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bhouston

This post is a load of shit, serious shit.

Claim 1: > Promotes excessive executive compensation

You can not claim executive compensation in a SRED claim. If you do it is fraud.

It is an excluded expense see here:

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/ttlqlfdsrdxp...

Claim 2: > We’re paying foreign entities to take IP and profits out of Canada. Not a very good use of taxpayer dollars, is it?

Actually that is illegal, see this:

http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/ttlqlfdsrdxp...

Claim 3: > Removes emphasis on sustainable growth

It isn't meant to be sustainable, it is mean to fund the initial R&D in something that is risky. As you grow, and you slow down R&D, yes it gets smaller -- by design.

This is a really weird post and seems to be spreading FUD.

SRED is not a perfect program, but the main faults outlined in this article are complete wrong.

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Hi there. Claim 1 is not incorrect. I am not stating executive compensation is used to claim SR&ED. I am stating it is used to suppress net profits to qualify for the higher rate. Also,

Claim 2, there is no requirement for IP to be owned by the Canadian entity for its development to be qualified for SR&ED (I’ve verified this from multiple accountants and the CRA).

As for Claim 3, you realize that this is indefinite right?

If you say these are major issues, how often have you seen these two instances in the real world as a percentage of total SRED claims? Are these theoretical concerns or do you know that these are very serious practical concerns about SRED?

Regarding Claim 1, you are advocating that company will sacrifice its growth in order to live off of SRED. The larger one’s SRED claims and the larger they are in respect to total expenditures, the more likely to gain scrutiny and audits. I’ve been SRED audited, it isn’t fun. If a company could make $1M, why couldn’t it make $2M? This seems like a contrived scenario.

Regarding Claim 2, if a company is not going to act in its own best interests, it doesn’t matter who owns the IP. The company could license it for nothing to other companies even if it owned the IP.

In both scenarios you are outlining companies acting against their own best interests. Maybe it is possible, but it doesn’t seem like a very common case. Do you have numbers to back it up, or just the theoretical possibility that it could technically happen?

Yes, it happens a LOT. I can't point fingers (it's not polite, and I'm Canadian), but it's what prompted me to write the article.

And yes, it does matter who owns the IP. If a sale happens, the proceeds to to the residing country's tax base. If it's not in Canada, we lose out on those gains.

Ownership of IP doesn't matter if the licensing of the IP is made in unrestricted or exclusive fashions.

Why can't you point fingers? If you know this is happening, which is supposed to be illegal, then blow the whistle.

Because it's not illegal as my post points out. It's a flaw in the structure.

So? Nobody says that you're supposed to claim they're breaking the law. You're just pointing out a company abusing the law.

> Regarding Claim 1, you are advocating that company will sacrifice its growth in order to live off of SRED.

SRED zombies are a real thing. Companies that should otherwise fold keep living on. It's not that they are sacrificing growth, they are tying up productive resources.

https://twitter.com/tobi/status/369180245972090880

Agreed, this post is nonsense. The author should consider doing research before forming & posting such opinions.

Executive compensation is not included in SR&ED. Even if you're a CEO who codes, only the time you spend coding can be claimed. The salary claimable is capped at $100K (I believe) for any major shareholders (or family members).

It is also well established that whoever owns the IP gets the SR&ED credits and foreign companies are not eligible for SR&ED.

The article isn't saying you can claim executive compensation for SR&ED. He's saying that the SR&ED tiers are tied to net profits, which executive compensation counts against. So you can increase CEO pay to push more of your profits into higher SR&ED tiers.

And what the rest of us are saying is that executive compensation is excluded from the computation of net profits (when calculating net profits for SRED purposes) except to the extent that the executive's compensation directly relates to SRED activities (i.e., R&D, etc.). The idea behind the exception being not to penalize small companies where the major R&D driver may also be an executive.

Any evidence for that? The link he provided simply says that executive compensation doesn't count as SR&ED expenditures for the purpose of determining the amount of R&D expenditure that qualifies for reimbursement. So far as I can tell, it says nothing about the definition of net income, and the definition of net income for the purpose of the qualifying income limit is simply the normal taxation one that allows you to deduct executive pay.

You are incorrect.

I agree, bhouston. I thought this post was wrong so I sent it to my Canadian counterparts, and they confirmed that the OP definitely misstated how SRED works. Flagged as inaccurate since this article risks spreading woefully incorrect information.

Your Canadian counterparts are incorrect, or they must not have read the post clearly. You are in fact able to deduct executive compensation against net income. You CANNOT claim excessive executive compensation for your SR&ED expenditures, but that is NOT what I'm indicating. If your counterparts still claim that this is not the case, they are pretty sh*tty accountants.

Yeah, we agree. My statement is that only the portion of executive comp that can be allocable to SRED expenditures can be deducted, which is what you're also saying. The key term is "excessive"--for SRED purposes, executive comp is excessive to the extent it does not relate to SRED expenditures.

But go ahead and call people names on the internet. It makes you seem like a true authority on the matter.

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