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Taking advantage of federal tax incentives
Electronic moisture probes to monitor the soil, weather stations linked to websites, sap-flow monitors that measure vines’ water intake and innovative bottling techniques designed to streamline processes. These are just a few of the new technologies utilized by some of today’s profitable wineries and growers.
Taking steps towards developing these technologies may seem cost-prohibitive or a task best left to government-funded research groups. However, with the aid of government tax incentives, research and development (R&D) is not solely in the arena of those with deep pockets.
The Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive program available to all Canadian taxpayers. This program allows even emerging wineries and growers to make R&D a regular part of their business operations.
The SR&ED program
Operating more than 20 years and with approximately $3 billion a year in funding, the SR&ED is the largest single source of federal government funding for industrial R&D. This funding is provided through investment tax credits (ITCs) on eligible expenses based on the type of company applying.
Canadian controlled private corporations (CCPCs), which are privately owned companies with assets under $10 million, can receive an ITC of 35 per cent on eligible expenses. If certain requirements are met, the ITCs may be redeemable as a cash refund that can be reinvested into the company.
Other companies with assets in excess of $15 million, partnerships and individuals qualify for 20 per cent ITCs. For a non-CCPC, this credit is non-refundable, but may be used to offset federal taxes.
In B.C., the SR&ED program offers CCPCs a maximum of $564 (after tax) of ITCs for every $1000 spent on wages. A non-CCPC would receive $304 (after tax) ITCs in the same scenario. This translates into real savings for companies willing to invest in R&D.
SR&ED encourages Canadian businesses in all sectors to invest in R&D that will lead to technologically advanced products or processes. What may be holding some companies back from applying is the confusion around what exactly qualifies as technologically advanced products or processes.
What is R&D?
Projects that may qualify under the program include:
Additions or improvements to existing materials, devices, products or processes.
Typical projects that apply to the wine and tree fruits industry include:
Wineries and growers routinely encounter and overcome problems during daily operations. Innovative solutions to these everyday problems may qualify as R&D without the owner/manager ever knowing. While attempts to overcome the obstacles sometimes fail, the SR&ED program supports any attempts to improve business operations - regardless of their success or failure.
Which costs qualify?
Equipment must be new
The equipment’s use must be 50 per cent or more for R&D purposes
Which costs don’t qualify?
Some costs not covered by SR&ED include:
How can I apply?
An SR&ED claim can be made any time up to 18 months after your company’s year-end. Please note the claim must be made for the year the expenses were incurred.
The claim for ITCs is made in conjunction with filing your tax return. MNP can assist you to identify potential qualifying projects, identifying eligible expenditures, writing the technical report, making the claim with CRA and assisting you with a CRA review of the claim.
What are my chances of having a successful claim?
If you believe you have an eligible project, your claim will likely be successful as long as you can clearly demonstrate that:
Who can help?
Making an SR&ED claim is a fairly complex process: it requires identifying eligible projects; capturing the cost of those projects; making the appropriate claim in your tax return and writing a technical report to support the claim. Your local tax advisor can also assist you in determining whether your company may qualify for the SR&ED program.
For general information, contact the SR&ED division of the Vancouver Tax Services Office (servicing B.C. and the Yukon) at 1.866.317.0473 or visit the CRA website at www.cra-arc.gc.ca and click on SR&ED.
By Ryan Mackiewich, Tax Specialist. For more information, please contact Ryan at 1.877.766.9735.
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