Government Funding Incentives Presented By Richard Kun, RDP Associates Inc.

Agenda Types, Sources and Mandates Process to Navigate Key programs

Various Forms Over 500 Incentive Programs Tax Credits: Refundable vs. non refundable Grants Matched Funding Repayable Contributions Forgivable loans

Various Sources Federal Provincial Municipal Chamber of Commerce Trade Associations

Various Mandates Specific time periods to apply Targeted to Specific Sectors Targeted to Different Size of Companies Limited funding vs. Unlimited Funding

What Government Funds Job Creation Training Export Marketing On new equipment and technology Export Marketing Plans, personnel, feasibility studies Business Partnering Universities, colleges, associations,

What Government Funds Investment Energy Saving Innovation Manufacturing equipment Energy Saving Designs, devices Innovation R&D, new environment technologies, agricultural, Product and process development

Businesses Unsuitable for Funding Retailers Wholesalers Importers Service providers Companies who make products outside Canada

Where do you start ? How do you navigate ?

Process STEP 1: Evaluate your business situation Knowledge Base Resources Company Growth Cycle Concept Development Market entry Market expansion

Process STEP 2: Link company needs to various government assistance programs Training Assistance Research Funding for growth Expanding to International markets

Process STEP 3: Develop a Plan Prioritize - Narrow to top 5 Leverage - To maximize & complement Tax efficient

Process STEP 4: Apply Various Deadlines Unique to each program Typically business plan required SWOT analysis Benefits to be generated Planned growth of company

Process STEP 5: Evaluate Effectiveness Cash Flow ROI

SR&ED TAX CREDITS Tax incentive program offered by the Federal Government to companies which strive to innovate. The aim of the program is to foster experimentation and technological advancement for the benefit of the Canadian economy. Administered by the CRA, most provinces add a provincial tax credit. In Ontario the combined Federal and Provincial refundable tax credit is 41.5% (CCPC) 15

SR&ED A systematic approach, to develop technological solutions, beyond known knowledge. 16

SR&ED INDICATOR Software Are you developing new software? Are you developing new kinds of databases? Are you developing access to the Internet (i.e. e-business)? Are you developing new controls or automated tracking methods? 17

SR&ED INDICATOR Software Construct Architecture Technique Design Methodology Algorithm Performance Scalability Integration Security 18

Two Criteria for Project Eligibility Technological Advancement Technological Uncertainty

TECHNOLOGICAL ADVANCE TECHNOLOGIES USED IN PROJECT SHORTFALL IN MEETING OBJECTIVES STEP FORWARD (ADVANCE) REQUIRED COULD BE KNOWLEDGE (KNOW-HOW) COULD BE CODE OR GADGET ALTERNATIVES MUST BE EXPLORED WHERE IS THE TECHNOLOGICAL CHALLENGE? 20

TECHNOLOGICAL UNCERTAINTIES ALTERNATIVE STEPS TO ADVANCE KNOWLEDGE UNAVAILABLE CODE OR GADGET UNAVAILABLE 21 21

ACTIVITIES MUST INCLUDE EXPERIMENTATION TO EXPLORE ALTERNATIVES TO REDUCE UNCERTAINTIES TASKS IN THE PROJECT BASE OF COSTS TO BE CLAIMED 22 22

SR&ED INDICATOR (continued) 6 “P’s” OF SRED New Product(s)? New Process(es)? Prototypes? Personnel? (P.Eng, PH.D, M.Sc, etc.) Patents? Problems? 23

QUALIFIED SR&ED EXPENDITURES CURRENT COSTS SALARIES AND WAGES (bump up for overhead) MATERIALS CONSUMED ARM’S LENGTH CONSULTING OR CONTRACTING FEES OVERHEAD DIRECTLY RELATED TO SR&ED OR PROXY LEASES CAPITAL COSTS ASSETS PURCHASED NEW THAT ARE USED 90% OR MORE OF TIME IN SR&ED ACTIVITIES PARTIAL CREDIT FOR NEW ASSETS USED 50% OR MORE OF TIME IN SR&ED ACTIVITIES EXAMPLES ARE COMPUTERS, LAB EQUIPMENT, MACHINERY USED EXCLUSIVELY FOR SR&ED PURPOSES 24

Artificial Intelligence Software Co Salaries Programmer A $ 10,000 Programmer B 20,000 Programmer C 30,000 Total $ 60,000 Bump up 65% (Proxy) 39,000 Total Claim $ 99,000 Refund 41.5% (Salaries) $ 41,085 Recovery on Direct Costs of 60,000 68% A Technological Advance is the discovery by the company of technical knowledge that advances the understanding of information technology or computer science. It is the attempt to achieve Technological Advancement that is important in determining eligibility. A failure can increase knowledge of information technology or computer science by showing that a particular technological approach will not succeed. The implementation of existing technology in the company is not evidence of Technological Advancement. For example, implementing a state- of-the-art computer system does not qualify; it is only the experimental development of technology that is relevant to eligibility. The company must be able to identify the new software construct(s), architecture, or technique(s) sought or developed within the R&D project that advances this understanding of information technology or computer science. Technological Advancement is typically made through innovations in software architectures, designs, algorithms, techniques or constructs. Credible support for these advances includes comparing them against what was previously available (e.g. based on third-party literature). 25

Artificial Intelligence Software Co Salaries Contractors Programmer A $ 10,000 Programmer B 20,000 Programmer C 30,000 Total $ 60,000 $ 60,000 Bump up 65% (Proxy) 39,000 Total Claim $ 99,000 $ 60,000 Refund 41.5% $ 41,085 $ 24,900 Recovery on Labour of 60,000 68% 41.5% A Technological Advance is the discovery by the company of technical knowledge that advances the understanding of information technology or computer science. It is the attempt to achieve Technological Advancement that is important in determining eligibility. A failure can increase knowledge of information technology or computer science by showing that a particular technological approach will not succeed. The implementation of existing technology in the company is not evidence of Technological Advancement. For example, implementing a state- of-the-art computer system does not qualify; it is only the experimental development of technology that is relevant to eligibility. The company must be able to identify the new software construct(s), architecture, or technique(s) sought or developed within the R&D project that advances this understanding of information technology or computer science. Technological Advancement is typically made through innovations in software architectures, designs, algorithms, techniques or constructs. Credible support for these advances includes comparing them against what was previously available (e.g. based on third-party literature). 26

CRA Reviews Documentation & Eligibility Labour Allocation - Time sheets - Activities Technical Documentation to Support Advances & Uncertainties: - Notebooks, Logs - Drawings & Pictures - Project Plan, Gant Charts - Minutes of Meetings - E-mails - Test Results Separate SR&ED from Product Development Documentation must be dated 27 27

Commonly Missed SR&ED Opportunities NON-IDENTIFICATION OF ELIGIBLE SR&ED PROJECTS MISSING ACTIVITIES RELATED TO ELIGIBLE SR&ED PROJECTS NON-IDENTIFICATION OF ALL SR&ED COSTS. INTEGRATING SR&ED ACTIVITIES WITH SR&ED COSTS MANAGING THE CLAIM AND CRA REVIEW PROCESS 28 28

SR&ED What We Do IMPLEMENT PROCESS TO CAPTURE SR&ED IDENTIFY ELIGIBLE PROJECTS IDENTIFY AND DETAIL ELIGIBLE COSTS ASSIST TO WRITE UP PROJECT DESCRIPTION FILE CLAIM FOLLOW UP AND FACILITATE REVIEW PROCESS BY CRA 29 29

Ontario Interactive Digital Media Tax Credits

Overview of OIDMTC The Ontario Government offers a 40% refundable tax credit for qualifying Ontario labour and marketing expenditures to create interactive digital media products.

Overview of OIDMTC Eligibility To be eligible for the OIDMTC a product must be an interactive digital media product whose primary purpose is to : educate, inform, or entertain, and that achieves its primary purpose by presenting information in at least two of: text, sound and images and must be intended for use by individuals.

OIDMTC Eligibility The product must be interactive; that is, the user can choose what information is to be presented and the sequence and form in which it is presented.

OIDMTC Examples Educational Software Video Games Informational Products Interactive Web sites

OIDMTC Eligibility All or substantially all of the product must be developed in Ontario by the qualifying corporation (90% or more). The product cannot be used primarily for interpersonal communication The OMDC will interpret “primarily” to mean “more than 50%.” The product cannot be used primarily to present or promote the qualifying corporation The product cannot be used primarily to present, promote or sell the products or services of the qualifying corporation.

Eligible Expenditures Labour Expenditures Marketing Expenditures

Labour Expenditures Eligible labour expenditures are 100% of salaries and wages for employees Eligible Labour expenditures must also be paid to individuals resident in Ontario, directly attributable to the development of the eligible product, and paid for services rendered at a permanent establishment in Ontario. A Technological Advance is the discovery by the company of technical knowledge that advances the understanding of information technology or computer science. It is the attempt to achieve Technological Advancement that is important in determining eligibility. A failure can increase knowledge of information technology or computer science by showing that a particular technological approach will not succeed. The implementation of existing technology in the company is not evidence of Technological Advancement. For example, implementing a state- of-the-art computer system does not qualify; it is only the experimental development of technology that is relevant to eligibility. The company must be able to identify the new software construct(s), architecture, or technique(s) sought or developed within the R&D project that advances this understanding of information technology or computer science. Technological Advancement is typically made through innovations in software architectures, designs, algorithms, techniques or constructs. Credible support for these advances includes comparing them against what was previously available (e.g. based on third-party literature). 37

Marketing Expenditures Up to $100,000 of eligible marketing and distribution expenditures related to an eligible product can be included. Eligible marketing and distribution expenses are those incurred in the 24-month period prior to the completion of the eligible interactive digital media product, and those incurred in the twelve months following the completion of the product. Expenditures that have already been claimed as eligible Ontario labour expenditures cannot be claimed as marketing and distribution expenditures claim.

Marketing Examples Trade Shows Travel, Meals, Entertainment Graphic Design Copy Writing Google Ads Marketing wages for eligible products A Technological Advance is the discovery by the company of technical knowledge that advances the understanding of information technology or computer science. It is the attempt to achieve Technological Advancement that is important in determining eligibility. A failure can increase knowledge of information technology or computer science by showing that a particular technological approach will not succeed. The implementation of existing technology in the company is not evidence of Technological Advancement. For example, implementing a state- of-the-art computer system does not qualify; it is only the experimental development of technology that is relevant to eligibility. The company must be able to identify the new software construct(s), architecture, or technique(s) sought or developed within the R&D project that advances this understanding of information technology or computer science. Technological Advancement is typically made through innovations in software architectures, designs, algorithms, techniques or constructs. Credible support for these advances includes comparing them against what was previously available (e.g. based on third-party literature). 39

Additional Points of Mention Ontario labour and marketing expenditures must be Paid no later than 60 days after the end of the taxation year. Contractors must render services at the qualifying corporation’s permanent establishment or the contractor’s permanent establishment in Ontario. That is, the work must be carried out in Ontario.

OMDC – Export Fund Ontario Media Development Corp Up to $12,000 capped at 50% Funding for measurable business development results Sales, financing, licensing or publishing deals Market event attendance and targeted sales trips 41 41

Thank You Questions rkun@rdpassociates.com 42 42