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

#41

Post by bhouston » Thu, Nov 05, 2015, 9:30 PM UTC

wwhchung wrote: post #37

bhouston wrote: post #36

Earlier quoted context omitted.

If you say these are major issues, how often have you seen these two instances in the real world as a percentage of total SRED claims? Are these theoretical concerns or do you know that these are very serious practical concerns about SRED? Regarding Claim 1, you are advocating that company will sacrifice its growth in order to live off of SRED. The larger one’s SRED claims and the larger they are in respect to total…

Yes, it happens a LOT. I can't point fingers (it's not polite, and I'm Canadian), but it's what prompted me to write the article. And yes, it does matter who owns the IP. If a sale happens, the proceeds to to the residing country's tax base. If it's not in Canada, we lose out on those gains.

Ownership of IP doesn't matter if the licensing of the IP is made in unrestricted or exclusive fashions.

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

#42

Post by strebler » Thu, Nov 05, 2015, 9:42 PM UTC

bhouston wrote: post #33

This post is a load of shit, serious shit. Claim 1: > Promotes excessive executive compensation You can not claim executive compensation in a SRED claim. If you do it is fraud. It is an excluded expense see here: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/ttlqlfdsrdxp... Claim 2: > We’re paying foreign entities to take IP and profits out of Canada. Not a very good use of taxpayer dollars, is it? Actually that is…

Agreed, this post is nonsense. The author should consider doing research before forming & posting such opinions.

Executive compensation is not included in SR&ED. Even if you're a CEO who codes, only the time you spend coding can be claimed. The salary claimable is capped at $100K (I believe) for any major shareholders (or family members).

It is also well established that whoever owns the IP gets the SR&ED credits and foreign companies are not eligible for SR&ED.

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

#43

Post by bcantrill » Thu, Nov 05, 2015, 9:47 PM UTC

In my experience, SR&ED is a system that exists to employ government bureaucrats and their symbiotic ecosystem of consultants and auditors -- everyone else is a loser. And I felt this way before we at Joyent were audited; after we were audited (which came back clean, but was incredibly time consuming and extraordinarily painful) my opinions on SR&ED are much more pointed: we still have a Canadian office and it hasn't affected our hiring there (Joyent is hiring in Vancouver![1]), but I want absolutely nothing to do with SR&ED ever again in my life. (That is, we have not applied for SR&ED credits since and will never do so again.)

If Canada wants to do something for startups, they should setup a sovereign wealth fund that does early stage investment in Canadian companies -- and then it should actively help make those companies successful. SR&ED is a transfer payment from Canadian taxpayers to Canadian consultants; it should be scrapped, not fixed.

[1] https://news.ycombinator.com/item?id=10312448

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

#44

Post by apetresc » Thu, Nov 05, 2015, 9:57 PM UTC

strebler wrote: post #42

bhouston wrote: post #33

This post is a load of shit, serious shit. Claim 1: > Promotes excessive executive compensation You can not claim executive compensation in a SRED claim. If you do it is fraud. It is an excluded expense see here: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/ttlqlfdsrdxp... Claim 2: > We’re paying foreign entities to take IP and profits out of Canada. Not a very good use of taxpayer dollars, is it? Actually that is…

Agreed, this post is nonsense. The author should consider doing research before forming & posting such opinions. Executive compensation is not included in SR&ED. Even if you're a CEO who codes, only the time you spend coding can be claimed. The salary claimable is capped at $100K (I believe) for any major shareholders (or family members). It is also well established that whoever owns the IP gets the SR&ED credits and…

The article isn't saying you can claim executive compensation for SR&ED. He's saying that the SR&ED tiers are tied to net profits, which executive compensation counts against. So you can increase CEO pay to push more of your profits into higher SR&ED tiers.

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

#45

Post by gamblor956 » Thu, Nov 05, 2015, 9:59 PM UTC

bhouston wrote: post #33

This post is a load of shit, serious shit. Claim 1: > Promotes excessive executive compensation You can not claim executive compensation in a SRED claim. If you do it is fraud. It is an excluded expense see here: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/ttlqlfdsrdxp... Claim 2: > We’re paying foreign entities to take IP and profits out of Canada. Not a very good use of taxpayer dollars, is it? Actually that is…

I agree, bhouston. I thought this post was wrong so I sent it to my Canadian counterparts, and they confirmed that the OP definitely misstated how SRED works. Flagged as inaccurate since this article risks spreading woefully incorrect information.

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

#46

Post by gamblor956 » Thu, Nov 05, 2015, 10:02 PM UTC

apetresc wrote: post #44

strebler wrote: post #42

Earlier quoted context omitted.

Agreed, this post is nonsense. The author should consider doing research before forming & posting such opinions. Executive compensation is not included in SR&ED. Even if you're a CEO who codes, only the time you spend coding can be claimed. The salary claimable is capped at $100K (I believe) for any major shareholders (or family members). It is also well established that whoever owns the IP gets the SR&ED credits and…

The article isn't saying you can claim executive compensation for SR&ED. He's saying that the SR&ED tiers are tied to net profits, which executive compensation counts against. So you can increase CEO pay to push more of your profits into higher SR&ED tiers.

And what the rest of us are saying is that executive compensation is excluded from the computation of net profits (when calculating net profits for SRED purposes) except to the extent that the executive's compensation directly relates to SRED activities (i.e., R&D, etc.). The idea behind the exception being not to penalize small companies where the major R&D driver may also be an executive.

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

#47

Post by makomk » Thu, Nov 05, 2015, 10:15 PM UTC

gamblor956 wrote: post #46

apetresc wrote: post #44

Earlier quoted context omitted.

The article isn't saying you can claim executive compensation for SR&ED. He's saying that the SR&ED tiers are tied to net profits, which executive compensation counts against. So you can increase CEO pay to push more of your profits into higher SR&ED tiers.

And what the rest of us are saying is that executive compensation is excluded from the computation of net profits (when calculating net profits for SRED purposes) except to the extent that the executive's compensation directly relates to SRED activities (i.e., R&D, etc.). The idea behind the exception being not to penalize small companies where the major R&D driver may also be an executive.

Any evidence for that? The link he provided simply says that executive compensation doesn't count as SR&ED expenditures for the purpose of determining the amount of R&D expenditure that qualifies for reimbursement. So far as I can tell, it says nothing about the definition of net income, and the definition of net income for the purpose of the qualifying income limit is simply the normal taxation one that allows you to deduct executive pay.

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

#48

Post by bvanvugt » Thu, Nov 05, 2015, 10:18 PM UTC

It's really important that programs like Canadian SR&ED are being scrutinized in the context of startups, and on that theme I'm really happy to see this discussion.

I think it's more interesting to see how Canadian founders can shape these sorts of policies over the next 5-10 years, and this is a great starting point.

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

#49

Post by amackera » Thu, Nov 05, 2015, 10:22 PM UTC

bcantrill wrote: post #43

In my experience, SR&ED is a system that exists to employ government bureaucrats and their symbiotic ecosystem of consultants and auditors -- everyone else is a loser. And I felt this way before we at Joyent were audited; after we were audited (which came back clean, but was incredibly time consuming and extraordinarily painful) my opinions on SR&ED are much more pointed: we still have a Canadian office and it hasn't…

THIS

There's a few other startup grant opportunities out there but they're mostly province dependent and not very accessible.

What you're proposing is more of a startup incentive than an R&D incentive though. Not saying it's a bad thing, just different.

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

#50

Post by benjaminfox » Thu, Nov 05, 2015, 10:32 PM UTC

bcantrill wrote: post #43

In my experience, SR&ED is a system that exists to employ government bureaucrats and their symbiotic ecosystem of consultants and auditors -- everyone else is a loser. And I felt this way before we at Joyent were audited; after we were audited (which came back clean, but was incredibly time consuming and extraordinarily painful) my opinions on SR&ED are much more pointed: we still have a Canadian office and it hasn't…

> If Canada wants to do something for startups, they should setup a sovereign wealth fund that does early stage investment in Canadian companies -- and then it should actively help make those companies successful.

The Business Development Bank of Canada (a financial institution owned by the federal government) actually does this - it has a venture fund that's one of the largest in Canada.

http://www.bdc.ca/EN/bdc-capital/venture-capital/strategic-a...