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

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

#51

Post by sintaxi »

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 is nonsense.

SR&ED is not a grant you apply for, it is a tax credit that you are ENTITLED to for taking technical risk and venturing into areas of technical uncertainty.

SR&ED is a tax credit and a perfectly reasonable one. The problem with SR&ED is that it is a badly abused which leads to painful auditing processes for everyone.

Since Joyent Canada is (as far as I'm aware) a 100% wholly owned subsidiary of a US corporation it doesn't surprise me the CRA took a close look at the claims as Canadians ultimately wont see the extent of the benefits that the program hopes to achieve for Canadian corporations. The fact that you call it the "Canadian office" rather than the "Canadian company we own" illustrates a frame of thinking that likely makes the CRA uncomfortable. The program is designed to help Canadian companies.

So.. you are an American, working for an American company, managing a team that is receiving Canadian tax breaks for generating I.P. for the American corporation and you are complaining that you received friction from the CRA? Yeah, no shit.

> SR&ED is a transfer payment from Canadian taxpayers to Canadian consultants; it should be scrapped, not fixed.

No, SR&ED is not funding from Canadian tax payers. Once again it is a tax credit for money spent on salaries for performing tasks that have abnormally high risk. Its critical to understand the difference before voicing an opinion on the matter.

edit: wording

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

#52

Post by pkaler »

bhouston wrote: post #36
wwhchung wrote: post #35

Earlier quoted context omitted.

Hi there. Claim 1 is not incorrect. I am not stating executive compensation is used to claim SR&ED. I am stating it is used to suppress net profits to qualify for the higher rate. Also, Claim 2, there is no requirement for IP to be owned by the Canadian entity for its development to be qualified for SR&ED (I’ve verified this from multiple accountants and the CRA). As for Claim 3, you realize that this is indefinite r…

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…

> Regarding Claim 1, you are advocating that company will sacrifice its growth in order to live off of SRED.

SRED zombies are a real thing. Companies that should otherwise fold keep living on. It's not that they are sacrificing growth, they are tying up productive resources.

https://twitter.com/tobi/status/369180245972090880

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

#53

Post by bcantrill »

sintaxi wrote: post #51
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 is nonsense. SR&ED is not a grant you apply for, it is a tax credit that you are ENTITLED to for taking technical risk and venturing into areas of technical uncertainty. SR&ED is a tax credit and a perfectly reasonable one. The problem with SR&ED is that it is a badly abused which leads to painful auditing processes for everyone. Since Joyent Canada is (as far as I'm aware) a 100% wholly owned subsidiary of a US…

You fundamentally misunderstand SR&ED: it has nothing to do with "helping Canadian companies" and everything to do with encouraging companies to do R&D work in Canada. That Joyent Canada is a fully owned subsidiary of a US corporation is immaterial (indeed, SR&ED is designed to attract R&D investment from multinationals not based in Canada!), and as a I learned as part of the audit, the audit that we received is considered "routine" for the first year that a company applies for SR&ED credits. Our consultants didn't think it was a big deal, and Revenue Canada was very polite about it; they (apparently) just wanted to make sure that we employed everyone that we said we employed and that they were engaged in eligible activity (which we did and they were -- it was all fine). But the audit was expensive for us in terms of time, and we made the decision that SR&ED wasn't worth it. That's not nonsense; that's a business decision.

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

#54

Post by tjl »

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…

I worked at a small startup (3 founders plus me) and the only reason I was hired was because of a Mitacs grant (the company puts up half and Mitacs puts up the other half) and SR&ED. I researched a number of topics related to NLP. I'm not working there any more because they had funding issues and couldn't pay for another half of a (longer) Mitacs grant.

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

#56

Post by s73v3r »

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.

Why can't you point fingers? If you know this is happening, which is supposed to be illegal, then blow the whistle.

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

#57

Post by cmrdporcupine »

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.…

This describes my experience exactly. When I worked at an ad-tech startup a few years ago we wasted so many hours dealing with SRED consultants, writing things up, writing specifications... flowery language. IMHO big company stuff when we needed to be writing code and iterating fast to produce product, instead.

And in many cases there are web development or design agencies claiming and getting SRED, achieved purely by hiring consultants who know how to spin things.

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

#59

Post by wwhchung »

s73v3r wrote: post #56
wwhchung wrote: post #37

Earlier quoted context omitted.

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.

Why can't you point fingers? If you know this is happening, which is supposed to be illegal, then blow the whistle.

Because it's not illegal as my post points out. It's a flaw in the structure.

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

#60

Post by wwhchung »

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.

You are incorrect.
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