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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
#22The 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 not be able to produce bug free app, etc).
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.
On the downside... big organizations that can pay big bucks for assistance with writing SR&D applications can qualify for S&RD. Several of the big Canadian banks have recovered considerable amounts. Which is pretty outrageous on the face of things... how much actual SR&D and technological risk is being faced in a banking environment? None that I've ever seen (well... except for one project I was involved in... but that was a trivial "lets try this and see if we can use shared record locks as activity signals for a job scheduler").
In a way scientific/technological risk is a bad measure for software R&D. In general there is very little technological risk, and what risk there is is generally tackled via prototyping and/or early testing. The meat of the development costs comes much later... and there's no gov't tax support for that at all.
Re: Canada's R&D tax credit program hurts R&D in Canada
#23SR&ED can work very well for its intended audience. Most of the really vocal complaints I've heard were from people and companies that really shouldn't have applied in the first place.
However, I agree that there is confusion and external pressure to apply which doesn't help things at all.
Most startups, don't do this sort of R&D at all (or hardly at all).
Re: Canada's R&D tax credit program hurts R&D in Canada
#24The 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…
you wouldn't qualify for SR&ED because you were successful, so there was obviously no risk involved,
I'm not surprised you had a difficult audit if you were talking about things like "explaining polymorphism and encapulation" - sounds a description of activities in software development that are clearly not SR&ED-able.
Re: Canada's R&D tax credit program hurts R&D in Canada
#25SR&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…
Two weeks! Neglecting the rest of your startup for 2 weeks can easily kill 10% of its long-term potential. For $48k, so if you value your startup at more than $480k, you shouldn't do it.
(Taking a 2-week vacation doesn't do that, because you're fresh and energized afterwards, rather than beaten down by the grim bureaucracy).
Re: Canada's R&D tax credit program hurts R&D in Canada
#26This is definitely true, but not news to anyone who has followed how government program "X" for business actually works. These programs are defined by who they favour, and it has nothing to do with merit as defined by business or legislators; it is defined by bureaucrats who invariably favor things that benefit them directly.
I managed to get a decent amount of money back from SR&ED, but it required (as expected) an incredible time investment. A time investment that was negative to our business in every way; there's no way to reap a return on that later unless you return to SR&ED in the future.
The best thing, as always, would be for the government to simply lower taxes and eliminate these circuitous loops.
Re: Canada's R&D tax credit program hurts R&D in Canada
#27SR&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…
Two weeks! Neglecting the rest of your startup for 2 weeks can easily kill 10% of its long-term potential. For $48k, so if you value your startup at more than $480k, you shouldn't do it. (Taking a 2-week vacation doesn't do that, because you're fresh and energized afterwards, rather than beaten down by the grim bureaucracy).
Precisely why I wouldn't do it again. Right now, $48k was the difference between paying myself, or not. In the future, as we grow, that hopefully won't be the case.
Re: Canada's R&D tax credit program hurts R&D in Canada
#28I 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!
Re: Canada's R&D tax credit program hurts R&D in Canada
#29SR&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 had a decent experience with it. We got $24k for using Haskell for a project. All I had to do was a couple writeups here and there explaining why Haskell was a technical uncertainty for the given task. SR&ED funds Haskell dev!
Re: Canada's R&D tax credit program hurts R&D in Canada
#30I 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!
really? It's a refundable tax credit. Meaning if after the tax credit there is a balance it can be paid back out to you. See http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/srdnvstmnttx...