Tech startup accountant in Kelowna

SR&ED is claimed on Form T661, from records kept at the time

The scientific research and experimental development program pays for work that tries to resolve a technological uncertainty through a systematic investigation. Building a product with known tools and known methods usually does not qualify, however hard the work was. Finding out whether an approach can work at all, when the answer is not available to a competent developer, often does. The line runs through most software projects, which is why the claim needs a description of the uncertainty, the hypotheses tested and the results, not just a list of salaries.

The claim is filed on Form T661 with the corporate return, and it has a strict deadline after the year-end that the CRA does not extend. It is also reviewed more closely than most other items on a small company’s return. The records that survive a review are the ones made while the work was happening: tickets, commit history, design notes and time tracked by project. We set the bookkeeping up in the first month so salaries and contractor costs are tagged to projects, because rebuilding that a year later is where claims shrink.

The enhanced refundable credit, and the status that unlocks it

A Canadian-controlled private corporation can earn SR&ED investment tax credits at an enhanced rate on qualifying expenditures up to an annual limit, and those credits are refundable. A startup with no taxable income can receive the credit in cash after the return is assessed, which for many Kelowna companies is the largest single source of non-dilutive funding in their first years. The current limit is set out in the SR&ED expenditure limit update.

The enhanced rate depends on the company being a CCPC, and a financing round can change that. An investor structure that gives control to non-residents or a public corporation, directly or through rights to acquire shares, can end CCPC status and with it the enhanced refund. Associated companies share the expenditure limit as well. The cap table is a tax document, and it is worth having a CPA look at a term sheet before it is signed rather than after.

Grants reduce what the SR&ED claim is based on

Government assistance, whether a federal research grant, a provincial program or a wage subsidy tied to the same work, generally reduces the qualifying expenditures on which the SR&ED credit is calculated. So can certain contract payments from a customer who funds the development. The two programs are not alternatives, but they are not additive either. Claiming the full salary for SR&ED when part of it was already paid by a grant is one of the common reasons a claim is reduced on review.

We record each grant against the project and period it relates to, so the reduction is applied correctly and the grant itself is reported properly in income or against cost. It also matters for cash planning: a startup counting on both the grant and the full credit is counting some of the same money twice.

Stock options for early employees

Options are how most startups compete for developers they cannot yet pay market salaries. For a CCPC, granting an option does not create tax, and when an employee exercises it the taxable benefit is generally deferred until the shares are sold. A deduction can reduce the benefit where the conditions are met. The company still has reporting to do: the benefit appears on the employee’s T4 in the year it is taxed, and the option plan, the grant records and the share register have to agree.

Founders face a related question from the other side. Shares that qualify as qualified small business corporation shares on a sale can be eligible for the lifetime capital gains exemption, but only if the company meets the tests in the period before the sale. Keeping surplus cash and investments from building up inside the operating company is part of staying eligible, and a holding company above it is often part of the plan.

GST and PST on software sold everywhere

A Kelowna SaaS company selling across Canada charges GST, or HST in the harmonised provinces, depending on where the customer is. Services and intangibles supplied to non-residents are often zero-rated exports, which is why so many early startups have large GST refunds. BC PST reaches software, including software delivered electronically, so sales to BC customers can require a PST registration with the province. Revenue in US dollars brings foreign exchange gains and losses into the books as well. GST on exports and non-residents and the BC PST guide cover the rules.

Founders who brought the company with them

Many Okanagan startups were not founded here. A company incorporated in Alberta or Ontario whose founders now live and work in Kelowna may well have a permanent establishment in BC. Corporate income is allocated to the provinces where the company has one, which changes the provincial tax on the T2. Some founders move the corporation itself; bringing a corporation to BC sets out what that involves. Remote developers add another question: a contractor who works only for you, on your schedule, may be an employee for payroll purposes whatever the agreement says, and the worker classification tests apply the same way to software as to construction.

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 project-tagged bookkeeping behind it
• Grants recorded against the projects and periods they fund
• Stock option and share records reviewed for tax reporting
• GST, HST and BC PST registration and filing
• Payroll for a growing team, including option benefits on T4s

Remote, and there is no Kelowna office

EverStone operates from Abbotsford, British Columbia, and has no Kelowna location. Engagements run entirely online: video meetings, e-signature and a secure upload link, which is how most software teams already work. Corporate tax is federal law with a provincial layer, so the work is not tied to a postcode. For owners thinking about the jump from a bookkeeper to forecasting and investor reporting, fractional CFO support starts from $2,500 a month.