Why the FintechSector in Toronto is Booming?
Our Firm would like to share some insight on the currentstatus of the Toronto Technology Sector. We will review the FinTech Space, Types of Companies, Finance professionals/developers,allocators, TechTo, and How MP Group assisting.
Toronto’s FirstAccounting Boutique for Technology Companies
MP Group Chartered Accountants & Business Advisors
As Toronto’s First Accounting Boutique for TechnologyCompanies we have seen a lot of growth in the Technology sector in Toronto. The trends right now are Financial Technology (or FinTech), healthcare, and various software platforms to assist with processing business transactions. MP Group first started working in the technology sector with various clients in Bitcoin, Block chain technology, and other digital/crypto currencies andFinTech. MP Group is an Accounting & Tax Advisory partner for Decentral, along with other partners such as Mars Innovation. Please visit http://decentral.ca/about/ for more information.
Types of companies
We have seen a variety of companies trying to solve modernday problems with the old way of doing business in the finance world. We have come across a company that is leveragingblock- chain technology to improve the distribution of dividends instead ofusing traditional administrators. Refer to their website for more information at http://equibit.org/. Reducing the time to process and alsocutting costs by 50% or more can be very distributive to the financial world. We also see start-ups trying to digitize the financial planning world; of course the banks don’t like this but it’s already taking place with many different platforms. There is another start up in Toronto that is using machine learning totake tax positions using court cases and professional judgment to help taxlawyers and accountants.
These companies are using Technology to make the financeworld more efficient.
Silicon Valley has its eye on Toronto
Toronto seems to be a hub for the FinTech Sector and lately has been getting a lot of attention from Silicon Valley. The reason is simple; Toronto is home to someof the best schools in North America for Technology and Innovation which include:the University of Toronto, Waterloo, and more recently Ryerson. The downtown core as a lot of talented technology experts in development, operations, finance, and this blend makes a great combinationfor Financial Technology.
Former Big 4 Professionals Teaming Up With Technology Developers
MP Group’s partners are former Big Four and have worked withseveral of the large firms including PwC, Deloitte, and KPMG. We have seen agrowth in various FinTech start-ups in Toronto, and a lot of them we know personally since they are past colleagues and fellow alumni. Typically, the entrepreneurswe are around want to solve a problemthat they have experience in whether it’s in the finance, accounting, tax,legal, or banking. They have seen the opportunity to create technology to make traditionalactivities and processes more efficient and cost effective. After all when finance people and tech developers team up they can do some amazing things.
Toronto Technology Events
If you have a chance to check out some of the Tech events in Toronto you will enjoy the energy and ideas that are exchanged. There are many starts up events in the city but the largest by far is TechTO. It’s away to network with entrepreneurs and others in the sector. There are presentations on industry update sand guest speakers discussing their tech start up journeys and some of the new technology of focus for their companies. Most of the presentations are story based, and walk you through the co-founders experience to learn more about what was possible to solve business challenges and success stories.
MP Group’s appearanceat TechTO in November 2016
Check out the link here for MP Group’s appearance at arecent TechTo event. https://youtu.be/UALXv_fCXOc?t=7m5s
Top Toronto Tech Accelerators
There are many in Toronto, however the following are the top ones in the city at the moment:
1)DCS Innovation Lab – Created by U of T’s department of computer science. Helping its companies by providing start-up’s guidance.
2) IdeaBoost- Founded by the Canadian Film Centre, and helps digital media and film companies.
3) Impact Center- This is a yearly accelerator program called Techno also offered by U of T.
4) Utest –Co- founded by U of T and Mars Innovation, a partnership program that invests $30,000 in its companies for a 5% equity stake.
5) Hacking Health- A Hackathon program that holds mentorship boot camps and offers upto $50,000 in funding in return for 7% equity.
6) Highline – Social media focused digital marketingstart-ups. The program offers up to $200,000 and entrepreneurs have access to over 100 mentors in their network.
7) The DMZ- created by Ryerson University- currently houses 80 companies, seed funding to select start-ups of between $50,000 and $80,000.
8) Creative Destruction- Housed by U of T, no investment provided, but great access to mentors.
9) INcubes- Toronto chapter, but is a global based network.
10) The Next36- Toronto based and open to students or entrepreneurs under 30. There is seedfunding available up to $50,000 in return for 4% equity.
How MP Group has beenhelping Technology Companies in Toronto?
As entrepreneurs we understand the process of building a company. Also, having worked with the large international firms such as PwC, Deloitte and KPMG, we leverage this enterprise for our service offerings to our client’s in the technology sector.
Our service offeringsinclude the following:
Business Plans, PitchDeck, and Financial Projections
Building a strong business plan requires three critical components:
A background of the co-founders and their expertisein the sector, you need to demonstrate that you have the correct team in place,from your CTO, Finance Director, and Sales/Business Development manager. Angel investors and VC’s are investing in the people at the end of the day, especially if the business is early stage.
2. Idea / Concept- Problem Solve Fit Clarity
You will need to clearly communicate you rproblem solve fit. If this is not clearin your business plan and pitch deck you will lose investor interest rightaway.
3. Business Model / Financial Projections:
At the end of the day the people and the idea/concept is great, but how youare going to make money is much more important. Understanding and communicating your market, penetration rate, marketing plan, and putting together financial projections correctly can often make or break a deal.
Financial Statements for Growth Companies
As a licenced public accounting firm, we can offer independentfinancial statements with a level of assurance (Review or Audit Level), this is often preferred and requested by investors. It provides higher credibility over your company’s financial statements and position of the business.
SRED Tax Credits
Why should I care about Scientific Research and ExperimentalDevelopment (“SR&ED”) tax credits?
SR&ED tax credits represent a significant financialincentive for undertaking eligible activities and filing a corresponding SR&ED claim with the Canada Revenue Agency (“CRA”). The tax credits may beused to reduce your income tax liability with CRA or instead paid directly toyour organization, subject to some restriction. For Canadian-controlled private corporations,the SR&ED tax credit is a refundable tax credit which means the company will receive a cheque from the government for the amount of the tax credit.
What are eligible SR&ED activities for the purposes ofthe tax credits?
To qualify, the work must meet the definition of Scientific Research and Experimental Development (SR&ED) in section 248(1) of the Canadian Income Tax Act.
“scientific research and experimental development” meanssystematic investigation or search that is carried out in a field of science ortechnology by means of experiment or analysis and that is
(a) basic research, namely, work undertaken for theadvancement of scientific knowledge without a specific practical application inview,
(b) applied research, namely, work undertaken for theadvancement of scientific knowledge with a specific practical application inview, or
(c) experimental development, namely, work undertaken forthe purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto,
and, in applying this definition in respect of a taxpayer,includes
(d) work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis,computer programming, data collection, testing or psychological research, wherethe work is commensurate with the needs, and directly in support, of workdescribed in paragraph (a), (b), or (c) that is undertaken in Canada by or onbehalf of the taxpayer, but does not include work with respect to
(e) market research or sales promotion,
(f) quality control or routine testing of materials,devices, products or processes,
(g) research in the social sciences or the humanities,
(h) prospecting, exploring or drilling for, or producing,minerals, petroleum or natural gas,
(i) the commercial production of a new or improved material,device or product or the commercial use of a new or improved process,
(j) style changes, or
(k) routine data collection
Determining if there is SR&ED:
The method to establish whether SR&ED is applicable involves answering the following five questions:
Was there a scientific or a technological uncertainty?
Did the effort involve formulating hypotheses specificallyaimed at reducing or eliminating that uncertainty?
Was the overall approach adopted consistent with a systematicinvestigation or search, including formulating and testing the hypotheses bymeans of experiment or analysis?
Was the overall approach undertaken for the purpose ofachieving a scientific or a technological advancement?
Was a record of the hypotheses tested and the results keptas the work progressed?
These questions follow the progression of SR&ED workfrom identifying the uncertainty, through carrying out the work for itsresolution, to the resulting advancement. They are also interrelated, withquestion 1 and question 4 looking at why the work was done and questions 2, 3,and 5 looking at how the work was done. Because of the relationships between the questions, the five questions should be considered jointly across the entirebody of work being evaluated.
There is SR&ED if the answer to each ofthe questions is yes.
scientific or a technological uncertainty: Scientific or technological uncertainty means whether a given result or objective can beachieved or how to achieve it, is not known or determined on the basis ofgenerally available scientific or technological knowledge or experience. Thisdefinition encompasses the definition of scientific uncertainty, technologicaluncertainty and technological obstacle. The only difference is that scientificuncertainty relates to science whereas technological uncertainty andtechnological obstacle relate to technology.
A hypothesis is an idea, consistent with known facts, that serves as a startingpoint for further investigation to prove or disprove that idea.
systematic investigation or search:
The systematic investigation or search called for in the definition of SR&ED is an approach that includes defining a problem,advancing a hypothesis towards resolving that problem, planning andtesting the hypothesis by experiment or analysis, and developinglogical conclusions based on the results.
scientific or a technological advancement:
Scientific or technological advancement is the generation of information or the discovery of knowledge that advances the understanding of scientific relationsor technology. This definition encompasses the definition of scientific advancement, advancement of scientific knowledge and technological advancement.The only difference is that scientific advancement and advancement ofscientific knowledge relate to science whereas technologicaladvancement relates to technology.
How MP Group can help?
MP Group offers contingency pricing with respect to our SR&ED services! This is a highly attractive form of pricing for organizations seeking to benefit from these financially rewarding tax incentives, but also weary of incurring expensive professional tax advisoryfees in a case where their SR&ED claim with CRA proves unsuccessful.
If you believe your organization may already be undertaking SR&ED activities, or is preparing to in the near future, please contact usfor more information.
Also, if you require assistance with accounting, financial statements, corporate tax structures (Canadian/International), Raising Capital of Management Consulting please visit www.mpgroupcpa.com.
If you would like to speak with an MP Group Advisors of your Technology Company Please contact one of our partners below:
Raffael Mazze, CPA, CA, LPA
Consulting, Business Advisory for Technology Companies.
Kunal Parshotam, CPA, CA, LPA
Assurance, Tax Consulting & SRED Tax Credits for Technology Companies.