Beginning in 2014, a number of changes have come into effect for the SR&ED program that will affect how claims are developed and the overall tax credits. We want to highlight not only the key changes, but how you can plan to minimize the effects.
Changes to the T661 Form:
- A new section has been added requesting information on who assisted with the preparation of the claim and the billing arrangement. The most important change to note is that non-compliance for this section will come with a $1,000 fine. We assure you that we will complete it accurately and ensure the appropriate pages are signed.
- The wording and order for the technical requirements section has undergone some minor changes. This will mean some changes to the way the SR&ED projects are described and some word count adjustments but you can leave that to us.
Changes to the eligible costs and credit amounts:
- The proxy overhead rate drops further from 60% to 55% of eligible SR&ED costs.
- Capital and lease costs are no longer eligible to claim.
- The Federal SR&ED rate for large corporations’ drops from 20% to 15%.
So how can companies plan to mitigate the effects of these changes:
- Companies that incur significant overhead on their SR&ED activities should consider using the traditional method of overhead allocation as this may be more advantageous. Of course, this does require good documentation for these overhead costs.
- Ensure your SR&ED provider is completing the newest version of the T661 including the preparer information and that you sign it.
- Consider hiring employees over contractors to realize the proxy amount. Putting an R&D employee on payroll, rather than paying them as a contractor, almost doubles the amount of SR&ED credits.
- Work with your accountant to maintain CCPC status and avoid the large company rate (35% vs. 15%).
- Document well. Support any eligible costs with good, contemporaneous documentation to protect your claim.