Random Company Systems is a Toronto-based SaaS company that offers AI-driven accounting automation and tax compliance tools to mid-sized enterprises across Canada and the U.S. After several years of strong revenue growth, the company has reached a strategic inflection point. Rising costs in its Toronto headquarters, increasing demand for regional service delivery, and pressure to improve EBITDA margins are prompting the leadership team to evaluate geographic diversification. Specifically, Random Company Systems is considering opening a new operations center in Calgary to reduce operating expenses, access Alberta’s lower corporate tax rate, and improve the speed and predictability of its Scientific Research and Experimental Development (SR&ED) claims. However, relocating or expanding operations outside Toronto presents significant challenges, including fixed lease obligations, potential duplication of infrastructure, and impacts on their internal cost allocation and reporting structure. This scenario is designed to simulate a strategic financial decision involving accounting, tax, capital investment, and internal control considerations.
| Metric | Amount |
|---|---|
| Revenue | $120M |
| Gross Margin | 60% |
| EBITDA | $28M |
| Net Income Before Tax | $20M |
| Cash Reserves | $25M |
| Deferred Revenue | $18M |
| Capitalized Development Costs (Net) | $11M |
| SR&ED Refund (Recognized) | $3.9M |
| Effective Tax Rate | 25.2% |
| G&A Allocation % (HQ) | 27% of Opex |
| Office Lease Obligation (Toronto) | $3.2M/year until 2028 |
| Calgary Operations Centre | Keep Growing in Toronto | |
|---|---|---|
| Initial Setup Cost | $6M | $3M |
| Accounting Impact | Overhead can be allocated away from HQ | Continued high G&A in Toronto |
| SR&ED Optimization | Better provincial support, refundable credits | Slower CRA review |
| Tax Treatment | 8% Alberta rate, no PST | 11.5% Ontario rate, HST applies |
| Fixed Asset Treatment | New capex for improvements | Minimal new capex |
| Transfer Pricing | Internal cost recharge potential | Centralized cost structure |
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