|
Dada Mail
»
RDP Associates Mailing List
»
Archives
»
The 2008 Federal Budget
|
|
 |
 |
|
Monday, March 3, 2008, 10:02 am |
|
 |
The 2008 Federal Budget
|
|
|
Posted on 02-29-2008 15:51 |
|
Summary:
The 2008 federal budget has made improvements to three areas of the SR&ED tax incentive program. These improvements to the program indicate the Federal government’s commitment to the SR&ED program as an important vehicle to stimulate R&D in Canada.
|
Full Story:
2008 Federal Budget Improvements to SR&ED Tax Incentive Program
The 2008 federal budget has made improvements to three areas of the SR&ED tax incentive program. These improvements to the program indicate the Federal government’s commitment to the SR&ED program as an important vehicle to stimulate R&D in Canada.
SR&ED Performed Outside Canada
Proposed Improvement
Further to one of the recommendations and submissions made to the Federal Department of Finance by RDP in November 2007, salaries and wages of Canadian residents for SR&ED performed outside Canada, incurred after February 25, 2008, will be considered qualified expenditures, as long as the work is directly undertaken by the taxpayer.
This will be limited to 10% of the total salaries and wages directly attributable to SR&ED carried on in Canada by the taxpayer during the taxation year, pro rated to reflect t
he number of days in the taxation year that are after February 25, 2008. Salaries will exclude items such as bonuses.
Commentary
In the past, many clients have been surprised when they find out that SR&ED work done by in-house employees outside of Canada does not qualify as an eligible SR&ED expenditure. This is usually the case where the company has to test its prototype or process outside of Canada, say at the customer site in the U.S. These situations will now be able to be claimed as eligible SR&ED, as long as the amount is within the limit of 10% of total SR&ED salaries and wages.
SR&ED Administration
Proposed Improvement
To fund various initiatives to improve the administration of the SR&ED program, the Canada Revenue Agency will increase its internal budget by $10 million. Among other things, CRA will be hiring additional science and technical advisers to assist in speeding up the processing of claims.
Commentary
This particular proposed improvement may turn out to be the most important. We believe one of the largest challenges facing CRA is to issue refunds in a timely fashion. While CRA has made significant improvements to process SR&ED claims, considerable delays have occurred when a review takes place. While it is of benefit that the SR&ED program has been provided with an additional $10 million, this must be used wisely. If there truly is a backlog of claims to be reviewed, adding additional technical advisers will help.
Increased Expenditure Limits
Proposed Improvement
Currently, Canadian-controlled private corporations (CCPC) are eligible for a 35% refundable SR&ED tax credit on eligible SR&ED expenditures up to $2 million. This expenditure limit has remained unchanged since 1985. The 2008 budget proposes to increase the expenditure limit from $2 million to $3 million.
In addition, there are “phase out” formulas which eliminate the 35% refundable SR&ED tax credit where the taxable income or taxable capital of the corporation (including associated corporations) exceed certain amounts. For example, the expenditure limits continue to be subject to phase out rules where the prior year’s taxable income exceeds $400,000. However, with the increase of the expenditure limit to $3 million, the total phase out will occur when the prior year’s taxable income exceeds $700,000. Thus, the 35% refundable tax credit will phase out where the prior year’s income exceeds $400,000 up to $700,000.
The amount of taxable capital that begins to phase out the expenditure limit remains at $10 million; however, the total phase out will now occur at $50 million of taxable income, taking into consideration the increased expenditure limit and providing for a slower phase out.
Commentary
Overall, we believe these increased expenditure limits will only assist a few companies. Each year out of the hundreds of claims that we review, a few companies are limited by the taxable capital expenditure limit. Increasing this from $15 million to $50 million will help these companies increase their SR&ED refund. In addition, those companies that spend more than $2 million a year on SR&ED and up to $3 million, and which are eligible for the 35% federal refundable credit, could add up to another $300,000 to their SR&ED refund.
Overall, these improvements are welcomed. RDP represents a substantial number of SR&ED claimants, especially in the SME sector. If you have any questions on how your situation will be affected, please forward all submissions to Chris Bodnar at cbodnar@rdpassociates.com or simply call 416-368-9341 ex 247.
|
|
|
|
Copyright © 2006-2008, RDP Associates Inc. All rights reserved. Website design and business web hosting by COMMbits Inc., Toronto - Canada. |
 |
|
|
|
Send This Message to a Friend:
RDP Associates Inc. Newsletter
Subscribe to RDP Associates Mailing List:
|
