SR&ED within C.I.? R&D Tax Incentives Practice February 17 th, 2011 David Regan

2 Agenda KPMG Background SR&ED Overview C.I. Defined Making the Link Q&A

3 Who are We… KPMG Audit Advisory Tax (SR&ED Practice) SR&ED Over 150 SR&ED Practitioners Specialized professionals per Industry Local offices across Canada

4 SR&ED Overview Program Objectives World class incentive program Encourage Canadian Businesses to conduct R&D Provide financial incentive to offset R&D risk (23,000 claims, $4 billion tax credits) Foster economic development

5 SR&ED Overview Benefit (and Inconvenience) to You Significant savings to bottom line Credit is 20% or 35% from the Federal Government Additional Provincial credits Ontario4.5% or 14.5% British Columbia10% Alberta10% Saskatchewan15% Manitoba20% Quebec17.5% or 37.5% New Brunswick, Nova Scotia, Newfoundland15%

6 SR&ED Overview Filing Requirements Submitted within 18 months of yearend Detailed project description Completed tax forms Be supported by backup documentation First time claimants are normally given some leniency

7 SR&ED Overview Eligible SR&ED Expenditures Salaries and wages (inside and limited outside of Canada) Contract payments Materials consumed/transformed New capital equipment Equipment leased or rented Overhead (65% of labour proxy method or traditional method)

8 SR&ED Overview Experimental Development Criteria Work undertaken to achieve technological advances for the purposes of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto Three SR&ED Criteria Technological Advancement Technological Obstacle/Uncertainty Systematic Investigation or Search

9 Process Improvement Improvement (Innovation and Kaizen) versus Maintenance Innovation (Typ. R&D) Kaizen (Some R&D) Maintenance (Typ. No R&D) -Drastic process improvement -Incremental process improvement -Maintain current process

10 Continuous Improvement Ongoing effort to improve products or processes Assess DesignImplement Evaluate CONTINUOUS IMPROVEMENT

11 Continuous Improvement Lean Manufacturing (7 wastes) Overproduction Waiting Conveyance Over-processing Inventory Motion Rework Six-Sigma Tool using data to identify and remove causes of defects

David Regan Partner R&D Tax Incentives Practice KPMG LLP Toronto (416) Information is current to November 3, The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Sergio Colantonio Senior Manager R&D Tax Incentives Practice KPMG LLP Toronto (416)