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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

#61

Post by wwhchung »

gamblor956 wrote: post #45
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.

Your Canadian counterparts are incorrect, or they must not have read the post clearly. You are in fact able to deduct executive compensation against net income. You CANNOT claim excessive executive compensation for your SR&ED expenditures, but that is NOT what I'm indicating. If your counterparts still claim that this is not the case, they are pretty sh*tty accountants.

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

#62

Post by developer1 »

slantyyz wrote: post #31
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.…

My opinion of SRED is mostly negative based on some experience (albeit out of date, from the late 90s and early 00s) and talking to people I know who were trying to get SRED money. In one instance, a company I worked for hired a consultant to do the application. This consultant basically interviewed everyone on the technical team and tried to coax us into saying every piece of functionality was novel and innovative,…

Every technology company I have worked for claims and receives the SRED. None of them have deserved it - not even remotely close. Each of my companies have made millions in profit each year. We have never done anything innovative that required actual research or risking anything by developing new technologies. My teams have used linux, mysql, memcached, redis, and a couple of programming languages. 100% of the work is just writing normal code for web applications. How much of that $4 billion dollars being handed out is for fraudulent claims of R&D? I would bet more than $3 billion. There are supposed requirements to meet to be eligible for the benefit, but everyday programming work is being rephrased to sound innovative and difficult.

This benefit needs to be abolished, as the number of tax dollars being sunk into it is ridiculous. For the few percent of businesses that might actual merit such a benefit, oh well. Compete in the market like everyone else without assistance. The difference between a deserving business and a business that will lie and twist words to save 15-35% on salaries is impossible to determine accurately. Too many liars and fraudsters have destroyed the system, so kill the program and nobody benefits.

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

#63

Post by thaumasiotes »

rbobby wrote: post #22
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…

It's pretty difficult to get software development to qualify for SR&D. The way it was explained to me by a consultant was to qualify there had to be technological risk of failure (i.e. it is unknown whether or not it is possible to do task X via software). So your average SAAS startup doesn't face technological risk, even though they face lots of business risks (might not be able to hire good enough developers, might…

> The way it was explained to me by a consultant was to qualify there had to be technological risk of failure (i.e. it is unknown whether or not it is possible to do task X via software).

Ok...

> However the first few companies using deep learning to do facial recognition from photos (eg. facebook automatic tagging)... well they would have faced technological risk. It wasn't known at the outset that deep learning would produce sufficient quality matches to be useful.

This is a wildly different standard. It certainly was known at the outset that facial recognition from photographs is possible to do in software, because people do it all the time. They just didn't know how.

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

#64

Post by cheez »

boonez123 wrote: post #55
cheez wrote: post #28

I actually had this discussion with my accountant yesterday: it only makes sense if you're so profitable that you're paying taxes. Guess who that favours ;) Not me!

Get a new accountant.

That's the thought I had for other reasons, but good to know that it was justified.

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

#65

Post by stormbrew »

rbobby wrote: post #22
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…

It's pretty difficult to get software development to qualify for SR&D. The way it was explained to me by a consultant was to qualify there had to be technological risk of failure (i.e. it is unknown whether or not it is possible to do task X via software). So your average SAAS startup doesn't face technological risk, even though they face lots of business risks (might not be able to hire good enough developers, might…

> It's pretty difficult to get software development to qualify for SR&D.

Every Canadian software company I've worked for in my 15 year career has used SR&ED.

Every single one. Most were small (ie. sub-25 people employed, most of those also making virtually no profit at all), a couple are large. Some tried to do it in house with only a lawyer to do late-stage massaging of the reports, others hired full on consultants for quite a lot of money to do it.

And they all got money out of SR&ED.

This is anecdata, but I don't think the idea that it's pretty difficult washes.

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

#66

Post by wwhchung »

mikeklaas wrote: post #58

For all its faults, Zite/Worio would've surely folded without SR&ED credits. (In the end, we launched and were acquired by CNN.)

Or, it could have folded and made something else. Or any number of other scenarios. But debating SR&ED being good or bad is too theoretical and everyone can point to examples on all sides. This is why I chose a very specific issue with SR&ED and proposals on how to fix it.

I'm not stating that SR&ED does not have its benefits, but there are some glaring flaws that need fixing. Others include the SR&ED process itself, evaluation of SR&ED claims and more. However this is the first one I could concretely back up with examples and math and give real solutions to.

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

#67

Post by wwhchung »

developer1 wrote: post #62
slantyyz wrote: post #31

Earlier quoted context omitted.

My opinion of SRED is mostly negative based on some experience (albeit out of date, from the late 90s and early 00s) and talking to people I know who were trying to get SRED money. In one instance, a company I worked for hired a consultant to do the application. This consultant basically interviewed everyone on the technical team and tried to coax us into saying every piece of functionality was novel and innovative,…

Every technology company I have worked for claims and receives the SRED. None of them have deserved it - not even remotely close. Each of my companies have made millions in profit each year. We have never done anything innovative that required actual research or risking anything by developing new technologies. My teams have used linux, mysql, memcached, redis, and a couple of programming languages. 100% of the work i…

Would love to have access to anonymized SR&ED claims data. I'll also bet that while 75% of the claimant's are small businesses, they only get It's why I advocate for a lower hard cap as well. With a hard cap, it's likely that the total amount paid out is well under $4B, which means we can then go on and address how we can better distribute funding and change the evaluation process to not be as restrictive.

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

#68

Post by sospep »

HorizonXP wrote: post #20

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 wi…

> I spent about two weeks putting together the application > I received $48k. > I don't think I'll try and apply for it again next year

This doesn't compute.

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

#69

Post by s73v3r »

wwhchung wrote: post #59
s73v3r wrote: post #56

Earlier quoted context omitted.

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.

So? Nobody says that you're supposed to claim they're breaking the law. You're just pointing out a company abusing the law.

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

#70

Post by gamblor956 »

wwhchung wrote: post #61
gamblor956 wrote: post #45

Earlier quoted context omitted.

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.

Your Canadian counterparts are incorrect, or they must not have read the post clearly. You are in fact able to deduct executive compensation against net income. You CANNOT claim excessive executive compensation for your SR&ED expenditures, but that is NOT what I'm indicating. If your counterparts still claim that this is not the case, they are pretty sh*tty accountants.

Yeah, we agree. My statement is that only the portion of executive comp that can be allocable to SRED expenditures can be deducted, which is what you're also saying. The key term is "excessive"--for SRED purposes, executive comp is excessive to the extent it does not relate to SRED expenditures.

But go ahead and call people names on the internet. It makes you seem like a true authority on the matter.

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