Government Funding Incentives Presented By Richard Kun, RDP Associates Inc

Government FundingIncentives

Presented By Richard Kun, RDP Associates Inc.

Agenda

• Types, Sources and Mandates • Process to Navigate• Key programs

Various Forms

• Over 500 Incentive Programs • Tax Credits: Refundable vs. non refundable• Grants• Matched Funding• Repayable Contributions• Forgivable loans

Various Sources

• Federal• Provincial• Municipal• Chamber of Commerce• Trade Associations

Various Mandates

• Specific time periods to apply• Targeted to Specific Sectors• Targeted to Different Size of Companies• Limited funding vs. Unlimited Funding

What Government Funds

• Job Creation• Training

• On new equipment and technology

• Export Marketing • Plans, personnel, feasibility studies

• Business Partnering• Universities, colleges, associations,

What Government Funds

• Investment• Manufacturing equipment

• Energy Saving• Designs, devices

• Innovation• R&D, new environment technologies, agricultural,• Product and process development

Businesses Unsuitable for Funding

• Retailers• Wholesalers• Importers• Service providers• Companies who make products outside

Canada

• Where do you start ?

• How do you navigate ?

Process

• STEP 1: Evaluate your business situation– Knowledge Base– Resources– Company Growth Cycle• Concept• Development• Market entry• Market expansion

Process

• STEP 2: Link company needs to various government assistance programs

• Training Assistance• Research• Funding for growth• Expanding to International markets

Process

• STEP 3: Develop a Plan• Prioritize - Narrow to top 5 • Leverage - To maximize & complement• Tax efficient

Process

• STEP 4: Apply• Various Deadlines• Unique to each program• Typically business plan required• SWOT analysis• Benefits to be generated• Planned growth of company

Process

• STEP 5: Evaluate Effectiveness – Cash Flow– ROI

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SR&ED TAX CREDITS

• Tax incentive program offered by the Federal Government to companies which strive to innovate.

• The aim of the program is to foster experimentation and technological advancement for the benefit of the Canadian economy.

• Administered by the CRA, most provinces add a provincial tax credit.

• In Ontario the combined Federal and Provincial refundable tax credit is 41.5% (CCPC)

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SR&ED

• A systematic approach, to develop technological solutions, beyond known knowledge.

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SR&ED INDICATOR

Software

• Are you developing new software?• Are you developing new kinds of

databases?• Are you developing access to the Internet

(i.e. e-business)?• Are you developing new controls or

automated tracking methods?

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SR&ED INDICATOR

Software• Construct• Architecture• Technique• Design Methodology• Algorithm• Performance• Scalability• Integration• Security

Two Criteria for Project Eligibility

• Technological Advancement

• Technological Uncertainty

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TECHNOLOGICAL ADVANCE

• TECHNOLOGIES USED IN PROJECT• SHORTFALL IN MEETING OBJECTIVES• STEP FORWARD (ADVANCE) REQUIRED• COULD BE KNOWLEDGE (KNOW-HOW)• COULD BE CODE OR GADGET• ALTERNATIVES MUST BE EXPLORED

• WHERE IS THE TECHNOLOGICAL CHALLENGE?

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TECHNOLOGICAL UNCERTAINTIES

• ALTERNATIVE STEPS TO ADVANCE• KNOWLEDGE UNAVAILABLE• CODE OR GADGET UNAVAILABLE

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ACTIVITIES

• MUST INCLUDE EXPERIMENTATION–TO EXPLORE ALTERNATIVES–TO REDUCE UNCERTAINTIES

• TASKS IN THE PROJECT• BASE OF COSTS TO BE CLAIMED

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SR&ED INDICATOR (continued)

6 “P’s” OF SRED

1. New Product(s)?

2. New Process(es)?

3. Prototypes?

4. Personnel? (P.Eng, PH.D, M.Sc, etc.)

5. Patents?

6. Problems?

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QUALIFIED SR&ED EXPENDITURES

CURRENT COSTS• SALARIES AND WAGES (bump up for overhead)• MATERIALS CONSUMED• ARM’S LENGTH CONSULTING OR CONTRACTING FEES• OVERHEAD DIRECTLY RELATED TO SR&ED OR PROXY• LEASES

CAPITAL COSTS• ASSETS PURCHASED NEW THAT ARE USED 90% OR MORE OF

TIME IN SR&ED ACTIVITIES• PARTIAL CREDIT FOR NEW ASSETS USED 50% OR MORE OF

TIME IN SR&ED ACTIVITIES• EXAMPLES ARE COMPUTERS, LAB EQUIPMENT, MACHINERY

USED EXCLUSIVELY FOR SR&ED PURPOSES

Salaries Programmer A $ 10,000 Programmer B 20,000 Programmer C 30,000Total $ 60,000

Bump up 65% (Proxy) 39,000

Total Claim $ 99,000

Refund 41.5% (Salaries) $ 41,085

Recovery on Direct Costs of 60,000 68%

Artificial Intelligence Software Co

Salaries Contractors Programmer A $ 10,000 Programmer B 20,000 Programmer C 30,000Total $ 60,000 $ 60,000

Bump up 65% (Proxy) 39,000

Total Claim $ 99,000 $ 60,000

Refund 41.5% $ 41,085 $ 24,900

Recovery on Labour of 60,000 68% 41.5%

Artificial IntelligenceSoftware Co

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CRA Reviews

Documentation & Eligibility• Labour Allocation

- Time sheets

- Activities• Technical Documentation to Support Advances &

Uncertainties:

- Notebooks, Logs - Drawings & Pictures

- Project Plan, Gant Charts - Minutes of Meetings

- E-mails - Test Results • Separate SR&ED from Product Development• Documentation must be dated

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Commonly Missed SR&ED Opportunities

• NON-IDENTIFICATION OF ELIGIBLE SR&ED PROJECTS

• MISSING ACTIVITIES RELATED TO ELIGIBLE SR&ED PROJECTS

• NON-IDENTIFICATION OF ALL SR&ED COSTS.

• INTEGRATING SR&ED ACTIVITIES WITH SR&ED COSTS

• MANAGING THE CLAIM AND CRA REVIEW PROCESS

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SR&EDWhat We Do

• IMPLEMENT PROCESS TO CAPTURE SR&ED

• IDENTIFY ELIGIBLE PROJECTS• IDENTIFY AND DETAIL ELIGIBLE COSTS• ASSIST TO WRITE UP PROJECT

DESCRIPTION• FILE CLAIM• FOLLOW UP AND FACILITATE REVIEW

PROCESS BY CRA

Ontario Interactive Digital Media Tax Credits

Overview of OIDMTC

The Ontario Government offers a

40% refundable tax credit

for qualifying Ontario

labour and marketing expenditures

to create interactive digital media products.

Overview of OIDMTC Eligibility

To be eligible for the OIDMTC a product must be an interactive digital media product whose primary purpose is to :

educate, inform, or entertain,

and that achieves its primary purpose by presenting information in at least two of:

text, sound and images

and must be intended for use by individuals.

OIDMTC Eligibility

• The product must be interactive; that is, the user can choose what information is to be presented and the sequence and form in which it is presented.

OIDMTC Examples

• Educational Software

• Video Games

• Informational Products

• Interactive Web sites

OIDMTC Eligibility

• All or substantially all of the product must be developed in Ontario by the qualifying corporation (90% or more).

• The product cannot be used primarily for interpersonal communication The OMDC will interpret “primarily” to mean “more than 50%.”

• The product cannot be used primarily to present or promote the qualifying corporation

• The product cannot be used primarily to present, promote or sell the products or services of the qualifying corporation.

Eligible Expenditures

• Labour Expenditures

• Marketing Expenditures

Labour Expenditures

• Eligible labour expenditures are 100% of salaries and wages for employees

• Eligible Labour expenditures must also be paid to individuals resident in Ontario, directly attributable to the development of the eligible product, and paid for services rendered at a permanent establishment in Ontario.

Marketing Expenditures

Up to $100,000 of eligible marketing and distribution expenditures related to an eligible product can be included.

Eligible marketing and distribution expenses are those incurred in the 24-month period prior to the completion of the eligible interactive digital media product, and those incurred in the twelve months following the completion of the product.

Expenditures that have already been claimed as eligible Ontario labour expenditures cannot be claimed as marketing and distribution expenditures claim.

Marketing Examples

• Trade Shows• Travel, Meals, Entertainment• Graphic Design• Copy Writing• Google Ads• Marketing wages for eligible products

Additional Points of Mention

• Ontario labour and marketing expenditures must be Paid no later than 60 days after the end of the taxation year.

• Contractors must render services at the qualifying corporation’s permanent establishment or the contractor’s permanent establishment in Ontario. That is, the work must be carried out in Ontario.

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OMDC – Export Fund

• Ontario Media Development Corp• Up to $12,000 capped at 50% • Funding for measurable business

development results• Sales, financing, licensing or publishing

deals• Market event attendance and targeted

sales trips

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Thank You

• Questions• rkun@rdpassociates.com