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CRA Clarifies its Position on Cost of Materials for SR&ED (2000)
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. For a timeline of these events, check out the SR&ED Tax Credit page on Facebook. Stay current with the program by understanding the historical context.
On March 1, 2000 the CRA published a document clarifying its position in regards to the “cost of materials consumed or transformed” (1) for SR&ED projects as well as definitions used under the Income Tax Regulations. For claimants using the traditional method, the Income Tax Act was amended to state “an expenditure directly attributable to the prosecution of SR&ED includes the “cost of materials consumed or transformed” in such prosecution” incurred after February 23, 1998 (2). As for the proxy method, applicants can claim only the cost of materials consumed.
CRA Interpretation on SR&ED Costs, Materials, Consumed and Transformed
Within this application policy, the CRA also presents its interpretation of the terms “cost”, “materials”, “consumed” and “transformed” to assist claimants for the SR&ED.
- Cost: In the case of merchandise or raw materials, it includes “invoice cost, custom and excise duties, transportation and other acquisition costs, and when they are significant, storage costs”. In the case of inventories of goods, it “include(s) laid-down cost of materials plus the costs of direct labour applied to the product and the applicable share of overhead expense properly chargeable to production” (3)
- Materials: “all the raw materials, substances, or other items that compose the body of a thing at a given moment in the SR&ED process” (4)
- Consumed: “absorbed, used up or broken down into small pieces” (5)
- Transformed: “be incorporated into a product that has some value either to the taxpayer or to another party”. (6)
(1-6) This article is based upon a Government of Canada news release issued at the time: Application Policy: Cost of Materials for SR&ED.