Can I Claim Government Assistance and SR&ED? (T661 Lines 429-432)

Updated to Reflect New Policies (2022)  *** Some of the policies referenced were updated 2021-08-13. This article has been updated and is accurate as of 2022. ***

When applying to the Canada Revenue Agency for Scientific Research & Experimental Development (SR&ED) investment tax credits, the information you provide in each section can ultimately decide its fate in the hands of a discerning CRA reviewer. Make sure you are on target for a successful application by considering the information provided below.

Can I Receive Government Assistance and claim SR&ED?

Yes, as long as you declare the assistance you have received. If you use appropriate SR&ED tax software, it will help you determine how much of an ITC you can receive. You can also use our SR&ED calculator.

First, it’s important to determine whether the funds received are government assistance or a contract payment. We have previously written about the differences between assistance and contract payments. The current post focuses exclusively on Lines 429-432 of the T661.

What goes into Lines 429-432?

If you received government assistance for your SR&ED project from either a Canadian federal, provincial/territorial, municipal or otherwise public authority, it is important to include this on your T661 application form. In Lines 429-432, you will deduct the dollar amounts of assistance received from these entities from your total allowable SR&ED expenditures. This article will, line by line, flesh out the details and conditions of this part of your T661 application.

What is “Government Assistance”?

Government assistance is “assistance from a government, municipality, or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance, or any other form of assistance other than the federal investment tax credit (ITC)”. ¹

The CRA provides some factors to help with determining whether a payment is considered assistance. These factors are:

1. An “absence of firm terms of repayment on a loan”: if you are not given concrete repayment rules, the loan could be assistance.² For example, if your repayment of the loan is conditional depending on your “meeting certain revenue expectations, then it is likely assistance, not a loan”.³
2. A review of the facts suggests that repayments aren’t mandatory and the “amount given is to be used for SR&ED”. ⁴ For example, this would be the case when a grant is given from the government to a claimant who requires the grant to “purchase equipment for SR&ED”.⁵
3.  If there is an “absence of a business motive on the part of the payer” then the payment is likely assistance.⁶ The Federal Court ruled, in the “CCLC Technologies Inc. decision (96 DTC 6527)” that payments made to the claimant from the Alberta government constituted both government assistance and other forms of assistance.⁷ The court ruled that the business relationship was not an ordinary one as “the payments were not made to advance the business interest of the payer or to acquire an interest in the property”.⁸
4. If a government isn’t “making an ordinary commercial investment”, the contribution could be considered assistance. In the “Radio Engineering Products Limited decision (73 DTC 5071)”, the Federal Court upheld that a contribution to the claimant from the Department of Defense Production was “a contribution to the costs of the project,” and despite “provisions for repayment and contingencies, it was not a loan or an advance in the nature of a loan of capital or a payment on a capital account”. ⁹

It is important to realize that none of the above are hard indicators of assistance: they are simply aspects common amongst assistance payments.

Line 429: Provincial Government Assistance

Here is where you will subtract the amount of money given to you in assistance from a provincial or territorial government. This will be the “provincial/territorial SR&ED or R&D tax credits, and any forgivable loans, grants, subsidies, deductions from tax, investment allowances, or other forms of assistance from provincial/territorial governments.”¹⁰

Good tax software will automatically calculate this amount for you. See our list of tax software. 

To see a summary of tax credits for research and development by province and territory, click here.

Line 431: Other Government Assistance

The “forgivable loans, grants, subsidies, deductions from tax, investment allowances, or other forms of assistance from federal or municipal governments or public authorities“¹¹  you have received or expect or are entitled to receive should be entered here. Note that this amount “excludes the federal SR&ED investment tax credit (ITC).”¹²

The assistance can come from any governmental or public authority – foreign governments and Crown corporations included. Public authorities are those that meet the following criteria:

• has a duty to the public;
• is subject to a significant degree of government control; and
• uses its profits for the benefit of the public.¹³

The CRA considers your payment to have been received when there is a “reduction of instalment payments to be paid by the claimant” if “credited to his instalment account by a fiscal authority”, or, “all conditions of receipt are met when the reduction of tax payable or paid, allows for/increases a tax refund.¹⁴

You are “entitled to receive” a payment if there is a preconditional event or task which must have occurred or been completed, and the event has occurred or the condition has been fulfilled – or if you have “an enforceable right” to the assistance.¹⁵

You can “reasonably expect to” receive assistance if you’ve “applied for assistance” and circumstantially, there’s a reason “to believe that it will be received”.¹⁶ This is also applicable if you’ve received notice “that assistance will be received”.¹⁷ If you’ve earned the current year’s provincial/territorial research and development tax credit and you’ve “added the amount to the provincial/territorial R&D tax credit pool to be applied to future years”, you can expect to receive assistance: however, this situation may only occur when you are in a loss position” and don’t renounce provincial/territorial tax credits for R&D.¹⁸

Line 432: Non-Government Assistance

Assistance from a non-governmental entity is assistance that can reasonably be considered to have been received as “inducements and other assistance that you received from other entities including corporations.” It can come in the form of a “grant, subsidy, forgivable loan, deduction from tax, allowance or” other forms of inducement or assistance. ¹⁹

If the non-governmental entity is non-arm’s length, then this may reduce the deductible SR&ED expenditures for your company. All “amounts of assistance” must be subtracted, to reduce the qualified SR&ED expenditures of the recipient and the NAL party: when the assistance or payment received is greater than the total qualified SR&ED expenditures incurred, the “qualified SR&ED expenditures of the claimant and the NAL party are reduced to nil”.²⁰

Summary: Government Assistance and SR&ED

When you have calculated all governmental and non-governmental assistance, and have entered the amounts in Lines 429, 431, and 432, you will subtract these amounts from the total allowable expenditures in Line 442.

For more information on the eligibility of assistance and contract payments for SR&ED, click here.

It’s important to remember that you can receive both government assistance and SR&ED. Try our SR&ED calculator to determine these amounts.

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