SR&ED is different in 2021

What has changed in SRED in 2021?  Lots!

The CEWS Program is a huge change which will affect SRED claims in 2020, 2021 and 2022.  CEWS grinds down the salary component of SRED by 65%.  Despite being headcount and salary based, proxy is not affected by CEWS grind.  Neither are materials or subcontracts.  Companies who can’t decide if they should accept both CEWS and SRED subsidies need to know that they should always claim all subsidies possible.  In the case of CEWS, they will receive 100 cents on the dollar of the CEWS benefits they receive.  SRED expenditures, not credits, are ground down by overlapping CEWS subsidies.  At worst, CEWS will grind down 65% of a SRED claim.  Proxy, materials and overhead are never impacted.

What else is new in SRED?  Alberta has cancelled its provincial SRED program for company year ends after January 1, 2020.  Because most companies have a December 31 YE, the impact of the Alberta SRED cancellation will be felt by most companies in the first half of 2021 as they prepare to file their 2020 T2 + SRED.  It may be worth it for companies without large fixed infrastructure in place to consider moving out of Alberta to a SRED-friendly province.  Manitoba, which has 15% credits for both ccpc’s and large corporations may be worth a look.  BC, right next door, has 10% refundable credits for both ccpcs and large corporations.  The provincial credits are a significant portion of a company’s overall SRED funding.  In Manitoba for instance, the provincial SRED funding represents 30% of total SRED funding for a CCPC while for a large corporation it is even more significant, clocking in at 50% of the total SRED funds received!

It’s strange how in the US it is commonplace for companies to be domiciled in Deleware for some fairly obscure advantages regarding business law planning in a corporate friendly jurisdiction.  Contrast the US corporate mobility with Canada’s lack of mobility.  Who has heard of a corporation moving provinces to reap millions of dollars of benefits in additional SRED funding?! I’m not aware of any companies doing it!

What else has changed in SRED in 2021?  The federal government put in place a positive change for CCPCs about a year and a half ago to stop means testing companies’ receipt of the 35% refundable ITC.  Prior to this change, when a company’s prior year net income exceeded $800K, the current year SRED claim for the CCPC attracted only 15% non-refundable ITCs and the OITC was ground down to zero.  After the positive SRED change, the ccpc’s OITC will still be reduced to zero when prior year net income exceeds $800K.  BUT, their 35% refundable ITC federal credits will not be impacted negatively in any way.  This is a large positive change for the SRED programs which helps CCPC’s nationwide.

The final change we will talk about goes back 3 years.  The new widespread use of the FTCAS program has widespread implications for SRED planning.  Now, companies that are not first time claimants of SRED will have much less chance of having their claims reviewed in a given year by the CRA.  This is because the CRA has decided to focus so much of its’ audit resources on first time claimants, both via regular audits and through the increased use of the First Time Claimant Advisory Service (FTCAS).

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