By Leroy Dougherty P.Eng.
Partner, Tax Services - PwC
Let me ask you a question: is the federal government doing enough to support the development and growth of the Canadian high tech industry?
It’s an important question, with wide-ranging implications for the future of our tech industry and national economy as a whole. But it’s also a provocative question, one that elicits strong reactions and sharp opinions.
For those who see the glass half full, the federal government’s “innovation agenda” is a strong endorsement of Canadian tech, and the multi-million dollar sponsorship of five high-tech superclusters spanning the country is an immensely positive development. The ongoing support of the Scientific Research and Experimental Development (SR&ED) tax incentives is another example of government affirmation of the tech startup ecosystem.
Those who see the glass half empty will point to the inordinate amount of red tape when it comes to claiming SR&ED and similar incentives, and an ongoing stubbornness to respond to a changing tax climate south of the border.
Personally, I see both sides of the argument, particularly when it comes to SR&ED. As a Professional Engineer and Entrepreneur, I’ve had personal experiences as an SR&ED claimant, working for a number of startups with successful exits. I’ve also been in tax services for the past 12 years, helping first-time SR&ED claimants and serial entrepreneurs, as well as larger tech companies through the claim preparation and review processes; and acted as a specialist advisor to venture capitalists and private equity firms performing tech valuations.
All of this experience has given me an in-depth perspective on how complex and frustrating the SR&ED claim and review processes can be. Reviews of SR&ED claims can be a significant burden on already overextended tech executives and technical resources. I’ve seen how the expectations of the CRA’s technical reviewers don’t always align with real-world project methodologies, much less best-practices or current tools and technologies. It also frustrates me that the CRA review process can actually discourage companies from claiming, even though they may be a successful claimant.
But I’ve also seen firsthand how incredibly transformative SR&ED can be, including benefits that go beyond the actual tax credits earned and the resulting financial benefits. Simply put, the process forces companies to improve the continuity of their developed products by augmenting tracking systems, developing a project methodology and creating a more open and transparent development environment. If our tech companies can learn how to take full advantage of it, SR&ED can help make the bright future for Canadian tech even brighter.
So how can you, the Canadian tech entrepreneur or executive, capitalize on SR&ED? And how can the process make your company stronger, more focused, and more successful? Here are some tips, based on my observations and experiences.