Some Ottawa businesses are missing out on valuable tax credits, according to a recent Ipsos-NPD Canada survey.
small and medium in particular, aren’t pursuing research and development tax credits. Charles Murphy, a tax partner with the technology industry group at KPMG Ottawa, says the investment tax credit is earned on qualified R&D spending and is broken into two categories based on the size of the business.
“”(For large companies) it’s a non-refundable credit that can be used against taxes payable for up to 10 years,”” Murphy says. “”The other credit applies to small and medium-sized businesses that are able to earn a refundable credit, and that refundable credit can reduce the actual cost even when you’re not profitable to about 50 per cent of your spending. So it provides an important source of financing for these companies.””
Murphy says it’s a mystery to him why businesses aren’t cashing in. The industry knows about it, he says, and the government promotes it. KPMG, he adds, files so many of these claims it has engineers and science people on staff to help write the claims.
“”It’s hard to really reconcile the response that we’ve received,”” Murphy says. “”It’s hard to drill down into it and determine what the real reason for businesses saying they weren’t taking advantage of the credit. It’s possible that they just didn’t understand the question.””
CATAAlliance president John Reid puts part of the blame on the Canada Customs and Revenue Agency (CCRA). The CCRA manages the scientific research and experimental development (SR&ED) and according to Reid, it is ill-equipped to do so.
“”They’re not in business of fostering business development, yet the intention of an R&D tax credit is just that — to foster addition R&D investment,”” he says. “”The CCRA has to take a responsibility to try to improve it’s own internal management practices.””
Reid says accountants aren’t to blame for the inability of smaller companies to capitalize on the opportunity. He says many don’t have R&D directors or a chief financial officer and don’t have the money to spent on a great deal of accounting services.
The survey will be conducted in cities across Canada, but Murphy says he isn’t sure the results will be better elsewhere.
“”I would have thought Ottawa, of all the cities, would have had the most awareness of this tax credit — it’s a federal government city and being a high-tech centre — so it’s possible that this will be the same response in other centres as well,”” Murphy says.
KPMG’s software and electronics leader Peter Doyle will present the findings at a town hall-style meeting in Ottawa on Thursday.