Important SR&ED Update and Status Report: Webinar & Briefing Note Available
October 9, 2012

++ Action Item: CATA’s Sr. VP of Tax, Finance & Advocacy, Russ Roberts joined moderators David Sabina, MEUK / RDBASE Consortium and Dominic Ioannoni, CRA Research Technology to lead a comprehensive SR&ED Update and status report.

You can view the SR&ED Webinar, that among other topics, discusses:   

o   Jenkins and other government studies – survey on issues
o   Recent tax court cases – CCPC status or Adequate documentation
o   Proposed restrictions on contingency fees by consultants &
o   Analysis of how these issues are dealt with internationally

The Webinar is supported by a Briefing note (see overview below) with numerous hot links to key documents.

To receive this material, members can request the briefing note and Webinar URL from CATA, CEO, John Reid at jreid@cata.ca  Dr. Roberts is available to respond to any questions that you have regarding the materials provided.

SRED Practitioners Group (Hamilton) Briefing Note Overview

A) March 29, 2012 Federal budget - Science & Technology (S&T) funding changes..................6

S&T / SR&ED Survey responses......................................................................................8

1) Refund of ITC’s to large & foreign companies (full or partial)........................9

2) Concentrate new funds on 4 key industries “strategic clusters”.......................9

3) Restrict eligible costs to labour only vs. materials & capital...........................11

4) Shift funding from SR&ED tax credits to direct (grants, contracts & VC)...14

5) Reduce filing deadline to 6 (vs. 18 months).........................................17

6) CRA continue to administer technological eligibility vs. new "NRC" based

agency...............................................19

B) S&T Policy Issues NOT directly (or fully) addressed ............................21

1) Macro vs. Micro Economics –benefit of every $ invested .....................21

2) US vs. Canada – collaboration vs. confrontation.................................21

3) Regulation of fees for consultant support..........................................24

C) SR&ED  issues & recommendations on CRA administration ....................27

1) Ombudsman report ...........27

2) Related - Administration of the SR&ED program by the CRA......................30

CRA SR&ED Directorate -  top 5 program problems (Jan 11, 2012)................ 30

Technological eligibility recommendations – 2 steps ....................... 30

Financial eligibility recommendations – 1 step............................................ 30

D) Commercialization – new focus & options...............................................32

SME and large firm – collaboration for commercialization...............................32

Crowd funding for SME’s – follow US model? ..............................................35

2012-....................................................37

Summary of SR&ED changes......................................37

What was not said – items for 2013+ budgets...........................37

NWMM – Federal Budget, March 29, 2012 ................................38

2012-3: Recent SR&ED tax cases & related issue(s) ..................40

Murray Arlin Dentistry PC – adequate documentation .................40

Ruling & rationale: loss due to lack of documentation ................ 40

Hamilton Region SR&ED Practitioners Group            

What is a “hypotheses” for SR&ED ..........................................43

Null hypothesis.....................................................................43

Principle..............................................................................43

Testing for differences...........................................................43

Example .............................................................................43

Directionality .......................................................................43

The testing process...............................................................44

Common test statistics................................................ ..........45

Sample size .........................................................................45

Arlin case revisited– application of null hypotheses  .....................46

2012 Provincial SR&ED updates .....................................................48

2012-4......................................................................................50

International R&D Tax Credits.....................................................50

Definition of Qualified Activities via Eligible Projects (Scientific Method)..50

Phase 0: Defining Eligible Fields of Science or Technology................... 51

Phase 1: Objectives Beyond “Standard Practice” .............................. 52

Phase 2: Variables of Technological Uncertainty................................ 52

Phase 3: Process of “Systematic” Experimentation ............................ 53

Putting it all together – The Project Template......... 54

Comparing R&D Funding by Country...................................................56

Government Funding of Business R&D - Direct vs. Tax Credits ... 58

Contingent Fees Charged by R&D Tax Consultants ...............................60

Canada contemplating regulation of fees for consultant support..............60

US Perspective - Ryan LLC Challenge to IRS Legality of Contingent Fees...61

Recent SR&ED Tax Cases & Related Issue(s)........................................63

Bagtech (PWC Trustee) -.................................................................63

CCPC Status with > 50% Foreign Shareholders ....................................63

Ruling & Rationale: win USA breaks control......................................... 63

Questions or feedback ....................................................................65

Ps A Note from the Desk of CATA CEO, John Reid
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