Just to be clear, the capital gains exemption applies to sales of shares from a qualified Canadian small business, not all capital gains.

Also, on that topic, the Canadian controlled aspect of it can be undone by contracts you have with foreign shareholders, such as VCs. They can own < 50% of your stock but if they're deemed to have control by virtue of an option to acquire more stock or to force a sale, you lose the exemption.

And often times the Canadian startup is best off incorporating in DE. There's a little bit about it at http://blog.carlmercier.com/2011/08/29/us-incorporation-for-...

Actually, you don't even need profits to apply the credits against. They are refundable, which means that if you didn't owe taxes to offset against, the government actually writes you a check in the amount of the credit.

And also it can work out to a fair bit more than 20 - 35% -- especially if you can use the proxy method for overhead expenses.

We just went through the process for the first time and landed right around 50%. Our claim was reviewed (this is typical for first time claimants), and while non-trivial the process was well-managed and clear. We did it ourselves instead of using a consultant, and they were very understanding of a few mistakes we made, helped us rectify them and sent us on our way. I don't know if this is typical, but I really can't complain; it seemed entirely fair given the dollars involved.

CRA at their info sessions will tell you that they don't understand why more people don't just write their own claims.

I think people looking at it from the outside, or for the first time, easily feel intimidated ("its the taxman!").

The reality is that CRA does want to work with you -- e.g. if you go to the info sessions, you can talk directly to the actual people running the SR&ED program, and they genuinely want to reward innovation and help you maximize the money you can get out, while ensuring that taxpayers (who are footing the bill) are looked after.

For example:

- besides the salaries paid for eligible work, you can also also claim the proportion of certain overhead expenses related to that work. Or, you can just choose to use the "proxy method" where they basically take the eligible salaries and tack on another 65%. This can be huge, and people do ask the question: "that extra 65% may end up being way more than my actual overheads". CRA's response: the law allows you to pick either, so pick the one that provides the most benefit to your business.

- a CRA officer once mentioned to me that they were extremely frustrated by being unable to approve a particular claim where the work seemed good, but there was insufficient documentary proof. After many months of continually going back and asking "are you sure you cannot dig up any documentation", someone at the company happened to mention that there had been an internal email conversation thread about the work -- and this ended up providing all the documentation the CRA needed to approve the claim.