There is a month left before we close out 2013 and welcome 2014. Along with the New Year comes the implementation of some additional changes to SR&ED program. The key changes in 2014 are the further reduction of the proxy overhead allocation and the removal of all capital expenditures from SR&ED claims. In addition to these changes, the investment tax credit rates are also changing.
The reduction of the proxy rate from 65% to 60% in 2013 and further to 55% in 2014 creates a potential planning opportunity for those companies that incur significant overhead on their SR&ED activities. Companies that operate with high overhead costs should consider using the traditional method of overhead allocation as this may more favourable than the new proxy amount.
The removal of capital assets from qualifying expenditures presents a time sensitive planning opportunity. Companies that plan on purchasing capital assets in the pursuit of SR&ED over the short term should consider purchasing them by the end of 2013 in order to access the credit. In addition to purchasing assets early, companies that lease capital assets should also consider buying those assets our in order to access the credits.
Prior to January 1, 2014 all companies qualify for a 20% non-refundable credit and CCPC’s meeting certain capital and income restrictions qualify for an additional 15% credit. As of 2014 the credit rates change with all companies qualifying for a 15% credit and CCPC’s meeting the restrictions qualifying for an additional 20%.
The SR&ED ITC isn’t the only item to consider when making decisions about this. Companies need to be concerned about the available for use rules applicable to capital assets, cash flow and potential lease break penalties that may apply. For more information, please contact Joshua Smith at [email protected]
Manager, Business Incentives