The Case of Cash Conservation
A high tech software client selling primarily to international clients was experiencing both high profits and a high rate of growth. However, cash flow was tight because of the growth in working capital requirements. Profits needed to be managed down to ensure the company continued to qualify for the enhanced and refundable SR&ED investment tax credits.
Scarrow Yurman & Co considered the use of year end management bonuses, but this was difficult because of the need for cash to fund the growth in the business. After analyzing the revenue recognition policies, Scarrow Yurman & Co found that there was a valid reason to defer certain types of revenue into the following tax year. This meant a lower recognition of income for accounting and tax purposes.
The client saved significantly on corporate taxes and was able to apply for the enhanced and refundable SR&ED investment tax credits because their corporate income was lower. As well, precious cash was conserved to fuel growth in the core business of our client.