Tax breaks for innovation are a neglected route to growth in the real estate sector

The real estate market has shifted dramatically throughout the pandemic with thousands of people waking up to the possibility of living outside the country’s major commercial and industrial centres.

Real estate firms will have to adjust to changing trends like this but not all will be able to benefit immediately. Some will suffer financially from finding themselves in the wrong place at the wrong time.

This setback wouldn’t be as bad if they’d claimed all the tax incentives they were entitled to but real estate is a classic example of an industry in which people underestimate the amount of research and development that goes on. Hand-in-hand with that goes a lack of awareness that much of that work qualifies for a tax break called Scientific Research & Experimental Development tax credits or SR&ED for short.

Tax incentives available in real estate and construction

SR&ED is administered by the Canada Revenue Agency (CRA) and can be worth hundreds of thousands of dollars.

The key is recognising what qualifies and it’s worth speaking to a specialist tax advisor if you are unsure.

The type of work encountered by professionals in the industry will vary from the design and development of tools, equipment and the structures themselves to environmentally-friendly energy sources and even advancements in building materials.

Some specific examples would include:

  • Development of new or improved materials for construction including metals, alloys, glass, plastics, ceramics, concrete, cement and insulation.
  • Development of equipment and infrastructure to address non-standard construction scenarios encountered on real estate projects
  • Creation of new methods and processes that help reduce the overall time that it takes for properties to be built
  • Developing environmentally friendly technology that helps real estate developers to meet new environmental regulations

There is already a high chance that many real estate and construction firms will have been innovating over the past few years but have not noticed that these valuable government tax incentives apply to them. Both real estate and construction companies are not typically perceived as businesses that operate under the umbrella of science and technology, but the engineering side of their operations is likely to routinely meet the criteria for SR&ED.

The good news is that SR&ED can be claimed for up to 18 months after the tax year in which the work took place. Crucially, the definition for R&D is also relatively wide. Projects such as One Ontario, which have been set up to use innovation to speed up the process of building homes and preventing a housing shortage in the province, are likely to be doing work that is eligible for SR&ED.

What are these innovation incentives worth?

Depending on your province and your business structure, you can claim up to 41.5% of the expenses directly attributed to innovative activity. This is made up of a combination of federal and provincial innovation credits and varies by province.

Most expenses linked to the R&D itself will attract tax incentives. This extends to payments to contractors, materials, salaries, and other staff costs. The value of the incentives received varies according to the size of the project or the scale of the innovation.

Nevertheless, SR&ED is one of the most generous incentives and all too often it goes unclaimed.

Richard Hoy is president of specialist tax consultancy Catax Canada, based in Vancouver. You can reach him at [email protected].

2021-06-02 14:01:33

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