Feds reviewing SR&ED consulting fees
Contingency billing raising concerns over high fees and diluted incentive for business
Ottawa—The federal government is calling for input on contingency fees charged by SR&ED consultants.
According to data from the Ministry of Finance, 65 percent of small and medium-sized businesses who applied for the SR&ED (Scientific Research and Experimental Development) tax credit in 2009 used the help of a third-party tax preparer.
Some of these third parties are paid on contingency, meaning they get a percentage of any credit awarded from a successful SR&ED application.
There are no restrictions on fees, so they can range from 30 percent or more of the total credit, and may translate into reduced incentive for the firm conducting R&D, according to a release today from Department of Finance Canada.
“The SR&ED tax incentive program is the single largest federal program supporting business research and development in Canada, providing more than $3.6 billion in tax assistance in 2011,” added Finance Minister Jim Flaherty.
“The feedback from this consultation will be important in ensuring that the program continues to benefit Canadian businesses and the economy.”
In its invitation for comments, the Department pointed to concerns around the prevalence and amount of the contingency fees.
It also referred to criticism of the billing practice “on the basis that it provides an incentive for tax preparers to encourage their clients to take aggressive positions that push the bounds of the law and its interpretation.”
On the flip side, it acknowledged SR&ED consultants might also be beneficial, as they increase awareness of the program, and help small companies with limited resources prepare applications.
The Department of Finance is asking for written submissions focused on several key questions:
• why companies use tax preparers to apply for SR&ED;
• why SR&ED consultants charge on contingency rather than a more traditional billing basis;
• whether businesses use consultants for their first application or on a recurring basis.
Submissions on the issue will be accepted until October 1, 2012.
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