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 October 18, 2002, the Canada Revenue Agency (CRA) published an application policy that clarified its position in regard to expenditure incurred in a SR&ED project where the person or partnership is not a taxable supplier.
SR&ED Policy Intent
The federal budget of February 1995 introduced new rules for taxable suppliers. While the main purpose of the regulation is to help promote Canadian SR&ED and encourage domestic research and infrastructures, Bill C-36 included clear definitions of contract payment, taxable supplier and qualified expenditures. The bill also details that contract payments can be considered if:
- “the amount is paid or payable to a taxpayer by a taxable supplier;
- the amount is for SR;
- the SR&ED is performed for or on behalf of a person or partnership that is entitled to deduct the amount;
- (…) and the taxpayer and that person or partnership are dealing at arm’s length when the SR&ED is performed.” (1)
The taxable supplier rules do not apply to payments if the claimant directly undertakes the SR&ED. Also, “(t)he taxable supplier rules will not apply where an arm’s length SR&ED contract is entered into with a non-resident person or non-Canadian partnership that carries on a business in Canada through a permanent establishment.” Prior to the regulations proposed in Bill C-36, two Canadian taxpayers could argue that they were both eligible to claim the same expenditures on the same SR&ED project. The change brought forth in Bill C-36 clarified which party of the SR&ED work was entitled to receive the ITC credits.
View more information here.
(1-2) Source 10/22/2012 http://www.cra-arc.gc.ca/txcrdt/sred-rsde/pblctns/p02-03-eng.html