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Small Business Bc - Small Business British Columbia : Gain a Competitive Edge, Earn Free Money

tax credits businesses process

The Scientific Research and Experimental Development (SR & ED) Tax Incentive Program is a source of “free” funding provided by the Canadian government in the form of tax refunds, tax credits, or both. Canadian businesses are encouraged to invest in research and development (RD) projects that create innovative, improved, or technologically advanced products and processes. This is more necessary than ever for small business success. To participate, knowledge of three key points is essential: the variety of qualifying projects, the required process, and the different tax awards given based on the type of business.

The BC small business does not have to be a highly scientific or technological company in order to qualify for the SR&ED Tax Incentive Program. The development of a new product, the improvement of an old product, the creation of an improved manufacturing process, or the design of an environmentally safe waste treatment process, are all examples of viable R&D projects. The rest depends on qualified personnel applying a well documented, scientific method to the project. Funding depends on the process, not the results. First, identify your problem, and create an objective. Next, develop an action plan which includes the method of experimentation or analysis and hypothesis testing.

Each year, according to the Canada Revenue Agency, thousands of claimants receive billions of dollars in Investment Tax Credits (ITCs) from the SR & ED Tax Incentive program. Most of these are small businesses, 75% to be exact. Small businesses BC need to know what these tax credits entail.

The tax credit awarded depends on the business. Canadian-controlled private corporations (CCPC) can be awarded credits of 35 % of approved Canadian expenditures. This applies up to the first 3 million dollars of qualified expenses. A recent change now allows for certain SR&ED expenditures performed outside of Canada. CCPCs must first apply their tax awards towards the taxes due in that claim year. The balance is refunded.

Tax credits of 20% are available to other types of businesses. For corporations different than CCPCs, these credits may only be applied to taxes payable. For proprietorships, partnerships, and trusts, 20% of their SR&ED current and capital expenditures can be awarded, first in the form of tax payment. A refund can then be received based on 40% of their tax credit balance.

Small businesses in BC must analyze their current and potential R&D status, and commit to the process for the competitive edge of their companies. Go to the Canada Revenue Agency web site, www.cra.gc.ca/sred, to see if your small business qualifies for the SR&ED Tax Incentive Program.

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