IT and Software Company Accounting in Alberta

Two research incentives, and they stack

The federal credit

A Canadian-controlled private corporation can earn the SR&ED investment tax credit at an enhanced rate of 35 percent on qualified expenditures up to its expenditure limit, and for a qualifying corporation the credit on current expenditures at that rate is fully refundable. Refundable matters more than the rate does: it means a company with no taxable income can still receive cash.

The limit is reduced as taxable capital employed in Canada rises, and the thresholds have been the subject of announced changes, so the figures for your particular year need checking rather than carrying forward from last time.

The Alberta grant

Alberta’s Innovation Employment Grant applies to expenditures incurred in Alberta that qualify for the federal SR&ED program. It is 8 percent of the lesser of eligible Alberta expenditures and the corporation’s maximum expenditure limit, with a further 12 percent available on amounts above a base figure, to a total of up to 20 percent. Firms with 50 million dollars or more in taxable capital are not eligible.

Because it is built on the federal definitions, one body of evidence supports both claims. Payment follows CRA verification that the expenditures qualify and Alberta confirmation that the work was done here, so provincial money depends on a federal claim standing up.

The claim is made of contemporaneous records

Qualified expenditures are identified on form T661 and Schedule 31, and the deadline is hard: no later than twelve months after the filing due date for the year the expenditures were incurred. Miss it and the claim is gone regardless of merit.

What makes a claim survive review is evidence created while the work was happening. Commit messages, issue tracker history, design notes, and time records showing who worked on which problem carry far more weight than a description written months later. That is a decision about how the team works, not about how the return is prepared, which is why it is worth setting up before the year rather than during the claim.

Selling to customers who are not here

Services supplied to a non-resident can be zero-rated under section 7 of Part V of Schedule VI, subject to a list of exclusions. Website hosting supplied to a non-resident is one of the CRA’s own examples. Zero-rated is not the same as exempt, and the difference is the whole point: you charge tax at zero percent and still recover the GST you paid on your own costs.

Getting there depends on establishing that the customer is a non-resident and that none of the exclusions apply, which is a documentation exercise carried out at onboarding rather than at filing. For Canadian customers, the place of supply rules determine which province’s rate applies, and for a company billing across the country that is a configuration decision in your billing system, not a manual one.

What you spend building the product

Development cost is usually the largest number on the page, and how it is treated affects the tax result, the SR&ED claim, and what the financial statements say to an investor. Some of it is a current expense. Some is capital, recovered through capital cost allowance, and software does not all fall into one class. Purchased software, software developed for internal use, and software that is the product itself can be treated differently.

Accounting treatment and tax treatment do not have to match, and it is common for them not to. What causes trouble is when neither has been decided consciously and the bookkeeping has simply been coding invoices to whichever account was used last time.

The incorporated contractor problem

A great many developers and consultants incorporate and then work through a single client, often on that client’s systems, on that client’s schedule. The personal services business rules exist for exactly that pattern. They can apply where the shareholder holds at least ten percent of the shares, the corporation does not employ more than five full-time employees through the year, and the person doing the work would reasonably be an employee of the client if the corporation did not exist.

Where they apply the result is severe: no small business deduction, no general rate reduction, an additional five percent tax, and almost no ordinary business deductions beyond salary paid to the incorporated employee. Contract wording does not decide it. Control over how the work is done, who provides the equipment, whether you can take other clients, and whether you can profit or lose on the engagement do.

How we work with technology companies

Bootstrapped, funded, or a consultancy that has grown into a product: the pressures are different but the same three questions come up.

• SR&ED and Innovation Employment Grant claims, with the evidence question raised at the start of the year rather than at the deadline.
• Corporate returns, including how development costs are treated and how that interacts with the claim.
• GST registration and filing, with export documentation and place of supply configured in the billing system.
• Payroll for staff, and a clear-eyed look at contractor arrangements before they become a problem.
• Bookkeeping that separates research work from delivery work, because the claim depends on it.
• Structure conversations before financing, so the shape of the company does not have to be undone later.