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CRA Clarifies its Position on Cost of Materials for SR&ED (2000)

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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 theĀ SR&ED Tax Credit page on Facebook. Stay current with the program by understanding the historical context.Ā 

On March 1, 2000 the CRA published a document clarifying its position in regards to the ā€œcost of materials consumed or transformedā€ (1) for SR&ED projects as well as definitions used under the Income Tax Regulations.Ā­ For claimants using the traditional method, the Income Tax Act was amended to state ā€œan expenditure directly attributable to the prosecution of SR&ED includes the “cost of materials consumed or transformed” in such prosecutionā€ incurred after February 23, 1998 (2). Ā 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 ā€œinvoice cost, custom and excise duties, transportation and other acquisition costs, and when they are significant, storage costsā€.Ā  In the case of inventories of goods, it ā€œinclude(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 productionā€ (3)
  • Materials: ā€œall the raw materials, substances, or other items that compose the body of a thing at a given moment in the SR&ED processā€ (4)
  • Consumed: “absorbed, used up or broken down into small piecesā€ (5)
  • Transformed: ā€œbe incorporated into a product that has some value either to the taxpayer or to another partyā€. (6)

(1-6) This article is based upon a Government of Canada news release issued at the time:Ā Application Policy: Cost of Materials for SR&ED.

Please also seeĀ Materials for SR&ED Policy andĀ CRA Updates SR&ED While Developing an Asset Policy [2016-07-19]

 

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