Your Questions About CDAE, Answered by an R&D Partners Expert

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Introduction

The Tax Credit for the Development of E-Business, commonly referred to as “CDAE” – its French-language abbreviation – is a provincial tax credit available in Quebec for businesses developing e-business software solutions in the province.

To be eligible, a business must have a minimum of 6 eligible employees spending 75% or more of their time on technical activities, and 75% of the company’s gross revenue must be coming from IT sector activities.

The funding is structured as a maximum 24% refundable and 6% non-refundable tax credit for each eligible employee’s salary.

This quick overview does not cover every detail of the CDAE tax credit. For more information on the program, read our dedicated blog post.

We often get questions about CDAE, so we’ve asked a member of our team of experts to answer the most common ones for you below.

The expert

Sahar Ansary, M. Eng.

Sahar has assisted hundreds of small to large-sized organizations across Canada with SR&ED and E-business tax credit programs for over ten years and has led work on over $50M in related claims.

She specializes in identifying and optimizing the technical and financial aspects of various funding programs, maximizing overall tax credits, and managing major accounts. Sahar has significant experience in the aerospace, medical device, and software industries.

The questions

What is meant by “e-business” when it comes to the CDAE credit?

The CDAE Tax Credit criteria defines “e-business” much more broadly than just e-commerce.  It is not limited to the transactional side of e-commerce that we traditionally think of; the program guidelines state that it “concerns the organization of work in a company as well as how the company communicates and exchanges data with its customers, subcontractors, suppliers and partners.”

Eligible companies are therefore those who develop software for other businesses to evolve in that direction and digitize their operations at various levels – HR, procurement, accounting, and more. Traditional e-commerce is also eligible if a company is developing a software solution allowing monetary transactions, but the program includes a lot more than this under the umbrella of “e-business.”

Who can be considered an eligible employee?

Eligible employees for the CDAE tax credit are full-time indeterminate salaried employees in Quebec that work a minimum of 26 hours per week and spend over 75% of their time on technical activities.

When an individual is temporarily absent from his or her work for grounds considered to be reasonable (e.g. temporary illness, maternity leave, paternal etc.), Investissement Québec (IQ) may deem that the employee continued to work throughout the period of absence for the purpose of determining tax credit eligibility. For instance, someone who worked  20 weeks during the fiscal year because they were on sick leave during the rest will still be considered as an eligible full-time employee.

What counts as a “technical activity”?  

The CDAE eligibility guidelines stipulate that an employee must be devoting at least 75% of his/her time to carrying out, supervising, or directly supporting eligible activities to be eligible. Those activities must be technical and some examples include the following:

  • Design and development of e-business solutions
  • Quality control (testing, 2nd and 3rd level support)
  • Maintenance and evolution of e-business solution
  • IT consulting services for e-solution (customization, integration, deployment)
  • Technical coaching and supervision of technical employees/team.

If an employee spends more than 25% of their time on non-eligible activities during the fiscal year, then that employee will not be eligible for the CDAE tax credit because they won’t respect the 75% rule (ex. an HR employee or a CEO would not be eligible, because they spend a lot of time on administrative tasks and very likely do not spend 75% of their time on eligible technical work).

Do you need to continuously have 6 technical employees or more to remain eligible for the CDAE credit?

Yes, and no. What you need are 6 eligible positions maintained throughout the year. The requirement is not tied to any individual employee because you obviously do not control if someone leaves the company during the year.

For example – if one back-end developer leaves, and you fall below the 6 required eligible employees, you do not suddenly become ineligible. As long as you have the intention to replace this employee with another back-end developer (i.e. someone in the same position) and do so within around 6 months, everything should work out fine. You will essentially have had two employees in one role in the year, and both will be eligible.

Past the 6 month timeline, you may need to provide stronger arguments to explain why a replacement could not be found. However, note that none of this applies if you “lay off” an employee (i.e. ROE indicates code A in box 16 ) as no replacement can be justified in this case.

Can employees join during the year and still be eligible?

If an employee was hired towards the end of the fiscal year and, as such, worked for less than 40 weeks, they are eligible if they still hold the same position at the company beyond the fiscal year end. If an employee worked less than 40 weeks and quit during the fiscal year, they will only be eligible for the tax credit if the company found a replacement or if the company is still actively looking for one. The rule stating that they must have spent 75% of their time on eligible technical activities also still applies, of course.

How is the CDAE calculated if an employee joins during the year?

When employees join during the year and they meet the 75% rule, their maximum eligible salary cap of $83,333 is prorated based on the number of days they worked in that fiscal year.

For example, if an employee is hired at the beginning of Q3 and worked 100 days before the end of the fiscal year, their salary cap will be prorated by the following ratio:  Once we apply it to the maximum cap offered by the program, we get 100/365 x $83,333 = $22,830.

 

If you have any questions about CDAE that this blog post left unanswered, or if you are considering submitting a claim, don’t hesitate to contact our team at:  1-800-500-7733, ext.102.

 

Disclaimer: The views expressed in this article are provided for informational purposes only. It is not intended to nor can it replace the evaluation of your specific e-business tax credit claim by a dedicated consultant.

SR&ED vs IRAP: Everything You Need to Know

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The National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP) and the CRA’s scientific research and experimental development tax credit (SR&ED) are two programs of major importance for Canadian innovators.  

In this article, we will examine the key similarities and differences between SR&ED and IRAP and how these programs can work together to maximize your government funding for your innovative technology project.   

Nature & Timing of Funding 

The first fundamental difference between SR&ED and IRAP is that the former is a tax credit, while the latter is a grant. This mainly affects when the funding is received from each program, but also the administrative overhead necessary to access funds, as well as the reporting requirements that come with the funding.  

A tax credit – like SR&ED – provides funding after the expenses are incurred. For Canadian Controlled Private Corporations, the SR&ED program offers a refundable tax credit disbursed after the CRA receives the claim. Therefore, SR&ED is typically less useful in cases when a business is looking to sustain their cash flow as they undertake a project.  

This is especially true when a business submits their first SR&ED claim, since the retroactive funding will not arrive until after the end of the fiscal year. However, when claiming SR&ED every year, the refund from the previous year helps sustain the cash flow for the next period.   

IRAP, on the other hand, requires monthly refund requests after the initial application is received and accepted. This means that a grant program such as IRAP is naturally more apt at sustaining a business’ cash flow while a specific project requires it. This is especially true for first-time applicants.  

Funding Amounts 

Once the federal and provincial tax credits are combined, SR&ED typically offers a refundable tax credit ranging from 54% (no provincial tax credit) to 74% (Quebec, beyond the threshold) of eligible salary expenditures to Canadian controlled private corporations. The exact tax credit rate depends on the size of the claimant company and a few other factors.  

IRAP on the other hand is a grant and its funding is allocated on a discretionary basis. A certain amount is approved with the initial application when a budget is submitted. Therefore, the final funding amount will vary depending on  the project, but typically goes up to 80% of salaries expenditures.  

Eligible Expenses 

IRAP and SR&ED share salaries as eligible expenditures, but treat them very differently. Since IRAP is a grant program and must be applied for before the project starts, applicants submit a budget which will end up dictating the amounts of funding they are entitled to receive, if accepted into the program.  

For example, ABC Corp plans to assign 2 employees to work on a project they wish to fund through IRAP. They include this in their application, and the NRC agrees to fund up to 50% of those 2 employees’ salaries. Three months later, they realize they will need an additional team member to complete the project. The additional employee who ends up working on the project will, in this example, not be covered by the initial agreement, and therefore, their salary will have to be paid by ABC Corp, with no additional support from the NRC.  

Since SR&ED is a refundable tax credit, it is able to account for all the actual costs incurred for a given project for the past fiscal year. Those costs are eligible salaries, subcontracting expenses, and other eligible expenditures related to eligible R&D activities for the SR&ED project. This may also include certain overhead expenses. 

This level of specificity is why time tracking is important for a company planning to claim SR&ED.  

Let’s consider ABC Corp again. Say they decide to forego IRAP funding altogether for simplicity’s sake – we will return to stacking IRAP & SR&ED later. They decide to attempt to claim SR&ED for their project at the end of the year instead and are tracking their employees’ time as it is spent on different tasks and projects.  

We will assume, for simplicity sake, that ABC Corp is eligible for the maximum 74% refundable credit and have 5 employees in total. 2 of them begin working on the SR&ED project, but at some point during the year a third employee joins the project. When the time comes to submit the SR&ED claim, their eligible expenses would be as follows, assuming they did not receive any other overlapping funding for the project:  

First, because they did not work on the R&D project at all, 0% of the salary of the 2 employees who did not do any experimental development work would be eligible for SR&ED.  

For the 3 remaining employees who did do eligible experimental development work, the amount of time spent on the project needs to be taken into account in order to determine which portion of their salary is eligible for SR&ED. 

According to their timesheets, at the end of the year it can be concluded that: 

  • Employee #1 worked on eligible experimental development work 75% of their time.  
  • Employee #2 worked on eligible experimental development work 50% of their time. 
  • Employee #3, who joined the project much later, worked on eligible experimental development work 25% of their time. 

Therefore: 

  • 75% of Employee #1’s salary for the claim year is eligible for a 74% refundable tax credit.  
  • 50% of Employee #2’s salary for the claim year is eligible for a 74% refundable tax credit. 
  • 25% of Employee #3’s salary for the claim year is eligible for a 74% refundable tax credit. 

Of course, SR&ED claims are never this straightforward, but this example seeks to illustrate the basic principles that guide how the eligible salaries are determined.  

SR&ED can also fund materials necessary for the project, something IRAP does not do.  

Evaluation Criteria 

While there is some overlap when it comes to the eligibility criteria of SR&ED and IRAP, there are some important differences to note. 

First, neither SR&ED nor IRAP have industry specific criteria – therefore, any company could theoretically be eligible as long as they are conducting eligible experimental development activities. 

Experimental development can look drastically different depending on the industry. Find out how to determine if your project is eligible in our blog post all about the topic here.   

This does not mean either program funds anything or everything. For example, IRAP excludes any clinical trial activities from their eligible project costs. This does not exclude pharmaceutical companies altogether but is still important to keep in mind when applying for funding.  

Furthermore, neither program formally requires a minimum number of employees or years in business in order to be eligible. That said, while SR&ED can be claimed by an individual – there is no incorporation requirement – IRAP does require the company to be incorporated, and the company generally needs to be revenue-generating as well. Businesses with more than 500 employees are not eligible for IRAP, as the program is purposed to support small and medium businesses.  

While IRAP does not require a minimum number of employees, the program’s monthly reporting requirements make it more complicated to handle for small businesses with little administrative staff. A business entirely run by its two co-founders or an otherwise very small, specialized technical staff are rarely awarded IRAP funding. Therefore, the size of the team does have an impact on the usefulness of IRAP to a specific company.  

SR&ED is usually more advantageous for such smaller teams because, while it requires diligent time tracking of all activities related to the project throughout the year, the claim is only submitted once for the whole year. 

A key difference to note between SR&ED and IRAP’s evaluation criteria is that the CRA has no return-on-investment considerations when they fund a SR&ED project. On the other hand, IRAP’s mission is to advance technology in Canada and stimulate Canada’s growth as a science and technology leader on the world stage. Therefore, eligible projects are selected much like investments. Only those with the greatest commercialization potential and that advance science and technology in a way that the NRC considers significant enough will receive funding. In this way, NRC IRAP is a competitive program – not all applicants, even if they may be eligible, receive funding.  

SR&ED is not subjective. As long as a project and related corporation/individual meet the criteria according to the law, it will be accepted – assuming the claim is submitted correctly and on time.  

Stacking  

It is perfectly possible for a company to benefit from both SR&ED and IRAP for the same project. However, a few things must be kept in mind.  

Since some eligible expenses could both be covered by SR&ED and IRAP, having received IRAP funds throughout the project would necessarily reduce the amount of the future SR&ED refund. Of course, the difference here is the timing of when the funds are received. As mentioned earlier, IRAP is better designed for supporting cash flow because of its monthly reimbursement structure, so it makes sense to apply for IRAP if increasing cash flow during the project is a primary concern. It will still be possible to submit a SR&ED claim and receive the refundable tax credit amount, but it will almost certainly be reduced by the amounts that overlap with NRC IRAP funded activities.  

Want to find out more about the best practices related to stacking funding programs? Read our dedicated blog post here.   

Stacking funding programs requires paying extra attention to the stacking limits of each program and how they interact with each other. Double-dipping – covering the same expense twice – can come with its fair share of trouble.  

This is particularly true when using IRAP as the NRC conducts a systematic audit of every application, whereas SR&ED claims do not automatically get audited.  

Have questions about the SR&ED audit process and how to prepare for it? Find out more here.  

Whether you get audited or not, you should always be ready by preparing your claim carefully and having all the necessary documentation. 

 

Disclaimer: This article is intended for informational purposes only and does not constitute professional advice.

To know more about SR&ED, IRAP and any other funding program and how your business can benefit from it, contact Mike Lee at:  1-800-500-7733, 110 mlee@rdpartners.com.  

Federal Budget 2022: Key Measures and New Funding for Canadian Innovators

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Deputy Prime Minister and Finance Minister Chrystia Freeland unveiled the 2022 Federal budget on April 7, 2022. Titled “A Plan to Grow Our Economy and Make Life More Affordable,” the budget announces a number of changes to existing programs and new initiatives to fund the development of green energy, the circular economy and Canadian innovation.

The following article offers a brief overview of some of the highlights of the 2022 Federal budget and the impact these new measures may have on innovative Canadian companies in the years to come.

Updates to the SR&ED Tax Credit 

After nearly three years of no major changes to the federal Scientific Research & Experimental Development tax credit program – the last significant modifications date back to 2019 – Budget 2022 officially announced that the program will be undergoing a formal review to find out if changes to the eligibility criteria are necessary. The review will also consider the possibility of implementing a “patent box” regime to encourage the development of innovative IP in Canada. A “patent box” essentially allows income earned from IP to be taxed at a lower rate than other business income, encouraging innovation.

This review was just announced, so we cannot be sure of its impact on the program at present. However, there are reasons to believe that any changes may expand access to the program and program funding, rather than restricting it. This is because expanding access to SR&ED was part of the Liberals platform for the 2021 election.

Learn more

Creation of an Innovation and Investment Agency

Budget 2022 announces the creation of an operationally independent federal innovation and investment agency, with a planned budget of $1 billion for its first five years of operation – starting in 2022-3. Additional details have yet to be announced, but the agency’s mandate will generally be to work with existing and new businesses in crucial industries and help them make investments necessary for their growth and increase their competitiveness.

Learn more

Creation of the Canada Growth Fund

This brand-new investment fund aims to attract private capital to Canada to encourage growth in strategic sectors and fund initiatives related to key economic goals like emissions reduction, low carbon technology development, supply chain restructuring, the development of the primary resource sector, and more. Funding will take a variety of forms, including equity, debt financing, and loan guarantees.

Learn more

Introduction of a new Investment Tax Credit for Carbon Capture, Utilization and Storage

A new refundable tax credit, effective for projects starting on or after January 1, 2022, will be introduced to offset the cost of carbon dioxide capture and storage equipment purchases. This new credit’s rates will vary between 37.5% and 60% until 2030.

Learn more

Additional Funding for the Development of Semiconductors

Innovation, Science and Economic Development Canada will receive $45 million over 4 years to engage in various activities aiming to support semiconductor projects and strengthen Canada’s place in the sector.

Learn more

Additional Funding for Canada’s Superclusters

The budget plans for an additional $750 million in funding over 6 years for the 5 innovation superclusters to support projects and foster public-private collaboration in key economic sectors. The superclusters have also been officially renamed Global Innovation Clusters moving forward.

Learn More

Read our article dedicated to the Supercluster initiative to find out more about each cluster and their programs.

Making the SME lower tax rate more accessible

Canadian small businesses already benefit from the reduced federal tax rate of 9% on their first $500,000 of taxable income, a 6% tax cut from the general 15% federal corporate tax rate. The current rule only allows businesses to access this lower corporate tax rate as long as their level of capital employed in Canada stays under $15 million.

For taxation years beginning on or after April 7, 2022 – budget day – access to the reduced tax rate will instead be phased out gradually, and only businesses with $50 million or more in employed capital in Canada will be fully excluded from the reduced rate.

The goal of this measure is to incentivize small businesses to grow and make capital investments without drastically increasing their tax burden.

Learn more

How R&D Partners can help

If you have any questions about this or other tax credit programs, do not hesitate to contact Jacob Ma at jma@rdpartners.com

Other Resources

Federal Budget Summary

Full Budget PDF

This article is intended for general informational purposes only and does not constitute professional accounting or tax advice.

2022-3 Quebec Budget: Key Takeaways for Quebec Innovators

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Finance minister Eric Girard tabled budget 2022-2023 on March 22nd, 2022. The budget includes several measures to address the rise of the cost of living for Quebec taxpayers, but also many interesting updates that innovative businesses headquartered in or with operations in the province of Quebec will want to be aware of.  

The largest spending envelope identified in this year’s budget is the $8.9 billion earmarked for the restoration and the enhancement of Quebec social services and healthcare system by 2026-2027. A $4.2 billion spending package dedicated to fueling economic growth in the province comes second. 

This article will mainly focus on identifying new or modified tax measures and how they will benefit Quebec businesses. We will also discuss some measures that have yet to be precisely defined, but are likely to lead to funding or opportunities for Quebec science and technology innovators.  

General Research and Development Investments for 2022-2027  

Within the $1.3 billion set aside by the Quebec government for the continuation of R&D efforts in the province, $500 million will be allocated to private equity funds and $100 million directly to the Impulsion PME Program. Both of these spending envelopes seek to encourage the development of even more innovative businesses in the province. (E.11) 

Find the Impulsion PME Program in our funding search engine.  

C3i Tax Credit Bonified Rates Further Extended Until December 31st 2023 

The 2021-2022 Quebec budget introduced doubled base rates for the C3i tax credit, which were initially going to apply to eligible equipment purchased between March 25, 2021 and December 31st 2022. These doubled rates are now available until December 31st 2023. This gives eligible businesses another full year to make equipment and software package purchases and benefit from the doubled tax credit rates. (E.28)  

Read our full article on the C3i tax credit to learn more about the eligibility criteria and the types of expenses that qualify here.  

Launch of a New Cybersecurity Enhancement Program  

While the budget states that details will be communicated by the appropriate bodies at a later date, we know that a total of $100 million – $30 million in 2022-3 and $70 million in 2023-4 – have been set aside for the creation of a new program to fund initiatives aiming to strengthen cybersecurity in Quebec. (E.25) 

Projects will be deployed in public bodies with the goal of helping the government ensure its digital transformation, protect citizens’ information and ready themselves in the case of cyberattacks.  

Supporting the Bio Food and Forestry Sectors 

The Financière Agricole du Québec (FADQ) will receive an additional $50 million over the next two years to continue funding eligible projects through its Growth Investment Program. Its strategic investment subsidiary known as Capital Financière Agricole will also receive $10 million more in capitalization to continue to support a variety of food processing and agri-food related innovative projects. (E.47) 

Innovation Bois, a program created to support innovation in the forestry sector, will also receive an additional $75 million in funding to increase productivity and support the sector’s diversification.  

New Biofuel and Pyrolisis Oil Production Tax Credits 

Two brand new biofuel and pyrolisis oil production tax credits will replace three previous refundable tax credits: one for the production of ethanol in Quebec, one for the production of cellulosic ethanol in Quebec, and one for the production of biodiesel fuel in Quebec. All three will expire on March 31, 2023. (F.14) 

The new tax credits’ assistance amounts will be calculated based on the carbon intensity reduction offered by the biofuel, ethanol or pyrolysis oil produced compared to the use of an equivalent quantity of regular fossil fuels. Additional details have yet to be released.  

 

How R&D Partners can help 

If you have any questions about funding for innovative companies in Quebec, do not hesitate to contact Jacob Ma at . 

 

Other Resources 

Ministère des finances du Québec 

2022 Quebec Budget: Province to Keep Spending Taps Open (TD)   

 

This article is intended for general informational purposes only and does not constitute professional accounting or tax advice.    

Funding Opportunities for Women Founders

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March 8th marks International Women’s Day, and we thought this would be a fantastic opportunity to take a closer look at a few funding opportunities from government entities, not-for-profit organizations and accelerators focused on supporting women business founders nationwide.  This article provides a summary of some significant funders and support organizations in Canada that women-owned businesses should be aware of, as well as a few specific details on some of the opportunities they offer.  

Canada-wide 

BDC: Women in Technology (WIT) Fund 

The Business Development Bank of Canada (BDC) is a crown corporation that offers various resources for entrepreneurs looking to innovate in new and existing markets. It works with small and medium-sized businesses in various stages of growth with a focus on flexible financing, advisory services, and capital. 

The BDC Capital Women in Technology (WIT) Fund is a venture capital fund entirely dedicated to investing in Canadian, women-led technology companies and helping to build a robust ecosystem to support women in tech today and in the future. This fund offers seed to series B investments to eligible businesses and provides venture partner networking and international growth opportunities. Applications are accepted on a continuous basis. 

Export Development Canada (EDC): Women in Trade Investment Program 

Export Development Canada (EDC) is a crown corporation that assists companies of all sizes with trade knowledge, financial solutions, equity, insurance, and developing connections. Its mission is to help Canadian businesses achieve success by offering financial solutions and international expertise.   

The Women in Trade Investment Program offers export support to women-led and owned companies seeking to explore  or already in international markets. This program provides resources for every stage of the exporting journey and helps participants manage risks and cashflow. EDC also offers Select Credit Insurance and access to expert advice to help exporting businesses stay competitive on the global market. Applications are accepted on a continuous basis. 

SheEO 

The SheEO Canada Fund is a federally incorporated Canadian not-for-profit. The fund is also present in Australia, the United Kingdom and New Zealand. Their business model brings together women and non-binary individuals from different backgrounds and ages (called SheEO Activators), who contribute to a Perpetual Fund that is then in turn loaned out at zero percent interest to women or non-binary individual led ventures. The program also provides networking, coaching and mentoring to the selected ventures. SheEO is not currently seeking new applicants for its portfolio at this time, but there is at least one application round per year.  

DMZ: Women Founders Bootcamp  

Based in Toronto, The DMZ is an incubator that supports innovative tech startups by connecting them with customers, capital, experts, and a community of entrepreneurs and influencers.  

The Women Founder Bootcamp is a six-week program that helps early-stage tech founders validate their business idea, establish a minimum viable product, and build a roadmap for implementation to launch a startup. The goal of the program is to help these founders increase their businesses potential and meet eligibility requirements for DMZ’s core programming. 

Quebec 

McGill Dobson: McGill Dobson Entrepreneurial Women Lean Startup 

The Dobson Centre is the hub for entrepreneurship at McGill University and brings together members of all faculties to create innovative startups in a variety of domains. Its accelerator programs are intended for McGill affiliated individuals that are currently students, alumni, faculty, or staff.  

The McGill Dobson Entrepreneurial Women Lean Startup Program is a new version of Dobson’s existing Lean Startup Program specially designed for women innovators and aspiring business founders. The 8-week program offers participants the opportunity to learn from the experiences of successful female founders, training workshops, and coaching. The goal of the program is to equip aspiring founders with frameworks that will help them develop a business plan and set realistic goals for their projects.  

At the time of publication, the deadline to apply for the next cohort of Women Lean Startup program is April 17, 2022.  

Groupe 3737: Fempreneures 

Founded in 2012, Groupe 3737 assists entrepreneurs from all backgrounds start and grow profitable business. Their services are mainly intended for immigrants and underrepresented entrepreneur groups.  

The Fempreneures program is a continuation of the Elevation program, with an emphasis on female entrepreneurship. 3737 created this program specifically for women entrepreneurs in response to the many studies showing that women remain underrepresented in entrepreneurship and face distinct challenges.  

This accelerator program mainly offers training and peer support.  

EVOL: Business Startup Loan 

Evol is supported by the Quebec Ministry of Economic Development and the Government of Canada. It supports the development, acquisition, and growth of diversified and inclusive businesses with positive impacts on society in accordance with the UN’s Sustainable Development Goals (SDGs) and seeks to contribute to the development of more diverse and sustainable businesses led by members of underrepresented groups in entrepreneurship. EVOL defines these underrepresented groups as those who identify as one or more of the following: women, racialized people, immigrants, First Nations, Inuit, LGBTQ2+ community members and people with disabilities.    

EVOL offers business startups loans  ranging from $20,000 to $75,000. Entrepreneurs applying for funding will have the opportunity to finance the acquisition of tangible and intangible assets, working capital, development and marketing of products, and more.  

Alberta 

Alberta Women Entrepreneurs (AWE)  

In 1995, Western Economic Diversification Canada (WD) identified critical gaps in access to financing and services for women entrepreneurs. To fill these gaps, WD committed funds to create Women’s Enterprise Initiatives (WEI’s) in the four western provinces, including Alberta Women Entrepreneurs (AWE). 

Alberta Women Entrepreneurs (AWE) is a not-for-profit organization that enables women to develop successful businesses. Founded in 1995, it provides advising, financing, mentoring, and networking services to women at all stages of their business ventures. 

AWE offers business loans for women-owned businesses in Alberta. It offers financing between $30 000 and $150 000 to start or grow a business, as well as business advising and access to networking with like-minded entrepreneurs. Applications are accepted on a continuous basis. 

British Columbia 

WeBC 

Similar to the Alberta Women Entrepreneurs (AWE), WeBC is also part of the Women’s Enterprise Initiatives (WEI’s). It is a not-for-profit organization that has supported women business owners across British Columbia for over 25 years. WeBC offers financing, as well as mentoring, webinars, business skills development, and advisory services. 

WeBC offers business loans for women small business owners.  It provides funding of up to $150 000 with various repayment options and terms of up to 5 years. Loans can be used for leasehold improvements, equipment, operating capital, and more. Applications are accepted on a continuous basis. 

Funding Opportunities for Black-Owned Businesses

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To celebrate Black History month in Canada, we took a closer look at a few funding opportunities from government organization, public-private partnerships and non-profits specifically intended for black and other minority business owners across the country. This article offers an overview of some key funders and support organizations Black business founders in Canada should know about as well as some details on some of the opportunities they offer.  

Futurpreneur Canada: Black Entrepreneur Startup Program  

Futurpreneur is a non-profit organization that offers financing, mentoring and support tools to business owners aged between 18 to 39 years old. 

The Black Entrepreneur Startup program provides startup loan financing from $5,000 to $60,000 and up to two years of one-on-one expert mentorship. Recipients also have access to resources and the opportunity to engage with a national network of Black entrepreneurs, leaders and Black-led community organizations at a variety of entrepreneurship events.  

This program is funded by the Royal Bank of Canada (RBC) and BDC.  

The FACE Coalition: Entrepreneurship Loan Fund 

The FACE coalition is a Black-led non-profit organization focused on providing resources and information to the Black community across Canada. They support sustainable economic initiatives and help develop strategic partnerships to accelerate the creation of generational wealth in Canada’s Black communities. The Black Entrepreneurship Loan Fund was created to provide funding for Black business owners seeking investments, working capital, or additional resources to expand their businesses.  

The fund offers micro and macro loans to eligible entrepreneurs. The micro loans are administered by Vancity Credit Union and Alterna Savings and are available in Ontario and British Columbia. Their macro loans, on the other hand, are funded by BDC and the Government of Canada and are available across the country. Macro loan amounts range from $25,000 to $250,000 and principal payments can be deferred for up to a year. 

This loan fund was created as a part of the Government of Canada’s Black Entrepreneurship Program.  

EVOL: Business Financing

Evol is an organization financially supported by the Quebec Ministry of Economic Development and the Government of Canada. It supports the development, acquisition, and growth of diversified and inclusive businesses with positive impacts in accordance with the UN’s Sustainable Development Goals (SDGs) and seeks to contribute to the development of more diverse and sustainable businesses. With a combination of financing and personalized guidance, as well as adapted complementary services, EVOL supports under-represented groups in entrepreneurship and their businesses. EVOL defines these underrepresented groups as those who identify as one or more of the following: women, racialized people, immigrants, First Nations, Inuit, LGBTQ2+ community and people with disabilities.  

EVOL offers two business lending options: startup loans ranging from $20,000 to $75,000, and growth and acquisition project loans offering between $20,000 and $450,000 in repayable financing.  

Afro Caribbean Business Network Foundation: Micro Loan Fund

The Afro Caribbean Business Network Foundation supports African and Caribbean entrepreneurs with their business projects. They develop funding programs and compile tools and resources to help all kinds of entrepreneurs. Their network of experts also provides assistance for all stages of business planning and development. 

Their Microloan Fund offers low interest loans to African and Caribbean. The program offers micro-loans ranging between $500 and $2,500.   

DMZ: Black innovation fellowship

DMZ supports several technology incubator and accelerator programs around the world. Their programs support tech startups by offering them expert mentoring, access to capital and a community of entrepreneurs and influencers. 

Their incubator program supports early-stage tech startups by helping them start their business in earnest. Startups join with a minimum viable product and some form of market validation, and over the course of 8 to 12 months receive the hands-on support needed to further develop their product, build their team and create a sales strategy.  

The Black Innovation Fellowship offers a number of added benefits and opportunities in addition to the incubator’s regular programming and is specifically destined for black tech startup founders. These opportunities include tailored workshops, exclusive marketing and networking opportunities and dedicated support from DMZ’s Black Innovation Programs staff.  

Overview of Quebec’s C3i Tax Credit for Investment and Innovation

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The Quebec provincial government first introduced the Tax Credit for Investment and Innovation – or C3i for short – in its March 2020 budget. It was initially intended as a replacement for prior investment and innovation tax credits, with more advantageous rates and broader eligibility.  

This article offers an overview of the tax credit’s criteria, reimbursement rates and other relevant details. It will also examine the changes the 2021-2 Budget introduced to the tax credit in response to the COVID-19 pandemic to further support economic revitalization and recovery.  

Company Eligibility 

The C3i tax credit is not restricted by industry – with a few notable exceptions we will touch on later. Its first stated goal is to encourage the purchase of manufacturing and processing equipment. It can also be used to purchase enterprise resource management software packages – ERP for short – and computers. The broader goal is to help Quebec businesses digitize their operations and modernize their equipment, and accelerate these investment projects by reducing the financial burden on the corporations that undertake them.   

Quebec “qualified corporations” – that is corporations carrying business and with an establishment in the province – are eligible for this credit. A few exceptions apply to certain aluminum producers and oil companies. Additionally, certain businesses engaged in partnerships that operate aluminum production sites or oil refineries may not qualify either.  

All businesses in Quebec are eligible regardless of location, but the economic vitality index for each region affects tax credit rates under this program. This means that businesses in more economically developed areas will have lower tax credit rates, and those in economically underdeveloped areas will have higher tax credit rates. We will examine these different rates in detail below.  

Tax Credit Rates 

Businesses with assets and gross income below $50 million can benefit from a fully refundable tax credit. Those with assets and gross income exceeding $100 million are instead eligible for a non-refundable tax credit. Finally, the C3i tax credit is partially refundable for businesses that fall in between the $50 and $100 million thresholds.  

As mentioned earlier, businesses located in areas considered to have “low economic vitality” are eligible for higher tax credit rates. Those areas are those with an economic vitality index amongst the lowest 25% in the province. The complete list of regions eligible for the highest tax credit rate, as well as a map showing the original tax credit rate for each administrative region of Quebec can be found in section C-42-43 of Budget 2020. Three new territories can also qualify as having low economic vitality for eligible purchases made after June 2021: Le Domaine-du-Roy, Maskinongé and Papineau. 

It is important to note the difference between the original tax credit rates that came with the tax credit’s original 2020 Budget announcement, and the temporarily bonified rates announced in the 2021 budget in response to the COVID-19 pandemic. The bonified rate is simply double the original rate.  

All eligible equipment purchased outside of the bonified tax credit rate period (March 25, 2021 to January 1, 2023 exclusively) will still be eligible for the tax credit at its original non–bonified rates – as long as it is purchased before January 1, 2025, the current final end date for this tax credit. At the time of publication, eligible businesses have a little bit less than a year to purchase equipment and software that will qualify for the bonified rates. 

Expenses 

All eligible equipment must have been purchased after March 2020, but before January 2025 in order to qualify for the tax credit.  

However, two exclusion thresholds apply. For manufacturing and processing equipment, only expenses in excess of $12,500 are eligible for the tax credit. A lower minimum $5,000 expense threshold applies to computer hardware and management software packages purchases.  

Businesses claiming the C3i credit are also subject to an overall $100,000 cap on eligible expenses over five years.  

C3i’s Interaction with Other Tax Credits  

First, the new C3i fully replaces the tax credit for the integration of IT in SMBs. This older tax credit was retired because ERP software packages are covered under the C3i. Expenses incurred on or after January 1st, 2021, are no longer eligible for the integration of IT in SMBs tax credit.  

The other tax credit that the C3i partially or fully replaces, depending on a business’s situation, is the tax credit for investments relating to manufacturing and processing equipment – ITC for short. Unlike the tax credit for the integration of IT in SMBs, however, the ITC tax credit remains available to businesses in specific resource regions at rates ranging from 4% to 24%. The businesses that are still eligible for the ITC will have the choice to continue using that tax credit for the time being or switch over to the new C3i credit. Businesses that are eligible for both will need to examine their specific circumstances and identify which credit maximizes their government funding.  

 

To find the C3i tax credit on our free, AI-powered funding search engine, click here.  

 

How R&D Partners can help

If you have any questions about this or other tax credit programs, do not hesitate to contact Dominik Klein at dklein@rdpartners.com, or at 1-800-500-7733 ext. 103.

Further Reading: 

2020-1 budget PDF  

2021-2 budget PDF  

 

This article is intended for general informational purposes only and does not constitute professional accounting or tax advice.  

Enhancements to Quebec’s University Research R&D Tax Credit

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Two major changes to the University Research Tax Credit were announced in the latest Quebec budget in March 2021. These changes will make the credit more accessible and advantageous for startups and smaller research projects.

In this article, we will go over the tax credit basics, changes recently announced, and the impact on your next university research tax credit claims.

You can also read this previous article for more details on incentives found in the 2021 Quebec budget.

University Research Tax Credit Basics

The Tax Credit for University Research or Research Carried out by a Public Research Centre or a Research Consortium – more commonly referred to as the University Research Tax Credit – is one of the four components of Quebec’s provincial research and development tax credit. The other three components are the Tax Credit for Salaries and Wages (R&D), the Tax Credit for Private Partnership Pre-Competitive Research, and the Tax Credit for Fees and Dues paid to a Research Consortium.

Eligible expenses for the University Research Tax Credit are limited to cash payments made to a university or research center acting as a first-level subcontractor. To be considered a first-level subcontractor, the university or research center must undertake the research themselves, meaning they cannot subcontract the research activities.

The reimbursement rates for all four components of the Quebec R&D Tax Credit were standardized in 2014. The maximum rate now varies between 14% and 30% depending on the status and size of the company. The maximum rate of 30% is for Canadian Controlled Corporations with less than $50 million in assets. This article describes the changes announced in 2014 in more detail.

The advantage of the University Research Tax Credit is a higher inclusion rates for subcontractor expenditure (80%) in comparison to the inclusion rate under the more traditional Tax Credit for Salaries and Wages (50%). For a company at the 30% refundable tax credit rate, this can make quite the difference.

Finally, the work undertaken must be eligible R&D work.  Moreover, the main researcher on the project cannot be named as a party in the contract and the company that subcontracts the research work must hold at least some rights to the research undertaken.

University Research Tax Credit Changes

First, the 2021-22 Quebec budget abolished the requirement to obtain a favourable advanced ruling (“décision anticipée”) from Revenu Québec regarding the eligibility of the research contract to claim the tax credit. This requirement was removed primarily to reduce the administrative burden on firms looking to benefit from the measure.

Previously, the need to obtain a favourable advanced ruling cost $318 plus tax in application fees paid to Revenu Québec. Besides the direct fees, the time invested in preparing all the documents required for the advanced ruling was considerable. For some prospective applicants, after all the fees, the time spent preparing the documentation, the excluded amounts, and their effective refund rate, the cost of the application outweighed the benefits.

While the reduction of the administrative burden for applicants is a net positive – especially for smaller firms and earlier stage companies – the eligibility criteria previously verified at the advanced ruling stage have not been lifted. The same documentation will be required in event of audit.

Second, Revenu Quebec has also abolished its exclusion limit when it comes to the University Research Tax Credit for fiscal years beginning after March 2020. The exclusion limit previously made the first $50,000 spent on otherwise eligible R&D expenditures ineligible for tax assistance from Revenu Québec for companies with assets below $50 million. The threshold limit could be as high as $225,000 when the company’s assets were $75 million or more.

This exclusion previously applied to all four components of the Quebec R&D tax credit. With this change, it no longer applies to the University Research Tax Credit, but remains in place for the other three components of the Quebec R&D Tax Credit. This provides an even further incentive to claim the University Research Tax Credit in comparison to the other Quebec R&D tax Credits.

This change is also beneficial for businesses claiming other Quebec R&D Tax Credits in combination with the University Research Tax Credit. This is due to the fact that the total exclusion amount remains proportionately divided among the Quebec R&D Tax Credits the business claims, and then the portion associated with the University Research Tax Credit effectively gets discarded.


 

How R&D Partners can help

If you have any questions about this or other tax credit programs, do not hesitate to contact Dominik Klein at dklein@rdpartners.com, or at 1-800-500-7733 ext. 103.

Further reading:

2021-2022 Quebec Provincial Budget (in French only): http://www.budget.finances.gouv.qc.ca/budget/2021-2022/fr/documents/Budget2122_RenseignementsAdd.pdf

Quebec’s Tax Credits for Scientific Research and Experimental Development: https://www.revenuquebec.ca/en/citizens/tax-credits/tax-credits-for-scientific-research-and-experimental-development-rd/

 

Disclaimer: This article is for informational and general guidance purposes only.

Funding Opportunities for Sustainable and Connected Vehicles Innovation

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As one of the world’s leading vehicle manufacturing regions, Canada makes significant efforts to remain on the cutting edge of innovative automotive technologies.  

Canada leverages its innovation clusters and new ideas that emerge from startups, national, and international firms in Canada to revolutionize transportation and automotive technologies. The areas of focus include quantum technologies, AI, clean technologies, and advanced manufacturing. 

Several government agencies and not-for-profits across Canada focus on advancing greener transportation technologies, while others offer incentives that aid in the growth and development of automotive innovations.  

Below are some key sponsors interested in connected, sustainable, and autonomous vehicles in Quebec and Ontario that one should keep in mind when looking for funding. Within each funding program sponsor, we will highlight the flagship program(s) and sought benefits.  

Quebec
  

Quebec Ministry of Economy and Innovation (MEI) 

The Quebec Ministry of Economy and Innovation offers funding programs and partners with other sponsors to further accelerate scientific and technological advancements in Quebec. The Ministry emphasizes the importance of research and innovation and assists organizations dedicated to the promotion, development, and transfer of research and innovation.  

Call for Proposals in the Demonstration of Sustainable Transport Technologies  

This call for proposals plans to offer $6.5 million in grants over a five-year period to support SMEs within Quebec to carry out demonstration projects that showcase their land transport and sustainable mobility technologies.  

Eligible projects must develop a new product or process that has a significant advantage over existing solutions – or significantly improves current products and processes – and be undertaken in collaboration with a city or transportation company within Quebec. 

The grants offered through this program can subsidize up to 50% of project costs – up to a total contribution of $350,000 – and eligible projects may be no longer than 18 months in duration. 

Program details are currently only available in French, and the next deadline to apply is November 17th, 2021.  

This specific call for proposals is also part of the Quebec government’s larger Sustainable Mobility Policy for 2018-2030 (in French only).  

Ontario

Autonomous Vehicle Innovation Network (AVIN) 

The Ontario provincial government has dedicated significant resources to the development of the automotive industry, specifically for innovations related to autonomous vehicles.  

Ontario’s Autonomous Vehicle Innovation Network is dedicated to developing the economic potential of automotive and smart mobility innovations with the potential to radically change transportation methods and the related infrastructure.  

Through AVIN and the larger “Driving Prosperity” initiative, the Government of Ontario has dedicated $85 million to help Ontario SMEs develop, test, and commercialize mobility technologies for the future. This funding broadly supports research and development, talent acquisition, innovative initiatives, and more.  

AVIN directly offers several funding and support programs, but also partners with other organizations within Ontario to deliver targeted support for specific projects.  

AV Research and Development (R&D) Partnership Fund 

This program is divided into two streams and offers co-investment opportunities of up to 33.3% of project costs. Stream 1 offers up to $100,000 in total funding, while Stream 2 can offer a maximum of $1 million, as well as includes costs for hiring an intern as part of the project.  

Both streams are intended for projects developing connected and autonomous vehicles technology beyond the feasibility study stage and require the collaboration of at least one lead applicant and a partner. Ontario SMEs, Canadian or foreign corporations, municipalities, indigenous communities, not-for-profits, and post-secondary institutions are eligible applicants or partners for both streams. Publicly funded post-secondary institutions cannot act as the lead applicant for stream 2.  

AVIN Waterloo Ventures 

AVIN funds this program in partnership with Communitech and other partners. It is specifically designed to fund innovations in the fields of self-healing and high-definition maps that facilitate mobility.  

This program is intended for Ontario startups and scale-ups (500 employees or less) and offers grants of up to $50,000 to selected applicants. In addition to grant funding, the program also offers expert support and coaching to facilitate the development of a working prototype or improve the product in order to create additional market traction.  

Canada Wide
 

Sustainable Development Technologies Canada (SDTC) 

This National Canadian foundation was created by the federal government to help foster the growth of the clean technologies sector in Canada and promote environmental sustainability. Since its inception in 2001, SDTC has injected nearly $1.4 billion into 460 Canadian clean technologies companies and helped create over 16,000 jobs nationwide. 

Clean Tech Fund  

This fund provides grant financing to develop promising clean technology development and demonstration projects led by start-ups or scale-ups. The technology itself must be beyond the proof-of-concept stage, but not yet commercialized. The technology must also demonstrate a potential for GHG emissions reductions, reductions in water consumption and/or the reduction of water, soil or air contamination levels. The project must have demonstrated environmental and economic benefits for Canadians. These grants can subsidize up to $4 million or 40% of eligible project costs, with an average contribution of $3 million. 

The Clean Tech Fund’s portfolio of funded companies currently includes sectors ranging from agriculture and forestry to power generation and transportation. In the transportation sector, current accepted projects are also varied and show the wide range of the applications of new technologies to make the automotive and transportation sectors more sustainable: projects related to lithium-ion batteries, fleet management and route planning solutions, hybrid heavy vehicles and motion sensors for autonomous vehicles all qualified for the program!  

Applications for this program are accepted on a rolling basis, with five approval rounds per year. 

How R&D Partners can help   

If you have any questions about the programs we mentioned above, do not hesitate to contact Dominik Klein at dklein@rdpartners.com, or at 1-800-500-7733 ext. 103 

 

SR&ED Frequently Asked Questions, Answered by R&D Partners Experts

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Introduction

The federal scientific research and experimental development (SR&ED) tax incentive program (ITC) is one of the most generous in the world. As the largest federal funding program in support of business R&D in Canada, it awards more than $3 billion annually to companies that conduct eligible R&D activities. Compared to other programs, SR&ED is particularly accessible since it is industry agnostic and does not require businesses to be revenue-generating to be eligible for funding. However, its application process can often seem daunting – especially for new claimants – and its requirements are not always clearly understood.

We get questions about SR&ED all the time, so we decided to round up some of the more common ones and have the experts on our team answer them.

The Experts

Debbie Frail, P. Eng., MBA

Debbie has spent her professional career managing engineering, operations, and project teams in several technology fields. For over 20 years, she has successfully worked with clients ranging from entrepreneurs to multinational corporations to prepare and defend SR&ED tax credit claims. Debbie works primarily in the manufacturing, automation, and transportation sectors.

Patrick Campana , P. Eng., MBA

Patrick has been managing engineering and project teams in several technology fields for over 18 years. Patrick specializes in preparing and defending SR&ED tax credit claims for companies of all sizes operating in the telecommunications, software, and manufacturing sectors.

The Questions

How do I know if my project is eligible for SR&ED?

Patrick: SR&ED eligibility is based on a fundamental question: are you solving a technological uncertainty? If the current state-of-the-art technology available to you does not allow you to reach your technological objectives with a straightforward and known approach, your project is likely eligible for SR&ED tax incentives. However, the answer may not be that easy to ascertain depending on the situation.

Beyond technology specific criteria, the company’s size and experience in the field must be considered. Companies with extensive proprietary knowledge may have to push their experimental development efforts further than a less experimented company might need to do to qualify for the SR&ED program.  Conversely, a small company entering an unfamiliar area of technology for them may need to first go through a learning curve before reaching the state-of-the-art level of competency from where they can start working with the SR&ED program.

Ultimately, there is no one-size-fits all answer here, and each project still has to be evaluated on a case-by-case basis to determine eligibility.

Want to know more about how to evaluate your eligibility for SR&ED? Read one of our previous articles all about the topic here. 

What is the key to a successful SR&ED audit?   

Debbie: First, proper documentation is key. Keeping accurate time sheets and recording material and sub-contracting expenses is essential to a successful SR&ED claim.  Additional substantiating documentation to demonstrate the work done is also important. This can include records of tests carried out, analysis of results and conclusions made, meeting minutes, invoices, correspondence, modifications made to prototypes, and other contemporaneous information that can support the claim.

Additionally, it is important to be well prepared and knowledgeable as to the SR&ED program technical and financial tax requirements. For example, you can only claim the portion of an employee’s salary that is proportional to the amount of time they spent on eligible SR&ED activities – and not their entire salary for the year – unless they spent at least 90% of their time on activities that are eligible for SR&ED.

Want to know more about SR&ED audits and how to face them? Read our article dedicated to the subject here. 

What is the best way to track my project activities?

Patrick: The CRA doesn’t ask for any specific ways to track the project. The most important thing is to always have dated documentation, and there are a few ways to make it as simple and useful as possible.

Tracking individual tasks with a project management tool like Jira is not always the most helpful: this keeps the focus on low-level individual tasks and often lacks linkages to claimed SR&ED activities. Using an overall project map that gives a bird’s eye view of the project – its stages, who is assigned to which tasks and the general timeline – can be a simple and very useful tool. It can help anyone who is not familiar with your project – like a CRA auditor – understand it as a whole.  It is also a valuable resource to identify and justify which expenses can be claimed.

How should SR&ED program time be tracked? 

Debbie: You can only claim the salaries directly related to SR&ED eligible activities. This would exclude work that does not directly support experimental development, such as routine software development and routine quality control testing. It is important to track both eligible and non-eligible SR&ED program time to ensure you can demonstrate full work periods, and also to enable you to reclassify time in the event eligible SR&ED program time was improperly classified.

The worst way to track your time is of course to not track it at all: it often leads to either a refusal or underestimation of the time spent on eligible SR&ED work. This means that you are potentially losing money you could have been entitled to.

We recommend and work with three different kinds of time tracking systems: 1) intelligent spreadsheets we have developed for very small R&D teams; 2) our very popular, automated pull time tracking solution (contact us for a demo!) that requires very little training or work; and 3) established, customized web and ERP time tracking tools. This last option works best in large enterprises with well installed systems and methods.

How do I differentiate between SR&ED hours and non-SR&ED hours in my timesheets? 

Patrick: In most cases, it is not productive to ask individual contributors to classify their work as SR&ED or non-SR&ED in their timesheets, unless a project can be clearly circumscribed and identified as SR&ED work ahead of time.

Often, when a project encompasses both SR&ED and non-SR&ED activities, the final distinction can only be made retroactively, once one can determine what work went beyond the current state-of-the-art in an attempt to solve a technological uncertainty. Therefore, the important thing is to consistently label activities so they can later be easily retrieved and included in your SR&ED claim.

Artifacts naturally generated throughout the duration of the project – if they are dated and identify contributors and associated labels, will efficiently corroborate timesheet data down the road.

What is the best way to track my material expenses? 

Debbie: We often suggest that clients set up specific G/L codes for material and sub-contracting expenses that are related to a SR&ED claim in their internal accounting system. Tagging them and keeping track for when the claim is filed – and in case of audit – is crucial.

What should I do if I already received government funding for the project? Am I still eligible for SR&ED?

Debbie: Yes, you are still likely eligible for SR&ED even if you received other government funding – a grant, for example – for your project. However, you have to be aware of the stacking limits and of how the government aid you received or are expected to receive could reduce your eligible SR&ED expenses – or even your ability to claim the SR&ED tax credit.

The important element is understanding the stacking limits of every source of government funding, as well as the allowable interactions between these sources of funding.  Generally, more funding and funding programs are preferable. However, the cost of applying for, tracking, and reporting on the funding programs should be taken into consideration, as at some point additional funding programs will have diminishing or negative net funding returns.

Want to find out more about what to keep in mind when you apply for potentially competing government funding programs? Read our blog post all about it here. 

 

If you have any questions about SR&ED that this blog post left unanswered, or if you are considering submitting a SR&ED claim, don’t hesitate to contact our team at:  1-800-500-7733, ext.2

 

Disclaimer: The views expressed in this article are provided for informational purposes only. It is not intended to nor can it replace the evaluation of your specific SR&ED claim by a dedicated consultant.