
Canada's Pitch to Tech Entrepreneur: We'll Pay 80% of Your Salaries - gabbo
http://online.wsj.com/news/article_email/SB10001424052702304811904579586283430862854-lMyQjAxMTA0MDIwNjEyNDYyWj
======
CoolGuySteve
One of the worst things about tech in Canada is that the salaries are
ridiculously low compared to the US. I made 2-3x as much by moving to
California and then another integer coefficient greater than one when I moved
to New York.

But really, I want to say this: as a Canadian, I find that image of poutine
extremely offensive. What is that yellow stuff on top, Curry? Are those even
proper cheese curds? They're not melted. Is that scallion?

How can this article be trusted when their choice of stock photo is so wrong I
question if they've ever even had the dish?

~~~
nl
_I made 2-3x as much by moving to California and then another integer
coefficient greater than one when I moved to New York._

I don't understand this. If the "average" engineer in SV makes 120Kish, then
the same engineer is making 40K in Canada? And they can make 240K in NY (with
no additional experience)?

Are those number correct?

If they are: I'd note that salaries in Australia are more closely aligned with
SV salaries than Canadian. Just in case anyone is looking to move somewhere...

~~~
nivertech
I think they talking about after tax numbers

~~~
DennisP
Taxes in Canada are not particularly higher than in the U.S.

[http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html](http://www.cra-
arc.gc.ca/tx/ndvdls/fq/txrts-eng.html)

[http://www.investopedia.com/financial-edge/0411/do-
canadians...](http://www.investopedia.com/financial-edge/0411/do-canadians-
really-pay-more-taxes-than-americans.aspx)

~~~
refurb
You need to include sales tax, which ranges from 5% in Alberta to 15% in
Quebec. Also, taxes on alcohol and gasoline are much higher than the US.

That being said, with the recent tax increases in the US and the lower of
provincial income taxes in many Canadian provinces (I'm looking at you BC),
the difference isn't as great as one would think.

~~~
cube13
You're paying sales taxes in pretty much all of the US, though, though not as
much(ranges from ~3% to 10%).

------
brennanm
A lot of the talk is on SRED credits. SRED is a large part of the credit
program for startups in Canada. Though it's not as simple as "Canada pays 80%
of your salaries"

You can get up to (off the top of my head) 75% of salaries paid back on hours
worked "advancing technology". That means it's only for true R&D. That means
UI, business logic, API, App anything, expenses, costs, etc... don't count.
It's only for when you embark on a project that truly advances the worlds
state of technology where you can really reap the benefits of SRED.

Most startups, as sad as it may be, don't truly advance technology. A lot
create value, yes, but advance technology? not really. Certainly not all year.
So they'll only get 75% of salaries paid for the hours they worked on
advancing technology.

You'll get that back at the end of the year as one lump sum. It's awesome.
However, it goes to the company and the company has to have already funded the
salaries -- it wont fund salaries, it will reimburse them.

On top of that the system is so hard to navigate that you'll end up requiring
a consultant to navigate it. They'll take a cut, between 10-20%, of the
return.

It's not as simple as the article states, and our poutine doesn't look like
that.

~~~
doctorwho
As someone who has actually used the SR&ED program for many years, I have to
say that you've got it a bit wrong...

SR&ED will cover a percentage of capital expenditures essential to the work
and a percentage of $ paid to contractors so it's salary plus SOME eligible
expenses. Salaries make up the biggest part though. I got about 65% back,
using the proxy method - a simpler way of calculating SR&ED overhead on
eligible salary expenses.

The R&D effort does not have to advance "the world's" state of technology,
just your company's.

It can't be obvious or routine engineering BUT work that is required to
complete the R&D work (but not directly R&D) IS eligible and you can claim it.

The 3 core requirements of SR&ED eligibility (for software anyway) are (1)
there has to be technical uncertainty, (2) you must use a systematic approach
and keep records a notes and (3) you must achieve a technological advancement.

The 3rd item catches people because it doesn't require a successful outcome.
You can fail and still claim the project. If you knew in advance (or it was
obvious to anyone in the field) that it would fail (or succeed) then there was
no uncertainty and it would not qualify.

SR&ED is really not that difficult to navigate. Consultants can help, but
they'll take a big chunk of your claim. Most of them work for a percentage
that runs anywhere from 15% to 35%. That's big money for very little value. I
wrote my own claims for many years and they were all successful.

When I started there was no limit on the write ups, now they put some severe
character count limits on the writes ups. That makes them harder for us but
less confusing for the reviewers. You really have to be able to distill things
down to just the essentials.

Any Canadian software company that doesn't at least look at SR&ED is just
throwing money out the window.

~~~
rfrey
They've recently removed the ability to claim capital equipment. My
experience, which is probably less than yours, is that the R&D requirement is
real and omnipresent - anything that's spent on production or that will go
into production can't be claimed. Furthermore I've been asked for lab
notebooks and experiment designs to justify the materials I used that I
claimed were for R&D purposes.

~~~
doctorwho
They used to have an "Account Executive" program where you could talk to a
reviewer BEFORE you started work to explain what you were doing and get tips
on what was eligible and what was not. I did that when I started and it was an
eye opener!

The reviewer I spoke to was the one who handled all our claims, so it didn't
hurt that he already knew about us. It made his job, and mine, a lot easier.

Wait... okay, found a link to the services they offer and Account Executive is
still in there, plus a bunch of others...

[http://www.cra-arc.gc.ca/txcrdt/sred-rsde/srvcs-eng.html](http://www.cra-
arc.gc.ca/txcrdt/sred-rsde/srvcs-eng.html)

If you're at all uncertain about what you can/should be claiming then you
should definitely talk to a SR&ED professional or use one of these services to
get definitive answers from the source.

------
pugsawakening
I'm currently a beneficiary of SRED in a startup context in Canada.

The first thing to note is that it doesn't solve many major problems. The lack
of development talent is the biggest one; trying to get someone to move from
California to Canada isn't something that's solved as simply as offering more
money. And in my experience (as a recent graduate), the talent that would have
studied computer science or has an interest in programming moves onto "safer"
education and career options (in the local context) - usually engineering or
commerce/finance.

There's simply a lack of talent, or more realistically, a lack of talent with
no better options.

The money here is being used to attempt to make up for the extreme economies
of scale that places like Silicon Valley have. It's not enough to make Canada
a competitive place to start a startup, really, but it may have some effect on
the total amount of expatriation by talented individuals.

~~~
lazyant
Lack of talent or lack of US-comparable salaries? A lot of U of Waterloo
people get snatched by American companies, I bet if we paid them about the
same many would stay here.

~~~
justinhj
This is true. We have two recent Waterloo students on the payroll (in
Vancouver), both of whom had options in SF (or anywhere they wanted really)

------
hluska
This article is light on facts (which is surprising to see in the wsj). This
program is called Scientific Research and Experimental Development Tax
Incentive Program. And, qualifying for a full SR&ED isn't as easy as they make
it sound. To learn more, visit:

[http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html](http://www.cra-
arc.gc.ca/txcrdt/sred-rsde/menu-eng.html)

~~~
9oliYQjP
The trick to SRED is to hire an outside expert who will work on contingency to
get a percentage of the SRED rebate they generate. There are many companies
providing this service. These folks are experts on writing the necessary
reports/forms given your engineers have written detailed logs of their work.
Don't try to do SRED yourself. It's just one of those things, like hiring a
lawyer, where it's complete lunacy to do it yourself.

~~~
personZ
_The trick to SRED is to hire an outside expert who will work on contingency
to get a percentage of the SRED rebate they generate._

This is the _scam_ of SRED. It is unfortunate that we are at this place.

There is absolutely nothing difficult about SRED (it is absolutely no more
difficult than any other completely banal corporate submission), beyond
understanding the magic terminology and phrasing that will get your submission
accepted as is. That a whole business of vampire consultants exist around
exploiting that, with agreement from Revenue Canada, is the real lunacy. It
undermines the efficacy of the program.

~~~
turnip1979
\+ 100. I find it revolting and scammy that tech companies have to get outside
"consultants" to help fill out the paperwork. I've heard stories where some
consultants worked for the program itself in the past. How can Canada piss
away so many tax dollars is beyond me.

~~~
michaelochurch
I think this is an overreaction. Why? Let's be honest. If you're the
stereotypical 150-IQ, borderline-Aspie tech co-founder, you're going to have
to find a business co-founder with connections. He's going to take a huge cut,
and you're going to do more work. That's just how the system's set up. Then
you deal with venture capitalists, who can pretty much set terms unilaterally
because of their inappropriate and collusive influence over what everyone else
thinks of you and your company.

If I'm an entrepreneur in need of capital, I'd rather pay a 10% tribute to
someone who knows the paperwork than the current 90+ percent tribute (to
people who can make introductions, people with sales skill, makers of
reputations) of Silicon Valley.

~~~
hluska
With all due respect, you should read more about the SR&ED before you call
someone's legitimate criticism an overreaction. It is a program designed to
pay back a portion of salaries that go into scientific research or
development. This isn't new capital, it is a rebate program where you earn
back a portion of salaries that you have already paid.

The challenge in SR&ED is convincing the bureaucrats in charge of the program
that the salaries you're asking for a rebate on actually went into advancing
the state of technology. One problem is that many of the bureaucrats who work
in this program come from accounting backgrounds. Hence the statement that you
need to make sure your application contains the magic words that will get an
application through.

In practice, the odds of an inventor receiving a full shred if she fills out
her own application are nearly zero. So, to take part in a program like this,
tech companies need to allocate ~7.5% of their annual research salaries to a
shred specialist.

I'm Canadian and I pay taxes, so I have a few problems with this program. It
is yet another program where you need an expert to sit in between the relevant
business and the government. And, it's a perfect example of a Canadian
government program where bureaucracy overwhelms the purpose.

But, as someone who works in tech and has gone through a few shred processes,
this program seems crazy. Who is better qualified to explain an invention than
the inventors themselves? And, if you need a gatekeeper to explain your
innovation, are the bureaucrats involved competent enough to administer a
program like this?

Those are important questions for Canadian taxpayers and are most certainly
not an overreaction. Your feelings about the VC industry are obvious, but in
this case, they aren't very relevant.

------
VonGuard
Canada was already doing this for the games industry, though not at 80%. It
worked. Look at all the studios in Montreal. Perhaps it could work again for
the startup culture. It's cold enough up there in the winter that going
outside is horrible, so why not stay inside and code!

~~~
stormbrew
The article is really light on details, but I'm pretty sure it's not
describing anything new. It's just SR&ED (lovingly called shred colloquially)
and related provincial programs, which have been around for a long time (in
their modern form since at least 1994). In fact, it's probably fair to say
that almost every tech employee (and many non-tech employees) in Canada has
been under an SR&ED grant whether they knew it or not.

There's actually quite a bit of overhead in reporting on how your work
qualifies as research, and it's gotten more strict in recent years. Apparently
there have been cases in the past of things like restaurants claiming their
chefs were doing research and such.

~~~
danielsiders
I believe the company also needs to be majority owned by _resident_ Canadian
citizens. There are a number of accounting firms that specialize in SRED
claims, but most take a cut of your return in exchange for their services.

~~~
amscanne
Canadian Controlled Private Corporation: [http://www.cra-
arc.gc.ca/tx/bsnss/tpcs/crprtns/typs/ccpc-eng...](http://www.cra-
arc.gc.ca/tx/bsnss/tpcs/crprtns/typs/ccpc-eng.html)

I believe that permanent residents would also qualify under the requirements,
citizenship is not strictly necessary.

------
kelvin0
"The downside is a more European attitude toward work— less intense, less
ambitious, more likely to have wine with lunch, Mr. Adelman says"

As a Montrealer and a Sotware Engineer having worked at various size companies
in this city, I can say I've NEVER seen my collegues have wine at lunch.
Working in video game industry and sleeping at the office at crunch time (back
in the days) I couldn't say my collegues or I 'lacked' the famed Silicon
Valley work ethos ... This article is fraught with stereotypes and coated with
a few fragment of facts ...

~~~
jebus989
As a European (ish), ditto.

------
gotrecruit
I'm moving to Vancouver, BC soon to found a startup, so it's good to hear
this. But from comments here, i'm hearing a lot of comments pertaining to
Toronto and Waterloo region, but not much about Vancouver or BC in general.
Why is that? Is Vancouver/BC not a good place for startups? Am I heading in
the wrong direction? I'm still in a position to switch back to Toronto if
necessary, so if someone can enlighten me that would be greatly appreciated.

~~~
gyardley
I didn't have a startup in Vancouver, but a prominent angel investor in
Vancouver put some money into my NYC-based startup, and I flew out there for a
couple of 'portfolio summits', with companies largely-based in Vancouver. I
liked the group I saw and people I met, but a) that was years ago, and b) I
don't know if they were representative.

Hey, if you want to talk to someone in Vancouver about the local start-up
scene, why not shoot me an email? (It's in my profile.) I can ask my old
investor if he's willing to hop on the phone and answer a few questions.

~~~
gotrecruit
hey, i will definitely shoot you an email. i would be curious to find out more
about the vancouver startup scene!

------
oldspiceman
1\. Is it this? [http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-
eng.html](http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html)

2\. If I were to start a new company, can I use this rebate when paying
myself?

~~~
eigenvector
1\. Yes 2\. Yes, but only for the portion of your time that was SR&ED
activities, which if you're the only employee couldn't conceivably be anywhere
near 100%.

~~~
doctorwho
If you are an owner in the company you only can claim a maximum of 75% of your
salary. So if 100% of your time was eligible work and you made $100K you could
only claim $75K of that and you'd get a percentage of that $75K back, not the
whole thing.

------
jgh
The kill or be killed attitude they mention in this article is interesting
because I almost immediately noticed the difference when moving from Canada to
California. It's a different animal, that's for sure.

~~~
null_ptr
Is the work atmosphere more relaxed in Canada? For that matter, do the East
Coast/West Coast culture stereotypes hold true for Canada?

~~~
elchief
It's more relaxed in Vancouver and Halifax. Less so in Toronto.

~~~
danpat
Super relaxed here in Canmore :-)

~~~
Danieru
You don't happen to be working at that Sport Fitness Accessory company in
Canmore eh?

~~~
danpat
Nope, I run [http://skitrails.info/](http://skitrails.info/)

What sports fitness accessory company? It's a pretty small town, I probably
know them....

~~~
giarc
Nice site. I'll keep this for next year.

------
arecurrence
We're talking about a program that dates back to 1944 as if it's some new
idea...

------
xux
So... what's the catch? Sounds too good to be true. Can anyone think why they
would do that?

Can I just move there and get the benefit?

~~~
clubhi
You have to live in Canada.

~~~
maaku
Why the downvotes? Seriously that's why the incentive exists. Not enough
skilled people wanting to live in Canada.

~~~
michaelochurch
Many immigrants prefer the US over Canada because (a) there are major benefits
to the US passport, and (b) there are unexpected prestige factors. In some
parts of Asia, Canada still has the stigma of being "for people who couldn't
get in to the US" even though, for the past 20 years or so, it's been as hard
to get into Canada as the US (if not harder).

If you take away New York and Silicon Valley and the unique opportunities
those places offer, the appeal isn't _living in_ the U.S. It's having an
American passport.

All that said, I think there are plenty of skilled people who'd live in
Canada. You see the same thing in the U.S. Midwest. There are a lot of smart
people who'd love to stay in, or move to, Chicago and Minneapolis. But the job
markets aren't nearly as strong there, so they move to the coasts, settle
down, and never return.

Properly deployed, programs like this can change that (although it tends to
take a long time).

~~~
maaku
I'm not aware of any single real benefit of a US passport over a Canadian
passport.

------
slajax
My co-founder was one of the first 3 people accepted to Canada from the US via
the Startup Visa program (I'm Canadian, made him move) - We're fully realizing
the benefits of operating in Canada as a CCPC. This article doesn't even touch
on how much is actually going on here. Not only was the cover photo offensive,
I question if they even researched the topic because they barely touched on
IRAP which is just as beneficial as SRED.

Talk to any founder from Canada and you'll likely get more reliable info then
was in this article. The compelling reasons to start a company here are many
and they are no secret.

------
api
It'll be interesting to see how well this works. Silicon Valley did not pop
into existence from nowhere.

[https://www.youtube.com/watch?v=ZTC_RxWN_xo](https://www.youtube.com/watch?v=ZTC_RxWN_xo)

~~~
tormeh
Wow. Really cool. The Silicon Valley essentially started as a defence supplier
network during the cold war centered on Stanford.

------
sxcurry
A caution if you're considering Quebec. You might be caught off guard by the
draconian French language laws, and restrictions on where you can send your
children to school. (Ex-Quebecer here)

~~~
the_duck
_sigh_ (Current Quebecer here)

------
myth_drannon
Although I worked for several startups that benefited from SRED credits, I
always found the system appalling and prefer the way it works in US with VCs.
No government should take hard working folks's money and give them to white
middle-upper class, well educated founders that will possibly just get wealthy
even more and the class division cycle will continue. I would bet if you pay
this money directly to the engineers themselves they will create much more
value.

Anyways I found that writing everyday what I did in a way it looks more as a
research just so SRED accountants don't question the company, as extremely
annoying to my day flow.

~~~
logfromblammo
A while ago, I daydreamed the possibility that some government could, by way
of international competitive advantage, establish by law a favorable tax
situation for corporations that had a "Gov Class" stock. This would represent
no less than 10% of the total ownership interest, and would be proxyless and
nonvoting, but would have preferred treatment for dividends. Any distributions
to Gov Class shareholder would be deductable from any taxes otherwise owed to
it, but would not be refundable.

That would allow the government, or anyone in its federation or confederation
or otherwise under it in the hierarchy, to invest in startup businesses in
such a way that favors local development and limits tax jurisdiction shopping.

If Chicago bought 15% of a new local company as Gov Class shares, it retains
15% of the value of the company and 15% of the profits, at the expense of tax
revenues, even if the company moves to San Francisco. In that case, taxes
would ordinarily drop to nothing, but as a stockholder, the municipal
government retains its investment. But perhaps the State of California buys
out City of Chicago to sweeten the deal. Chicago now has that money back to
reinvest, instead of pissing away tax dollars to develop companies that just
leave when they get big enough.

Of course, that assumes governments could be responsible investors, which is a
proposition very difficult to prove. As it is, straight subsidies seem like a
far stupider and more bureaucratic way to just waste tax money and enrich
business owners without producing the intended effects. If the government is
enriching the business owners anyway, wouldn't it be more cost effective to
actually _be_ one of the owners?

------
perfunctory
Do I get it right? I set up a startup. Declare my own salary to be $100.
Canadian gov pays me $80. I take $20 of that amount and pay it to myself as
the remainder. Sounds like basic income.

------
general_failure
I don't understand why all countries require startups to have investment. For
one, most tech start ups don't need significant investment and can be
boostrap. The average 30 year old has enough saving to get by for a year or
two without any investment. I feel require investment is really a cruft of the
past and shouldn't be a necessity for visas.

~~~
treelovinhippie
26\. $3k in the bank.

~~~
logfromblammo
I had more at that age, but now have less. I probably would have been better
off marrying a startup instead of a spouse. Either one alone can drain away
all the time and money you have, and then some, but only one is likely to make
your bank account any larger later on.

Now they say that money can't buy happiness, but not having enough of it is a
great way to get miserable. Think about that before you choose.

