billy4325 wrote: By the $1.1 mil, I assume you mean the "Products & services" and "Engineering & R&D" (please correct me if I'm wrong). These charges are revenue for the Photon R&D and expenses to PHO. The R&D tax credits are earned on the R&D expenses in Photon R&D. I don't have the Photon R&D financial statements but by looking at the 2014, PHO financials, Photon R&D had payroll expenses of at least $1,330,306. Add in the proxy portion of 55% which is to cover labour overhead (1,330,306 x 1.55) and that's about $2.06 mil of expenditures eligible for SR&ED at a minimum (they're going to have materials expense and there could possibly be payroll which doesn't go through PHO, but is paid directly by Photon R&D - I don't have that info).
On the SR&ED expenses, currently they would be getting at least an extra 20% federally (35% CCPC high rate vs the current 15% rate which would be earned in PHO). Plus instead of taking the 15% base rate as a non-refundable tax credit which they can't use until a future year, they get it back when filing the year's tax return since the entire 35% is refundable. This doesn't include any potential provincial SR&ED benefits.
The funds from the royalty fee aren't just profit for Photon R&D, they're used to cover expenses of Photon R&D.
Photon R&D has expenses just from charges from PHO of:
Charges to: 2014 2013
Revenue from sales of products and services to Photon R&D $ 125,929 $ 267,970
Payroll reimbursement re: Photon Control R&D Ltd. 1,330,306 1,448,432
Recovery of premises and related expenses 398,500 299,644
Plus they're going to have other operating expenses which aren't charged through PHO.
Yes, I'm not sure if there is as much benefit now as there was before. There definately are still some SR&ED tax credit benefits. I'm not sure of the implications of putting the IP in a separate company, whether there is much benefit or not from a business operations/strategy perspective. Either way, it was done back in 2008 and they can't undo it, even if they wanted to.