At SREDucation, we’re taking the time to document all of the changes that have occurred to the SR&ED program over the years. In our “From the Archives” series, you’ll be able to see how the program has evolved since its inception in 1986.

Capital Expenditure Changes to SR&ED Announced (1995)

On September 19, 1995, the Canada Revenue Agency (CRA) published a policy document to clarify their position in regards to retroactive deductions for capital expenditures under subsection 37(1) of the Income Tax Act.  Retroactive deductions can be requested for capital expenditures where a claimant seeks to increase their investment tax credits (ITCs) “in a statute-barred year to offset federal taxes otherwise payable in an open year.”

Changes to Retroactive deductions under subsection 37(1) regarding SR&ED

Before February 22, 1994 a taxpayer had to file a T661 form to make a deduction for that year.  Thus, expenditures that were acquired even in previous years could be used under subsection 37(1).  In other words, the claimant could “deduct a capital expenditure, or a portion thereof, under subsection 37(1) to the extent that the amount of the expenditure was not previously deducted via capital cost allowance (CCA).”

The changes proposed via Bill C-59 on November 24, 1994, placed a time limit for expenditures to be carried over.  After February 21, 1994, which was the cutoff date taken into account by the CRA for these changes, the claimant could deduce a capital expenditure from the later of:

  • Subsequent taxation year following the year in which the expenditure was incurred (18 months for corporations without short tax years); or
  • June 25, 1995.

These proposed changes to the SR&ED claims eliminated the issues regarded retroactive deductions under subsection 37(1) since “taxation years that could be affected by a retroactive deduction will be open to reassessment (i.e., not statute-barred).”

This article is based upon a Government of Canada news release issued at the time: Application Policy SR&ED 95-05, which is no longer available. You can read the 1995 Budget for additional insight. For information on more recent changes to capital expenditure policy, check out our blog post on the topic.

Do you have questions about SR&ED history, or current trends? Leave a note below or join our group on LinkedIn.


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