I tend to get a little bit retrospective at the beginning of a new year. This is the point in time to reflect over what happened and on what kind of a year 2010 was.

Looking back, it’s apparent that we are continuing to see our economy recover from the recent recession. Employment has risen. R&D spending in higher education institutes increased. Manufacturing sales have climbed almost every month since the May 2009 low. On a whole, the Canadian economy is continuing to improve, and this can give us hope for the year to come.

In the realm of the SR&ED program in Canada, there were a couple notable events that happened in the past year. First, the new claim review manual was released in June – the manual makes SR&ED reviews more consistent through a set of guidelines of what is to happen during a review. Since its implementation, we have found that reviews have been more structured and that reviewers need more specific information included in your documentation. NorthBridge has adapted to these changes, and we are working with each of our clients to improve the tracking and documentation that is implemented, in order to comply with the claim review manual.

As well, the Manitoba and Quebec provincial governments made changes to their provincial SR&ED programs. Starting in 2011, all SR&ED in Manitoba is eligible for a partially refundable tax credit (previously, the tax credit was non-refundable). In Quebec, additional costs are now applicable for the provincial program – including costs to use pharmaceutical companies or clinical research organizations. We see both of these changes as improvements to the programs which only benefit those of you claiming for SR&ED in those provinces.
To help ensure that we are giving you the best possible service, NorthBridge has also undergone a few changes over the past year.

We’ve expanded our team across Canada – not only do we have full offices in Ontario and Atlantic Canada, we also now have an office in British Columbia! We opened this new office in October in order to be better equipped to fully service our clients in Western Canada.

In September, we revealed our new company branding. Thank you all for the positive comments you’ve given us about the new branding . We continue to believe this new branding reflects NorthBridge more aptly – as a company who works with you throughout the whole SR&ED claiming process. Our new slogan, You Deserve More, shows that we are committed to providing you with the best service and to helping you obtain the largest refund possible through the SR&ED program.

This year we have also partnered up with a couple of companies who offer services that we feel may be beneficial to our NorthBridge clients. NorthSpring Capital Partners invests risk capital, and NorthLink Capital Advisors provides advice on mergers, acquisitions, divestitures, capital raising and financial restructuring. Both companies work with small to medium sized businesses in Southern Ontario.

Lastly, half way through December, we moved our head office location. We are now located at 445 Thompson Drive in Cambridge, ON N1T 2K7. This is a larger facility and a better environment, allowing us service you better.
Throughout it all, we have and will continue to work with your best interests as our final goal. We want to see your business excel in the coming year. We are looking forward to what this new year can bring us all!

Best Regards,

Sol Algranti, President & CEO
NorthBridge Consulting Services

During our first experience claiming for the SR&ED program, we were called for a technical review by the CRA. We did not have the kind of project tracking and documentation that the CRA likes to see during SR&ED reviews. NorthBridge helped us prepare for presenting our case to the Research and Technology Advisor representing the CRA, and coached us on how to effectively defend our claim. By working with NorthBridge, we knew what to expect in the review process, which resulted in our claim being fully accepted without any deductions. If it were not for the assistance from NorthBridge, we would not have had as successful an experience with the review process or the SR&ED program in general.

Position SR&ED Team Specialist
Educational background Bachelor of Chemical Engineering and MBA from McMaster University
Professional Memberships and Designations Hopes to pursue a P.Eng in the future
Hobbies/Interests Golf, Tennis, Soccer, Reading
Biggest non-work-related accomplishment Winning Indoor Soccer League

NorthLink Capital Advisors was started in September 2010 by Sol Algranti, James Ro and Brian Hunter. The founders saw a need for high quality and professional advice with companies who have less than $30 million in sales and/or less than 100 employees. NorthLink focuses solely on transaction advisory services by providing merger, acquisition, divestiture, capital raising (subordinated debt and/or equity) and financial restructuring advice.

The three partners fit well together as they create a group of professionals with significant experience dealing with the entrepreneurial business owner. “We felt it was the right time to make this type of combination and recognized that there is a great opportunity to create a leading independent advisory firm solely focused on small to medium-sized businesses. This market is currently dominated by larger firms who are built to service larger clients,” said Brian Hunter, a partner at NorthLink Capital Advisors. “We think our focus on small and medium sized businesses will resonate well with most entrepreneurs.”

The current mergers and acquisitions (M&A) environment and the aging baby boomer population are two trends that make this an ideal time to start NorthLink. “Canadian M&A activity has demonstrated a strong recovery since the financial crisis a couple of years ago. Now that the crisis has passed and the economy is slowly improving, companies are looking to grow again either organically or through acquisitions. Furthermore, the availability of capital (either from banks and/or alternative sources), in a low interest rate environment, has definitely provided a stronger tone to the M&A market," comments James Ro, a partner at NorthLink Capital Advisors. “We're committed to assisting our clients with transaction services that require strategic thinking, thorough analysis, as well as realistic and objective assessments."

NorthLink is a natural fit with NorthBridge Consulting Services as both companies share similar client philosophies and business models that are nearly identical. “The objective is to attract business owners who are looking for a firm that fosters entrepreneurship and the sharing of transaction risk through a success-based fee structure (not on an hourly basis),” explains Sol Algranti, who is a partner at NorthLink Capital Advisors and also the CEO and President of NorthBridge Consulting Services. "NorthBridge is proud of its achievements to date, as an entrepreneurial firm; as such, we must always be looking forward and aspiring for improvement in everything we do. We will continue to strive for excellence in the resources and support to better serve our clients."

NorthSpring Capital Partners has announced the closing of a $400,000 mezzanine financing investment in Pegasus Direct Mail Worx. The funds were used by Dan Schottlander, the former General Manager of Pegasus, and his wife Anne, to complete a management buyout of the company.

Pegasus assists clients with direct mail marketing projects by providing single source, concept to mailbox capabilities including data processing, variable imaging, offset printing, inkjet addressing, bindery, inserting and automated polybagging. The company is based in Hamilton, ON (www.directmailworx.com).

NorthSpring Capital Partners provides from $250,000 to $1 million of capital in the form of subordinated debt and/or equity to small and medium sized companies across a variety of traditional industries located in Southern Ontario. Typical transactions include management buyouts and acquisitions; growth investments; recapitalizations; and select turnarounds. The firm is based in Cambridge, ON.

The unemployment rate in Canada has fallen to the lowest it’s been in two years as over 15,000 new positions have opened up in 2010. However, while part-time work rose there were significantly fewer full-time workers. The part-time employment rate has grown nearly four times faster than the growth in full-time positions. BMO analyst Doug Porter suggests that, “the economy is struggling to find work now that the recession’s job losses have been recouped.” Only three provinces saw an increase in employment this past month. Ontario led the way with over 30,000 new jobs while Saskatchewan and British Columbia were the others to notice an increase.

There was a significant decline in the number of employed youths and according to Statistics Canada, a majority of the decline in unemployment is because of youths leaving the labour market. Statistics Canada also stated that, “November's employment gains in health care and social assistance, retail and wholesale trade, and accommodation and food services were mostly offset by declines in manufacturing as well as in finance, insurance, real estate and leasing.” While employment among youths remained constant, there were fewer seeking employment which caused the unemployment rate to drop almost 1.5 percent.

Companies that develop interactive digital media products may qualify for the Ontario Interactive Digital Media Tax Credit (OIDMTC)

The OIDMTC is a refundable tax credit, calculated at 40% of labour, marketing and distribution expenses associated with the production of eligible interactive digital media products in Ontario. The tax credit rate is reduced to 35% for products that are developed under a “fee for service” agreement with an arms length purchaser for the purpose of sale or licensing of the product by the purchaser.

Eligible products must be developed in Ontario for the purpose of education, information or entertainment and must use two of the following to achieve its purpose: sound, text or images.

Eligible expenses related to marketing and distribution are limited to $100,000 and can be claimed for 24 months prior to the completion of the product and 12 months following completion. 100% of eligible labour can be claimed for 37 months prior to project completion.

Part 3: What to Expect if the CRA Wants More Information (Review Stage)

The CRA has two distinct methods of conducting a review (previously known as an audit): Desktop and In-house. Each of these can be further broken down into either a Technical review, a Financial review, or both Technical and Financial combined. The message from the CRA concerning audits over the last few years has been, "These are not audits - these are reviews and requests for additional information to back up your claim."

Most business owners fear the terms “CRA” and “audit” but the NorthBridge team knows that the CRA is simply attempting to understand the science behind what you are doing and whether it qualifies. We work hand-in-hand with the professionals at the CRA and have developed a long term relationship which is symbiotic. They really want to give back your entitled funds; we give them the necessary information to do so. Here are the basics:

Desktop review – Either financial or technical in nature, this is simply a request for documentation to verify the work was done as outlined. The reviewers do not visit the business location but, if not handled properly the desktop review can lead to an in-house review which is more involved and usually takes more time.

Types of documents requested during a desktop review typically include: schematics, logbooks, project planning, break down of materials consumed.

In-house review – Generally a technical review, but a small percentage of the time this review can be strictly financial. In certain rural areas of Canada the CRA likes to have a financial reviewer tag along for the ride on a technical review and sometimes does request additional financial information. This type of review can bog down a submission for months, which is why it is imperative to give the exact and correct information in a timely fashion.

Types of documents requested during an in-house review typically include: project planning documents, records of resources allocated to the project, time sheets, design of experiments, project records, lab notes, system architecture and source code, record of trial runs, progress reports, minutes of project meetings, test protocols, test data, analysis of test results, conclusions, photographs and videos, samples, prototypes, scrap or other artefacts, contracts]

NorthBridge engineers have been through this "seemingly" arduous and anxious process many times and are prepared in every way. We will know the reviewers’ habitual routines and how they plan to investigate. We understand that the CRA does not want to waste time and neither do our clients, and so we have more information than requested just in case they do ask for it.

While this can be a very difficult practice for other service providers we have a tried and proven methodology which has served us well over the last 22 years. The review stage is expected and welcomed by Northbridge because it allows the CRA to understand your business better and evolves the relationship for years to come.

NEXT MONTH: Part 4 – Whew! Review passed, what's next? Tracking.