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Carl, thanks, great article. One question: you say "Because QC-inc is just like any other Canadian entity, it was eligible for SR&ED." But if QC-Inc was doing

by rreiner 15y ago

Carl, thanks, great article. One question: you say "Because QC-inc is just like any other Canadian entity, it was eligible for SR&ED." But if QC-Inc was doing consulting work, i.e. developing products & technology on contract for another entity (Karabunga), then that work would not be eligible for SR&ED -- an entity isn't eligible unless it retains the IP rights. How did you work around that?

cmer 15y ago
My understanding of it is that as long as jobs are created, the success or failure of the project, and the ownership of IP doesn't matter. If a Canadian company was to contract out their R&D to another Canadian company, only one can claim SR&ED. Generally, the contractor would claim the SR&ED, but in this case, the contractee did.
belbo 15y ago
We did the tax credit work for Carl (thanks for the shoutout man!). Between 2 CDN entities, only 1 can claim SRED. So if QC Inc did all of its work on behalf of another CDN company, usually the person paying claims the tax credits. If a US company sub-contracts to you, there's no way the US Co. can claim SRED, so you can. You have to be CDN-controlled to get the biggest tax credit, i.e. the US Co cannot own more than 50% of you. What the CDN Co does with its IP is irrelevant. You can always choose to sell/license your IP to any other company for $1. If you have any questions, just shoot me an email: rluk[at]flowventures.com BTW is this Richard? If so, hey.
- rreiner 15y ago
  Hey, Raymond. This is of some immediate interest to me, so I've been digging into it a bit this morning -- I've been reading CRA's internal guide for SR&ED reviewers, and other fun things. Seems like a nice structure, if it works, i.e. if it stands up to audit scrutiny. It seems to me counterintuitive that a CDN consulting firm taking no financial risk when doing SR&ED for a US customer would be eligible. Many of the CRA guidance docs cite IP ownership as an eligibility condition. They also point to forms T1145 and T1146 as the mechanism to transfer SR&ED costs & credits between non-arms-length parties, but these apply when both parties are Canadian. In your case you've got non-arms-length parties, one US and one CDN. I can't find any specific CRA statement that applies. But ultimately all those CRA docs are just guidance,and the ITA prevails. Can you point to the section of the ITA that blesses what you're doing here?

by rreiner 15y ago

cmer 15y ago

My understanding of it is that as long as jobs are created, the success or failure of the project, and the ownership of IP doesn't matter. If a Canadian company was to contract out their R&D to another Canadian company, only one can claim SR&ED. Generally, the contractor would claim the SR&ED, but in this case, the contractee did.

belbo 15y ago

We did the tax credit work for Carl (thanks for the shoutout man!). Between 2 CDN entities, only 1 can claim SRED. So if QC Inc did all of its work on behalf of another CDN company, usually the person paying claims the tax credits. If a US company sub-contracts to you, there's no way the US Co. can claim SRED, so you can. You have to be CDN-controlled to get the biggest tax credit, i.e. the US Co cannot own more than 50% of you. What the CDN Co does with its IP is irrelevant. You can always choose to sell/license your IP to any other company for $1. If you have any questions, just shoot me an email: rluk[at]flowventures.com BTW is this Richard? If so, hey.

rreiner 15y ago
Hey, Raymond. This is of some immediate interest to me, so I've been digging into it a bit this morning -- I've been reading CRA's internal guide for SR&ED reviewers, and other fun things. Seems like a nice structure, if it works, i.e. if it stands up to audit scrutiny. It seems to me counterintuitive that a CDN consulting firm taking no financial risk when doing SR&ED for a US customer would be eligible. Many of the CRA guidance docs cite IP ownership as an eligibility condition. They also point to forms T1145 and T1146 as the mechanism to transfer SR&ED costs & credits between non-arms-length parties, but these apply when both parties are Canadian. In your case you've got non-arms-length parties, one US and one CDN. I can't find any specific CRA statement that applies. But ultimately all those CRA docs are just guidance,and the ITA prevails. Can you point to the section of the ITA that blesses what you're doing here?