Canada's R&D tax credit program hurts R&D in Canada • Hacker News Board

Re: Canada's R&D tax credit program hurts R&D in Canada

#11

Post by nickff » Thu, Nov 05, 2015, 5:50 PM UTC

lazyant wrote: post #8

lucisferre wrote: post #5

SR&ED is a terrible program that is actively hostile to software startups. To begin with under the definition of what the program considers claimable, in the strictest sense, most software work doesn't actually qualify, but the program is so poorly administered that most of them are able to successfully claim it anyways so they try, however you are always under the risk that your claim will be denied or clawed back.…

On one hand you are saying that there's bad claims and on the other hand you complain about having to document and having audits. All you are saying is true except the conclusion in the last sentence, which may be a valid point but doesn't follow from the other facts.

You can have bad claims approved by very thorough and costly audits if the standard is poorly set (as is the case with SRED).

Re: Canada's R&D tax credit program hurts R&D in Canada

#12

Post by wwhchung » Thu, Nov 05, 2015, 5:51 PM UTC

GnarfGnarf wrote: post #3

The SR&ED reporting process is a nightmare. I once spent 170 hrs. defending a piddling $100K claim. Hell is spending 8 hrs. in a room trying to explain polymorphism and encapsulation to an accountant. The whole process is geared towards engineering, physical processes and manufacturing. The subtleties and abstraction of software development make it look like we take no risks. The time-tracking requirements seriously…

I agree that there are many other issues with SR&ED (including the one you mentioned above). I just chose to tackle one that I could put clear numbers and examples to and viable solutions. With respect to the SR&ED process itself, that's going to be another post once I have a well thought out proposal and data to back it up. :)

Re: Canada's R&D tax credit program hurts R&D in Canada

#13

Post by wwhchung » Thu, Nov 05, 2015, 5:52 PM UTC

Afton wrote: post #2

I'd also mention that what counts as 'R&D' is often paper thin. Normal developer activities can count if they are spun correctly. Whether that's a problem depends on the amount that you think of this as a general small business tax credit vs an incentive to do research.

Yup. Many more issues, but this is one that isn't subjective and I can provide possible solutions to, so its the first I wrote about. :)

Re: Canada's R&D tax credit program hurts R&D in Canada

#14

Post by wwhchung » Thu, Nov 05, 2015, 5:53 PM UTC

lucisferre wrote: post #5

SR&ED is a terrible program that is actively hostile to software startups. To begin with under the definition of what the program considers claimable, in the strictest sense, most software work doesn't actually qualify, but the program is so poorly administered that most of them are able to successfully claim it anyways so they try, however you are always under the risk that your claim will be denied or clawed back.…

I agree that there are many other issues with SR&ED (including the one you mentioned above). I actually point out a few at the bottom of my post. :) I just chose to tackle one that I could put clear numbers and examples to and viable solutions.

Re: Canada's R&D tax credit program hurts R&D in Canada

#15

Post by stormbrew » Thu, Nov 05, 2015, 5:53 PM UTC

Afton wrote: post #2

I'd also mention that what counts as 'R&D' is often paper thin. Normal developer activities can count if they are spun correctly. Whether that's a problem depends on the amount that you think of this as a general small business tax credit vs an incentive to do research.

I was once told of a restaurant that managed to get SR&ED for their chefs.

Second-hand, and supposedly they've tightened the rules since then, but I feel like it's really telling of the flaws with the program at a fundamental level.

Either make it a handout directly or tighten up the rules so that it can only apply to things with really rigid processes that are capital intensive, imo.

Re: Canada's R&D tax credit program hurts R&D in Canada

#16

Post by wwhchung » Thu, Nov 05, 2015, 5:54 PM UTC

lazyant wrote: post #6

"there are some bad unintended consequences" != "SR&ED Hurts Canadian Innovation"

Bad unintended consequences was a nice way of phrasing 'it sucks and is draining money away from real R&D/innovation'

Re: Canada's R&D tax credit program hurts R&D in Canada

#17

Post by mmastrac » Thu, Nov 05, 2015, 6:02 PM UTC

As a Canadian, I'd prefer it if the government took the entire SR&ED budget and put it into an early/mid-stage venture fund like VCAP: http://www.actionplan.gc.ca/en/initiative/venture-capital-ac...

I've seen SR&ED abused at companies I've worked at, and on the flip-side I've seen claims that should qualify as R&D get denied.

By investing in startups (doing some due-diligence up front as any venture fund would), we can increase the amount of R&D in Canada while simultaneously reducing the operational cost of running it dramatically.

Big companies can take advantage of this program by acquiring earlier-stage startups in their field.

Re: Canada's R&D tax credit program hurts R&D in Canada

#18

Post by wwhchung » Thu, Nov 05, 2015, 6:02 PM UTC

waterside81 wrote: post #7

It's great getting that money back and the author makes some good points about the shortcomings of the program, but as a recipient of this credit 3 years in a row now (just got our 2015 claim approved in record time), here's my issue with it: It just seems like a handout for optics' sake. In my circle of fellow SR&ED recipients, none of us have ever said "Well if it wasn't for this program, we wouldn't have hired the…

Yup. I chose to write about something I could put figures to rather than something that's much more subjective and I don't really have a good alternative for with data to back it up. I 100% agree though.

Re: Canada's R&D tax credit program hurts R&D in Canada

#19

Post by barkingcat » Thu, Nov 05, 2015, 6:30 PM UTC

lazyant wrote: post #8

lucisferre wrote: post #5

SR&ED is a terrible program that is actively hostile to software startups. To begin with under the definition of what the program considers claimable, in the strictest sense, most software work doesn't actually qualify, but the program is so poorly administered that most of them are able to successfully claim it anyways so they try, however you are always under the risk that your claim will be denied or clawed back.…

On one hand you are saying that there's bad claims and on the other hand you complain about having to document and having audits. All you are saying is true except the conclusion in the last sentence, which may be a valid point but doesn't follow from the other facts.

That's how poorly administered the system is. I've seen companies go through SR&ED and it's fairly random whether the paperwork is going to be accepted.

Some companies document everything and end up being rejected for a random formerly unknown minutia, whereas other companies document less, and ultimately get approved for a bad claim.

Anyone I've talked to who's even been close to the process (a claimant, a technical contact, an interviewee, an administrator) have had traumatic experiences with the process.

Re: Canada's R&D tax credit program hurts R&D in Canada

#20

Post by HorizonXP » Thu, Nov 05, 2015, 6:45 PM UTC

SR&ED was pretty decent for me this year. I claimed almost $120k in qualifying expenses (a roughly $90k salary for myself and the proxy amount).

I spent about two weeks putting together the application (along with the rest of my corporate tax return, so time was spent there too), and wrote up a few pages about the software development work that we did.

It took about 2 months for them to respond, and I was approved without a request for additional supporting documents. I received $48k.

I don't think I'll try and apply for it again next year, since I think it's going to be harder to justify the time expense, but overall, it wasn't so bad for a small claim.

I can certainly see how larger claims than mine become onerous though.