Burlington SR&ED Practitioners’ Conference held January 11, 2012

It is unfortunate that there wasn’t more new information introduced at the 15^th annual practitioners’ conference held in Burlington on January 11, 2012.  The most informative portion was at the very beginning when the new Director General of SR&ED, Ms. Susan Betts, discussed the top five SR&ED concerns from claimants and CRA.

The top five concerns of claimants were as follows:
1) CRA staff (specifically RTAs) not qualified to determine eligibility of claims
2) The narrowing of eligibility criteria
3) The increased complexity of forms and processes surrounding SR&ED claims
4) The amount of supporting documents required to prove a claim
5) Lack of consistency as to claim eligibility

The top five concerns of the CRA were as follows:
1) Personal attacks against CRA staff
2) Incomplete claims
3) Cost to claimants of hiring professional firms on a success fee basis
4) The increasing amount of aggressive and unfounded claims
5) Withdrawal of claims when audit requested by CRA

The new Director General then provided some analysis of the two lists.  She stated that she had reviewed the qualifications of the CRA staff and was confident that they were capable and qualified to determine the eligibility of claims.

Ms. Betts indicated that the 2^nd concern of claimants is not actually a narrowing of eligibility criteria but a clarification and definition of what is eligible. She further stated that this clarification is required in order to deal with the claimant concern of inconsistency and the CRA concerns regarding incomplete and aggressive claims.

Ms. Betts noted that the SR&ED program was set up to fund claimant research and development and that, in her opinion, the money being paid to practitioners on a success fee basis was not in line with the program’s intention.

Looking to the future, Ms. Betts indicated that CRA may look at third party penalties in order to deal with the concerns it has regarding incomplete, aggressive and withdrawn claims.  In my opinion, if the CRA were to apply these penalties in appropriate cases it would decrease the compliance time of CRA staff and in theory decrease the time it takes for a legitimate claimant to receive their refunds.

It was a surprise to many that there was little mention of the Jenkins report and no mention of the potential changes stemming from it. When we look at the facts, however, this makes sense as it is the Ministry of Finance that will make the changes. CRA will, of course, need to apply and monitor the changes but they are unlikely to know with any certainty what or when these changes will occur.

At the end of the conference, the lack of new information was disappointing. However, it was nice to talk to CRA advisors and other practitioners; the majority of whom were confident in the fact that the SR&ED program was going to change. After all, Prime Minister Harper stated early on that he would take the suggestions of the Jenkins report very seriously.

The only questions left now is how much the SR&ED program will change and when the changes will begin?

Joshua Smith, CA

SR&ED Tax Manager

For more information about SR&ED tax credits, contact Joshua Smith by e-mail at: jsmith@welchllp.com or by phone at: 613.236.9191.

2012 Predictions

With 2011 in the “books”, what can we expect in 2012? Hopefully some stability will return to the economy, but, I would not count on it. With my financial bias in mind here are a few predictions:

1. Access to capital, particularly early stage companies that present the most risk and biggest opportunity, will continue to be a challenge. However, 2012 will be a transition year where new sources of capital will emerge and renewed interest in investing. 2013 and 2014 are the years where we will see funding flowing.
2. M&A activity will be steady or increase as companies with strong balance sheets struggling to grow revenue capitalize on the challenges mid market companies have to compete in the global economy. The acquisitions of mid market companies will provide liquidity to investors that will fuel the flow of funds beyond 2012.
3. Government rationalization of spending will put pressure on government incentives resulting in changes in 2012 that will impact 2013 and beyond. Lobby now for those incentives you believe should continue.
4. US accounting standard setters will agree to not adopt International Financial Reporting Standards and continue to maintain their own set of accounting standards.
5. The Canadian accounting professions will merge into one Canadian accredited accounting designation.

Pricing pressures will continue in 2012 as companies focus on protecting their bottom lines. To compete effectively, goods and services will need to be priced competitively and offer tangible benefits.

- Bryan Haralovich, CA, CPA (Illinois)
Assurance Partner
Welch LLP 

The Apprenticeship Tax Credits – leveraging your employees

As a business owner, you are focused on sales and customers the majority of your time as these items drive the success of your business.  As a good business owner you recognize the fact that without your supporting suppliers and workers you would not have been able to achieve the successes you have had in the past or attain the goals you are reaching for in the future.  This understanding has led you to create strong relationships with your suppliers and a dynamic and rewarding workplace for your employees.

As a great employer you would take that employee relationship one step further and at the same time you would put money into your pocket through the use of the apprenticeship tax credits at both the federal and provincial level.  By providing on the job training to your employees you are rewarding them with knowledge that will benefit you as the more knowledgeable employee will make better decisions on the job and provide additional insight to those surrounding them.  This will make the employee feel more valuable to the company which can ultimately lead to increased gains for your company.

While these benefits are enough to encourage training on the job, the benefits of registering your employees in a certified program that qualifies for the apprenticeship tax credits makes the training even more beneficial and you may be surprised to find out what training will qualify for the Ontario credit.

In Ontario there are over one hundred and twenty different trades that when registered for will qualify for the apprenticeship tax credit.  The trades range from sales to tractor trailer commercial driver and are included in four separate categories; Service Trades, Motive Power Trades, Construction Trades and Industrial Trades [Appendix A].

Once you have registered with the appropriate body you will be eligible for up to $10,000 per year for the first four years of the apprenticeship. What makes this credit even better is that to achieve the maximum credit you only need to pay salary of $22,222 to that employee assuming you receive the highest refundable credit rate.

Further to the Ontario credit, there is also a Federal credit on certain apprenticeships [Appendix B].  This credit is significantly less than the Ontario credit but can still produce $2,500 per year for the first two years of the apprenticeship.

- Joshua Smith, CA
R & D Tax Manager
Welch LLP 

Changes on the Horizon of Not-for-Profit Tax Landscape

Non-profit organizations, or NPOs, are always jumping through hoops to satisfy donors, clients, and the Government of Canada – and it looks like that isn’t going to change any time soon. NPOs will have three new things to consider while wrapping up their 2010 finances this fall.

• HST and Place of Supply

By now, your organization has had some time to get used to the HST in B.C. and Ontario, but if you haven’t placed or received any orders from out of province, you may not be familiar with the new place of supply rules. While before tax was placed based on where the contract was negotiated (usually the location of the NPO’s head office), with the new rules the place of supply is considered to be the billing address of the member.
If you do business mostly in one province, not much will change, but you’re working across Canada, you have to be careful to charge the correct tax, and be prepared for taxed to vary.

• Incorporation

If your NPO is currently incorporated under the Canada Corporations Act, draft legislation may mean you will have apply for corporate status under the proposed Canada Not-for-Profit Corporations Act. If this legislation comes into play, it may mean your financial statements will have to be audited, even if that is not a requirement currently.

• New Accounting Standards

New standards have been proposed for NPOs, and if they are adopted they will apply to all fiscal years beginning on or after Jan. 1, 2012. These standards will require private sector NPOs to adopt IFRS or new NPO standards, while government controlled NPOs will be forced to adopt public sector standards.

Working for NPOs means there is never a slow moment, so it might be a good idea to speak with your accountant, who can get you up to speed on these issues quickly. If you’re currently in the market for an accountant, contact one of the professionals at Welch LLP to set up an appointment.