Solving the Start-up & VC malaise

2 responses

  1. Alpha says:

    I think another ingredient that is missing from the recipe is proper bankruptcy laws that allow for failed start-ups (and the people behind them) to quickly get back on their feet and back into the game.

    I think Ontario/Canada should aim to have quickest turnaround for bankruptcies (in any jurisdiction) and special procedures that allow for proprietary information to be retained by entrepreneurs.

  2. John says:

    Regarding how SR&ED claims are prepared by consultants and audited by CRA, you have no idea what you’re talking about.
    First, the CRA staff who audit SR&ED claims are not mere bureaucrats, but are engineers, programmers and other technical professionals who have many years of research and field experience, and have a practical knowledge of how research is done in industry. Most of the cuts in claims are not due to “fraud” by the taxpayer or due to incompetence by the CRA staff. They are because there is wide disagreement within CRA, among CRA’s own auditors, as well as among SR&ED consultants, regarding what costs are claimiable.
    This is because the tax law, and the various CRA information circulars and guidelines that explain how to apply the tax credit rules have areas of vagueness and inconsistency.
    Remember that this is not like other kinds of tax credit programmes where the requirements are fairly simple. For a child tax credit, either you have a child or you don’t.
    With the SR&ED tax credit, it’s often a complicated exercise to figure out what costs are “commensurate” with the needs of the SR&ED work. Many technical activities can be “linked” to the SR&ED work, and one must try to determine the nature of those linkages in order to decide what can be claimed. There are other issues like whether or not a particular item meets the definition of a “prototype”, and what to do when the development of a manufacturing process involves a combination of eligible and ineligible activities involving experimental production and commercial production. How much of the materials consumed was due to the commercial production and thus ineligible? When a company is improving the speed or quality of a known process, there is a mixture of commercial activity and experimental activity that often requires a judgment call for where the dividing line is, especially when the taxpayer has not kept sufficiently detailed records, out of the urgent need to solve the problems so that the business can become profitable ASAP.
    In other words, because of the nature of applying abstract language to real situations that are themselves more complex than the tax credit, there will always be disagreements about how much of a project can be claimed, and after CRA has spent years publishing more and more guidelines, this hasn’t changed, and never will.

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