This is one reason why some companies have located engineers in Canada under subsidiaries. Canada not only allows you to deduct R&D costs as an expense, but there is an extremely generous R&D tax credit that yields a negative tax rate on engineers. For Canadian controlled private companies, this represents as much as a 60% refundable tax credit on R&D salaries. For foreign-owned companies, the benefit is smaller but still significant.
The Trump tax policy was a bizarre move for a country that relies so heavily on homegrown innovation. But then again, so was the entire Trump presidency.
Wait, you saying in Canada a R&D software company can essentially sell a dollar (of SDE produced goods) for a dollar and get a tax refund from the government?
If the R&D is going toward intellectual property that is owned by the company, yes. And it doesn’t matter if the company is foreign or locally owned. The program is designed to foster companies hiring engineers and scientists to work in Canada to increase the brain trust within the country.
It pushed almost all SWE jobs to be classified as R&D jobs, which changed how taxes are calculated on companies.
They have an example at [0], but I'll copy it here. For a $1mm income, $1mm cost of SW dev, with $0 profit previously you paid $0 in tax (your income was offset by your R&D costs). Now it would be about $200k in taxes for 5 years, as you can't claim all of the $1mm that year anymore.
There's tons of taxes on hiring employees that you have to pay even if you're losing money. Payroll taxes, mandatory insurance taxes, unemployment taxes, probably more I just don't remember off the top of my head.
In an effort to lower the deficit effects of the Trump tax cuts (i.e. increase revenue so they could cut further in other areas), they reclassified software developers salary so that their salaries have to be amortized over multiple years, instead of just a business expense in that year. This is usually done for assets as those things have an intrinsic value that could be sold.
In this case, business have to pay taxes on "profit" that they don't have as it immediately went to salaries. There were a lot of small business that were hit extremely hard.
