Tax break supports R&D

Author: Michele Lawson

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Michele Lawson

Chartered accountant Jeff Nixon, of Lardner & Company, works with Canadian manufacturers to recoup research and development costs using a tax initiative program set out by the federal government.

A licenced upholsterer by trade, Oro-Medonte’s Graham Valentine invented a line of fabric-covered modular furniture he hadn’t seen anywhere else.
“The concept was to make furniture that was easily transported and easily set up,” he recalls. “Some homes are limited in what furniture will fit in the basement as well.”
So he developed attractive seats, backs and armrests that can be easily bolted together to assemble chairs, loveseats, sofas or sectionals, but that don’t need a truck or moving crew to take home.
Little did he know, when he was hard at work in his shop developing his product and production process, that the government was rewarding such initiative.
“They want to develop a technology base and avoid the brain drain,” says chartered accountant Jeff Nixon, who works with the south-Barrie firm Lardner & Company. “We’re always competing in the global market, so if we can keep the edge in Canada by supporting research and development, we have an advantage.”
Valentine was one manufacturer who received a rebate as a result of the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program.
“The SR&ED program is a federal tax incentive program, administered by the Canada Revenue Agency (CRA), that encourages Canadian businesses of all sizes, and in all sectors to conduct research and development (R&D) in Canada,” reads the program description. “It is the largest single source of federal government support for industrial R&D.”
There’s a misconception that such programs are designed for sterile labs where employees toil in white coats, says Nixon.
“We had clients in the injection mold industry – that’s an industry that has used R&D forever,” says Nixon, whose firm has developed SR&ED as an area of interest. “They have to redesign to accommodate specifications and then have to test them.”
The program, which is especially designed to assist small and medium-sized enterprises, recently expanded its guidelines to allow credits for businesses with an annual income of up to $700,000. This amount is up from $400,000.
“It’s truly one area of taxation where the government is trying to help Canadian business,” Nixon says.
“As a service to our clients, we pursued learning about this,” recalls Nixon. “We knew it was something the government really wanted to give. Most people who are doing this kind of thing are passionate about what they do and this is a good way to recognize that.”
Although there are R&D consultants who specialize in the technical side of this field, knowledgeable accountants can bring the big financial picture to bear earlier on in the application process, instead of bringing in the financial expert as an add-on later. Since his firm charges by the hour instead of taking a commission, Nixon says it can also be less costly for the client.
The program covers the development of new or improved processes or products, and their testing. It has changed periodically since its introduction to help streamline the process and encourage successful bids. In addition to updating the application form and raising the expenditure limit, they have also recently invited applications covering labor for testing outside of Canada which check results in environments not found domestically.
Although there is the professional cost to consider when planning to submit a claim, there is otherwise no minimum claim required.
Valentine, whose project is currently on hold due to strong competition from Chinese-made furniture, encourages the government to develop follow-up programs to help get new Canadian products to market.
For more information, contact Nixon at jeff@lardner.ca.