2012 Federal Budget Highlights – SR&ED Tax Incentive Program
On March 29, 2012 Finance Minister Jim Flaherty announced the 2012 Budget.
Contained in the announcement were proposed recommendations as a result of the recent Jenkins Panel Report.
The following summarizes proposed changes to the Scientific Research and Experimental Development (SR&ED) tax incentive program.
- Reduction of general tax credit rate – The general SR&ED investment tax credit rate will be reduced to 15% (from 20%), effective January 1, 2014.
- Capital expenditures – Capital expenditures will be removed from the base of eligible expenditures for expenditures incurred in 2014 and subsequent years. All other expenditures such as salary and wages, materials, overhead expenses and contract payments remain eligible.
- Proxy overhead calculation – The prescribed proxy amount will be reduced to 55% (from 65%) of direct labour costs commencing January 1, 2014.
- Arm’s length contract payments – Only 80% of the contract payments will be used for purposes of calculating the SR&ED tax credits effective January 1, 2013.
- Administration – The government will spend $6 million over the next two years to implement changes to the administration of the program through the following measures:
- Have the CRA conduct a pilot project to determine the feasibility of a formal pre-approval process.
- Enhance the existing online self-assessment eligibility tool.
- Work with industry representatives to address emerging issues.
- Improve the Notice of Objection process to allow for a second review of scientific eligibility determination.