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Retroactive SRED Deductions

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 it’s inception in 1986. For a timeline of these events, check out the SR&ED Tax Credit page on FacebookStay current with the program by understanding the historical context. 

Retroactive SR&ED Deductions

On Sept. 19, 1995, the federal government issued an application policy concerning retroactive SR&ED deductions, regarding situations when a taxpayer wanted additional tax credits (related to SR&ED capital expenditures) to offset the taxes due to the federal government that year.

“In these situations, the taxpayer requests that either the full cost, or a portion of the cost represented by the undepreciated balance of the asset, be included,” a notice from the time stated.

Claiming SR&ED Expenses

Before Feb. 22, 1994, the taxpayer could claim SR&ED expenses from any time when filing form T661 along with income for a particular taxation year. “Therefore, a capital expenditure that met certain requirements could be deducted … even if it was acquired several years before the deduction was made,” the notice stated. But the money could only be deducted “to extent that the amount of the expenditure was not previously deducted via capital cost allowance (CCA),” the notice added.

This situation could lead to “numerous administrative problems”, the notice stated.

“Other assets purchased over several years can be included in the CCA class, the full amount of CCA in each year may not have been deducted, etc.”

The government stipulated taxpayers could only claim capital expenditures that “clearly demonstrate” they were not previously deducted for CCAs, although prorated CCAs would be accepted if they were on a “reasonable basis.”

Tabling Bill C-59 for SR&ED Capital Cost Allowances

The government also tabled Bill C-59 on Nov. 24, 1994 restricting the amount of time an expenditure would be eligible for a SR&ED deduction.

According to the government, taxpayers could use eligible expenses that came from the later of two situations:

  • “The date the tax return for the subsequent taxation year following the year in which the expenditure was incurred is required to be filed (i.e. 18 months for corporations that do not have short taxation years)”;
  • June 25, 1995.

This article is based upon a Government of Canada news release issued at the time: Application Policy: SR&ED Capital Expenditures – Retroactive deductions under subsection 37(1) 

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