Tech startup accountant in Halifax

SR&ED is claimed on Form T661

The scientific research and experimental development program rewards work that tries to resolve a technological uncertainty through systematic investigation. Writing ordinary software on a known stack usually does not qualify; building a new signal-processing method for noisy underwater acoustics, or an algorithm that did not exist, may. The claim is made on Form T661, filed with the corporate return. It has two halves: a technical narrative describing the uncertainty, the work and the advance, and a financial schedule of the salaries, materials and contract costs behind it. The claim has a firm deadline after the T2 is due, and a missed deadline loses the year. See the SR&ED expenditure limit update.

The enhanced refundable credit for CCPCs

A Canadian-controlled private corporation can earn SR&ED credits at an enhanced rate on its qualifying expenditures up to an annual limit, and for a small CCPC much of that credit is refundable. That means the CRA pays it out even when the company has no tax to reduce, which is exactly the situation of a pre-revenue startup. For a founder, the refund is often the difference between hiring the next developer and not. It also depends on staying a CCPC: bringing in a foreign-controlled investor, or a structure that puts control outside Canada, can end access to the enhanced rate. That question belongs in the term sheet discussion, not after closing.

Grants reduce the SR&ED base

Many Halifax startups run on a mix of federal and provincial grants, contributions and contract research money alongside their own capital. Government and certain non-government assistance received for the same work reduces the expenditures that the SR&ED credit is calculated on. A founder who counts the grant and then claims the full salary cost again has overstated the claim, and the CRA reviews SR&ED claims closely. The fix is simple but has to be deliberate: every grant and contribution is recorded against the project it funded, so the claim can be reduced by the right amount. Repaying assistance later can restore the expenditure.

Records that hold up in a review

SR&ED reviews ask for evidence that was created while the work was done: commit history, lab notes, test results, sprint notes that describe what was tried and why it failed. They also ask how each person’s time was split between qualifying work and everything else. A startup that tracks time by project in its payroll from the first hire can support its salary claim directly; one that estimates it afterwards will struggle. We set up the chart of accounts and payroll with the claim in mind. See payroll in Halifax and the chart of accounts.

Ocean technology and hardware

Halifax has a concentration of ocean technology companies that build physical things: sensors, autonomous vessels, subsea equipment. Hardware startups spend on materials consumed in prototypes, sea trials and test equipment, and the line between an SR&ED expense, an inventory item and a capital asset needs drawing carefully. Their customers are often in the United States or overseas, so export sales are generally zero-rated for HST while the 14% HST on inputs is recovered, and US dollar receivables bring foreign exchange gains and losses into the books. See HST on exports and foreign exchange gains and losses.

Stock options and founder shares

Options granted to employees of a CCPC get favourable timing: the benefit is generally taxed when the shares are sold rather than when the options are exercised, and a deduction can reduce it further when conditions are met. The paperwork still has to be right, including the option agreements and the share register. Founder shares issued early, at a low value and before any investment, set up a later sale for the lifetime capital gains exemption if the company qualifies at the time. Moving a business built as a sole proprietor into a new company is usually done through a section 85 rollover. See shareholders’ agreements.

Losses now, a low rate later

Most startups lose money for years. Those non-capital losses carry forward and shelter income once revenue arrives, so they need to be tracked accurately from the first return. When the company does turn a profit, Nova Scotia’s provincial rate on active business income is 1.5% up to the provincial limit of $700,000, for 10.5% combined with the federal small business rate. The federal deduction, however, still stops at $500,000. Founders deciding how to pay themselves should know that a salary for qualifying work can form part of the SR&ED claim, while dividends cannot, so the pay decision and the research claim are made together. See corporate tax in Halifax and the Atlantic Canada tax facts.

What is covered

One Chartered Professional Accountant handles the whole file:

• T2 corporate return and year-end financial statements
• SR&ED claim on Form T661, with the technical narrative and the financial schedule
• HST registration, filing and input tax credit reconciliation
• Grant and contribution tracking by project
• Payroll with time split between qualifying and other work
• Stock option records and the founders’ personal returns

Remote, and there is no Halifax office

EverStone operates from one office, in Abbotsford, British Columbia, and has no Halifax location. Startup engagements run entirely online: video meetings, e-signature and documents through a secure upload link. Corporate tax and SR&ED are federal programs with a provincial layer, so the work is not tied to a postcode. Monthly books start from $300 a month, and a fractional controller from $1,500 a month or fractional CFO from $2,500 a month fits once investors want board reporting.