED can mean a sizeable difference in the amount of tax your company pays.
Business owners can determine their eligibility online. It's important to note that receiving the SR&ED tax credit in previous years doesn't mean you'll automatically qualify in 2013.
Below are some of the upcoming changes to the SR&ED program that warrant attention.
General rate reduced
The current general SR&ED rate for qualifying Canadian-owned corporations is 35 percent. Fortunately for these businesses this tax credit rate will remain unchanged next year. Other corporations are still eligible for a SR&ED credit, but their rate will be reduced from 20 to 15 percent. This change is effective January 1, 2014 (if this date falls in the middle of your taxation year then the rate will be prorated).
It's also worth keeping in mind that both rates only apply to the first $3 million in qualifying expenditures.
Contractor payments reduced
Companies that carry out research and development activities often require the help of outside sources. Contractor expenses are SR&ED eligible, but beginning in January 1, 2014, only 80 percent of outsourcing costs are deductible. Administrators recognize that "arm's length contractors" factor profit into their fees, and therefore consider this portion of contractor expenses doesn't actually further research or development goals.
Elimination of capital expenditures
As of January 1, 2014, capital expenditures are no longer considered eligible SR&ED expenses. This change also includes the use of property that would count as a capital expenditure if you bought it, meaning the cost of leasing equipment or property is also excluded.
Many of these changes don't take effect until 2014, so there's still time to fully benefit from existing provisions and to make adjustments to your research and development plans for next year and beyond.
This article is intended to present information for educational purposes only. Always consult a qualified tax specialist for any tax-related advice.
Has your company applied for the SR&ED Tax Incentive? If so, what was the outcome? Please share your comments in the Get Growing For Business Discussion Group on LinkedIn.
By Roger Pierce, Small Business Expert for Scotiabank
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