It’s tax time again, but MaRS Best Practices series has great news for startups and entrepreneurs! There is a wide range of business incentives available to offset various expenses incurred by entrepreneurial companies, from startups to established companies exporting products or services. In this session, Welch’s Business Incentives leader, Terry Lavineway, will describe the process that entrepreneurs should employ when identifying and leveraging these incentives and an approach that can maximize access to this source of capital. He will provide detailed information on some of the more significant incentives available, including scientific research and experimental development (SRED) and digital media refundable credits. Additionally, Bryan Haralovich, Welch’s Technology Service Sector leader, will provide an overview of the income tax compliance requirements imposed on entrepreneurs. This includes what must be filed, the timing of filings and the information required to complete the filings. He will address tax tips such as corporate structure, shareholder planning, international tax considerations and exit planning.

1. DEMYSTIFYING SR&ED and
Other Tax Tips for
Entrepreneurs
A MaRS Presentation

2. What we will cover today…
• Income
Tax
Compliance
Considera2ons
– Filing
requirements
and
compliance
informa2on
– Corporate
vs.
personal
– Planning
opportuni2es/considera2ons
– Exit
considera2ons
• Business
Incen2ves
– What
You
Need
to
Know
– SR&ED
overview
– Digital
Media
– Other
Incen2ves
– Stacking
• How
Welch
Can
Help

3.
• Corporate
Income
Tax
Returns
– Annual
income
tax
return
due
6
months
aOer
year
end
– Tax
owing
2
or
3
months
aOer
year
end
– Installments
may
be
required
– First
year
cannot
exceed
53
weeks
– Can
change
year
end
for
business
purposes
• Payroll
remiUances
–
due
15th
of
the
month
following
payroll
remiUance
• T4’s
due
February
28th
• HST/GST
–
due
3
months
aOer
year
end
for
annual
filers
• Personal
Income
Tax
Returns
–
due
April
30th
Filing Requirements

4. Tax Rates, Credits & Calculations
Federal
Individual
Tax
Rates
and
Brackets
2013
2012
First
bracket
[15%]
$0
-­‐
$43,561
$0
-­‐
$42,707
Second
bracket
[22%]
$43,562
-­‐
$87,123
$42,708
-­‐
$85,414
Third
bracket
[26%]
$87,124
-­‐
$135,054
$85,415
-­‐
$132,406
Fourth
bracket
[29%]
$135,055
-­‐
up
$132,407
-­‐
up

5. Tax Rates, Credits & Calculations
Combined
Federal
and
Provincial
Top
Marginal
Tax
Rates
for
2013
Province
Salary and
Interest
Capital
Gains
Non-eligible
Dividends
Eligible
Dividends
Newfoundland 42.30% 21.15% 29.96% 22.47%
Nova Scotia 50.00% 25.00% 36.21% 36.06%
Prince Edward Island 47.37% 23.69% 38.56% 28.7%
New Brunswick 45.07% 22.54% 33.05% 24.91%
Quebec 49.97% 24.99% 38.54% 35.22%
Ontario 46.41% 23.21% 32.57% 29.54%
Ontario (1) 49.53% 24.76% 36.47% 33.85%
Manitoba 46.4% 23.2% 39.15% 32.26%
Saskatchewan 44.0% 22.0% 33.33% 24.81%
Alberta 39.0% 19.5% 27.71% 19.29%
British Columbia 43.7% 21.85% 33.71% 25.78%
Yukon (2) 42.4% 21.2% 30.41% 15.93 to 19.29%
Nunavut 40.5% 20.25% 28.96% 27.56%
Northwest Territories 43.05% 21.53% 29.65% 22.81%

6. Tax Rates, Credits & Calculations
Combined
Federal
and
Provincial
Corporate
Tax
Rates
for
2013
Ac2ve
Income
Manufacturing
Income
Small
Business
<
$500,000
Investment
Income
(8)
Federal
15.00%
15.00%
11.00%
34.67%
Province
Newfoundland
29.00% 20.00% 15.00% 48.67%
Nova
ScoSa
(1)
31.00% 31.00% 14.50%/27.00% 50.67%
Prince
Edward
Island
(2)
31.00% 31.00% 14.64% 50.67%
New
Brunswick
(3)
26.01% 26.01% 15.50% 45.67%
Quebec
26.90% 26.90% 19.00% 46.57%
Ontario(4)
26.50% 25.00% 15.50% 46.17%
Manitoba
(5)
27.00% 27.00% 11.00%/23.00% 46.67%
Saskatchewan
27.00% 25.00% 13.00% 46.67%
Alberta
25.00% 25.00% 14.00% 44.67%
BriSsh
Columbia
(6)
25.75% 25.75% 13.50% 45.42%
Yukon
(7)
30.00% 17.50% 13.50%/15.00% 49.67%
Nunavut
27.00% 27.00% 15.00% 46.67%
Northwest
Territories
26.50% 26.50% 15.00% 46.17%

7. Tracking Your Financial Transactions
• Types
of
expenses
and
revenue
– G/L
set-­‐up
(accounts,
prior
year,
budget)
– Project/product
grouping
– Revenue
by
province/state/country
• Frequency
of
recording
• Financial
report
set-­‐up
• Accrual
vs
cash
basis
accounSng
• Competency
of
preparer
• Maintain
receipts/supporSng
documentaSon
in
structured
approach
• Ensure
informaSon
is
relevant
and
Smely
to
assist
with
business
monitoring
and
acSons
(must
have
a
basis
for
comparison)
• Management
review/accountability
review
process

8. Tracking Your Business
• AccounSng
Soaware
– Several
soaware
packages
available
– User
friendly
– Keeps
records
up-­‐to-­‐date
– Compiles
informaSon
into
reports
easily
analyzed
– MulS-­‐currency,
mulS-­‐ledgers,
order
entry,
A/R,
purchase
order,
A/P,
inventory,
payroll,
project
cosSng,
Sme
tracking,
data/user
limits

9. Personal vs. Business
• General
rule
is
expenses
are
deducSble
to
the
extent
they
were
incurred
to
generate
business
income
• Business
expenses
incurred
personally
should
be
charged
to
the
company
(e.g.
via
an
expense
report)
• Car
allowance

10. Corporate Structure – Tax Considerations
Canadian
Controlled
Private
CorporaSon
(CCPC)
Company
prospecSve
• Eligible
for
35%
refundable
tax
credit
on
1st
$3M
• Eligible
for
10%
Ontario
refundable
tax
credit
on
1st
$3M
• Lower
corporate
tax
on
taxable
income
up
to
$500k
Founder/employee
prospecSve
• Founder/employee
may
be
eligible
for
$800k
capital
gains
exempSon
• Stock
opSons
not
taxed
unSl
shares
sold
• PotenSal
RRSP
eligibility
Note,
the
above
is
subject
to
restric2ons
and
rules
are
subject
to
change.
Seek
professional
advice
before
proceeding.
Non
CCPC
Company
prospecSve
• 15%
non-­‐refundable
federal
tax
credit
• eligible
for
10%
Ontario
refundable
tax
credit
on
1st
$3M
• High
corporate
tax
rate
on
all
income
Founder/employee
prospecSve
• No
$800k
capital
gains
exempSon
• Stock
opSons
may
be
taxed
when
exercised

11. U.S. Tax Compliance
• Compliance
at
federal
and
state
level
• Corporate
returns
due
15th
of
3rd
month
following
year
end
(extensions
can
be
filed)
• Separate
returns
for
each
state
• Sales
and
use
tax
requirements
• Branch
vs
corporate
tax
filing
• Withholding
tax
• Transfer
pricing

12. International Tax Considerations
• Establish
structures
to
facilitate
investment
from
foreign
based
investors
• Consider
corporate
tax
rates
outside
of
Canada
and
ensure
that
the
most
tax
efficient
structure
is
in
place
to
minimize
overall
tax
payable.
Ownership
of
intellectual
property
(IP)
is
central
to
creaSon
of
efficient
tax
structure.
Other
consideraSons
include:
• Rules
are
complex
and
vary
by
region
• Expensive
to
set-­‐up
and
maintain
• Need
to
consider
impact
on
future
acquisiSons
or
sale
of
company
• Should
be
considered
before
any
substanSal
IP
value
is
created
to
minimize
capital
gains
on
transfer
from
Canada.
• Monitor
level
of
business
in
foreign
jurisdicSons
and
set
up
appropriate
structures
to
avoid
unintended
tax
results
in
foreign
jurisdicSons

13. Planning Opportunities/Considerations
• Income
splijng
• Dividends
• Salary
• Holdco
or
Trust
• Maximize
interest
deducSbility
–
use
cash
to
pay
down
non-­‐deducSble
loans
• Shareholder
remuneraSon

14. Exit Planning
• Due
diligence
consideraSons
• Be
compliant
–
beware
of
tax
escrowed
funds
• Accessible
corporate
records
• Shareholder
tax
minimizaSon
• Share
sale
–
capital
gains
exempSon
• Asset
sale
–
dividend,
deferrals
• Use
of
Holdco
and
Family
Trust

15. Other Considerations
Employee
vs
Independent
Contractor
• No
hard
and
fast
rules,
just
guidelines
• Guidelines
include:
• Receive
no
employee
benefits;
• You
provide
services
to
more
than
one
company;
• You
use
your
own
equipment;
• Work
at
home;
• Work
on
your
own
with
no
supervision.
• Benefit
of
independent
contractor
includes
wider
scope
for
tax
deducSons,
however,
loose
rights
to
EI,
employer
health
and
other
benefits
• Onus
is
on
the
company
to
pay
previous
withholding
if
the
individual
is
assessed
as
an
employee
(employer
&
employee
porSon).
• Stock
opSons
received
by
independent
contractors
included
in
income
of
the
contractor
in
year
the
opSons
are
granted

16. Advisor Perspective
• Build
a
team
of
experienced
advisors
that
you
feel
comfortable
communicaSng
with
• Leverage
your
advisors
experiences
through
conSnuous
updates/communicaSon

17. Improving Cash Flow via
Government Incentives

18. Government Incentives Strategy
• Consider
the
following
with
respect
to
government
incenSves:
 Are
you
maximizing
government
assistance
via
tax
credits,
grants,
loans
and
rebates?
 Are
you
reasonably
certain
that
you
will
receive
the
incenSve?
 Do
you
know
the
Sming
of
the
assistance?
Is
it
predictable?

19. Maximizing Access to Government
• There
are
countless
government
incenSves
out
there
(federally,
provincially,
&
municipally)
• Companies
are
missing
out
on
opportuniSes
to
leverage
government
money
• Most
companies
don’t
have
the
Sme/resources
to
pursue
all
the
incenSve
opportuniSes

20. Holistic Approach
• Overview
of
the
business
 Recent
past
 Plans
for
the
future
• Overlay
landscape
of
incenSves
 IdenSficaSon
of
where
government
assistance
is
possible
 Reduce
possibiliSes
where:
• Net
benefit
of
the
possible
assistance
<
(internal
+
external
costs
to
prepare/
apply
and
report/defend)
• Incorporate
necessary
documentaSon
&
evidence
preparaSon
into
exisSng
business
processes

21. Full Entitlement
 What
can
you
claim?
 MisconcepSons
and
misinformaSon
• Can’t
claim
SR&ED
because
a
customer
paid
for
it
• Can’t
claim
OIDMTC
because
we
contracted
out
most
of
the
soaware
development
• Claiming
costs
outside
eligible
jurisdicSons
 Know
the
rules
for
each
respecSve
incenSve
–
or
ask
for
help
• Tax
credits
–
legislaSon
defines
what
is
eligible
but
not
always
clear
• DiscreSonary
incenSves
–
guidance
is
oaen
vague
and
at
Smes,
somewhat
flexible
 Stacking
• What
are
the
restricSons
amongst
the
incenSves
–
how
much
government
assistance
is
possible?
• E.g.
does
a
grant
impact
an
SR&ED
claim?
Does
a
loan?
Does
an
equity
investment?

23. Certainty of the Outcome
• Tax
credits:
 When
are
you
confident
that
the
outcome
of
the
claim
will
be
as
expected?
• Different
processes
for
different
tax
credits:
SR&ED
vs.
OIDMTC
• DiscreSonary
incenSves
 Very
compeSSve
landscape
for
discreSonary
incenSves:
free
or
very
cheap
money.
 Need
to
examine
the
risk-­‐reward
 Pre-­‐approval
required

24. Timing Considerations
• Tax
credits:
 Is
the
credit
claimed
on
a
current
tax
return
or
an
amendment?
 Are
there
other
tax
issues
in
existence
which
would
affect
the
Sming
&
resoluSon
of
the
tax
credits?
• Different
processes
for
different
tax
credits:
SR&ED
vs.
OIDMTC
• Discre2onary
incen2ves
 How
far
in
advance
is
pre-­‐approval
required
prior
to
launching
the
project/iniSaSve?
 How
long
aaer
the
expense
is
incurred
will
the
reimbursement
be
issued?

25. SR&ED Recent Events
• Legisla2ve
changes
 Decreased
claim
amounts:
 Overhead
calculaSon
65%-­‐
>60%-­‐>55%
 Subcontractors
100%-­‐
>80%
 Capital
no
longer
eligible
• “Administra2ve”
changes
 More
audits
and
(someSmes
onerous)
requests
for
addiSonal
informaSon
 More
pressure
on
SR&ED-­‐
specific
evidence

26. OIDMTC Specifics
• Cri2cal
fundamentals:
 90%+
of
the
product
must
be
developed
in
Ontario
by
a
single
corporaSon
 Cannot
be
primarily
to
promote
your
company/products
or
another
company/product
• Winds
of
change
 Recommended
to
Ministry
of
Finance
to
relax
the
90%
rule
 Rumours
that
access
to
the
credit
might
be
restricted:
company
size,
industry
for
example

27. Resources
• Websites:
www.fundica.com
www.concierge.portal.gc.ca
www.thefundingportal.com
• Welch
LLP

28. Final Points
• Significant
amounts
of
government
assistance
are
available
 Provincially,
federally
&
internaSonally
• Know
the
rules
and/or
get
help
• Look
for
the
best
net
results
• PLAN
AHEAD

29. How We Can Help
• Regional firm with global resources to serve clients
• Business like in our approach
• 12 offices & 260 staff
• Cost structure aligned with entrepreneurs and their businesses
• Extensive experience providing assurance, tax, corporate
finance and advisory services
• Government Incentives – SRED, Digital Media, etc preparation/support
• Corporate Structure
• Accounting advice
• Personal tax planning
• Financial Statement Audits
• Business planning advice, valuations
• Cash flow management
• Operational improvements and efficiencies
• Access to contacts
• & much more

30. Q&A
Bryan Haralovich, CPA, CA, CPA (Illinois)
Partner, Welch LLP
bharalovich@welchllp.com
www.welchllp.com
Twitter:@CAHaralovich
http://linkd.in/1ioTtbp
Terry Lavineway, B.Admin, B.Sc.CS
Director, Business Incentives, Welch LLP
tlavineway@welchllp.com
www.welchllp.com
Twitter:@terryl99
http://ca.linkedin.com/in/terrylavineway