At least two-thirds of technology sector companies that are eligible to claim SR&ED, fail to claim.
At least eighty percent of PMCs (Professional Medical Corporations) that are eligible to claim SR&ED, fail to claim.
Technology sector companies may have shied away from SR&ED due to bad experiences in the past, or self-disqualification due to poor understanding of the program. Small manufacturing and food sector firms may have been targeted for audit by CRA, leading to large numbers of denials in these sectors. Many valid SR&ED claims were denied due to poor presentations or poor evidence.
In many cases, the principal SR&ED technologist or subject matter expert would split his or her income with a spouse, and also issue dividends to a child over the age of 18, resulting in a much lower T4 for the SR&ED owner/employee. Even without the “income sprinkling”, many business owners opted to leave money in the firm, and issued only minimal T4 income to a highly eligible SR&ED expert, on the premise that those residual funds could be invested.
There were some tax savings with these described approaches, however, the company lost out on the 68% cash refund of SR&ED eligible time for the principal working on eligible SR&ED projects.
These strategies have long been advised by accountants and advisors.
Not any more! Those tax planning practices will become ill-advised with punitive levels of taxation if the new legislation goes through, which is likely, considering the legislation has already been drafted.
In many of these scenarios, even under the old rules, the SR&ED refund would have been more advantageous and of course completely legitimate, but due to the complexity of the SR&ED program and the familiarity with “traditional” strategies, it might just have seemed easier to issue dividends.
Case and point. Every business has an accountant. Not every business has an SR&ED Advisor.
PMCs (Professional Medical Corporations) rarely claim SR&ED, due to incorrect self-disqualification. Now that the government is planning to disqualify all of the traditional tax planning strategies typically employed by PMCs, these corporations need to start thinking about SR&ED as an alternative.
- Family Doctors that participate in data collection for clinical studies in conjunction with academic institutions may have eligible expenditures.
- Medical Specialists that collect data and analyze data for the purposes of advancement of knowledge in a field of medicine (ie. An epidemiology study), will likely qualify for SR&ED.
Don’t worry if you’ve never claimed before – a professional will show you the way. Don’t worry if you have been denied in the past – every case stands on its own. With better comprehension of eligibility and better documentation, your firm can benefit from generous SR&ED refunds again.
Now is the time to seek out an assessment for SR&ED.
This article was written by Julie Bond, President of Bond Consulting Group.
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