Changing SR&ED tax credit rules
The federal government announced in its 2012 budget that it will:
· Reduce the general SR&ED investment tax credit rate to 15% (from 20%), effective January 1, 2014.
· Remove capital expenditures incurred in 2014 and subsequent years from the base of SR&ED eligible expenditures. All other expenditures such as salary and wages, materials, overhead expenses and contract payments will remain eligible.
· Reduce the prescribed proxy amount for the overhead calculation to 60% of direct labour costs in 2013 and 55% of direct labour costs in 2014. The prescribed proxy amount is presently 65% of direct labour costs.
· Allow only 80% of arm’s-length contract payments to be used for calculating SR&ED tax credits, effective January 1, 2013.
Planning for SR&ED changes
Companies claiming SR&ED tax credits may want to incur upcoming expenditures in 2013 rather than 2014 to claim the higher tax credit rate, where possible.
Companies considering the acquisition of dedicated R&D equipment may want to make these investments in 2013 rather than 2014 so they can be eligible for SR&ED tax credits and deductions.