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Capital Expenditures and SR&ED

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Major changes are on the way regarding capital expenditures and SR&ED.

As confirmed in the 2012 Canadian budget 1, modifications to Scientific Research and Experimental Development (SR&ED) policy concerning capital expenditures are coming on January 1, 2014. This post examines the background of capital expenditures, current policy regarding capital expenditures for SR&ED purposes, the policy changes on the way, the impact of these changes on your company, and where you can find more information on the subject.


In addition to salaries, contractor costs, and much more, companies are able to recover a part of their costs in relation to capital expenditures related to SR&ED.

The Canada Revenue Agency (CRA) glossary 2 defines a SR&ED capital expenditure as the following:

An expenditure made to acquire new or used depreciable property intended to be:

• Used all or substantially all (>90%) of the operating time in its expected useful life in the performance of SR&ED in Canada; or

• Consumed all or substantially all (>90%) of its value in the performance of SR&ED in Canada.”

The following are examples of equipment that qualifies under the program:

• Equipment used in a test facility or laboratory;

• Computer equipment used for testing software programs that would qualify for SR&ED;

• Equipment used in testing food processing (i.e., ovens, freezers, etc.);

• Automobiles used to test an alternative fuel source.

Current Policies

Presently, companies can receive income tax credits on the base cost of the equipment, including shipping and customs duties, using the SR&ED tax credit. How this factors into your refund can be determined using a tool like our SR&ED calculator.

Policy Changes Effective as of January 1, 2014

We are in the final year eligible capital expenditure investments will generate a SR&ED credit; as of January 1, 2014, capital expenditures are no longer considered eligible SR&ED expenses. This change also includes the use of property that would count as a capital expenditure if you bought it, meaning the cost of leasing equipment or property is also excluded.

Impact of Changes

The reaction of the R&D community to these changes has been negative, particularly in the manufacturing sector, where capital expenditures are especially important. Canadian Manufacturers and Exporters (CME) had the following to say in their report on the impact of the changes 3:

 The decision of the federal government to completely eliminate capital expenditures from the SR&ED tax credit without providing an alternative fiscal incentive will definitely put Canada at a disadvantage to most other industrialized and emerging nations, especially with regards to companies with high capital expenditures, such as companies in the manufacturing and natural resources sectors.”

Since claiming capital expenditures will no longer be an option as of January 1, 2014, companies should consider the following suggestions:

Make any planned capital equipment purchase for the purpose of SR&ED use before the end of 2013. The cost of this capital equipment must be claimed in the year it becomes available for use.

Keep thorough documentation. While this is always important when preparing a SR&ED claim, this will be even more so since you will have to clearly show when the capital equipment was purchased and how it was planned to be used.

After January 1, 2014, purchase used equipment for test purposes. This will not allow you to claim any more on your application, but it will help offset the loss of income from the SR&ED program.


To learn more about capital expenditures and how these policy changes will affect your company, visit the CRA website

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Show 3 footnotes

  1. CRA. (2013, July 15). Federal SR&ED legislative proposals status as at March 31, 2013. Retrieved from Canada Revenue Agency website:
  2. CRA. (2012, December 18). SR&ED glossary. Retrieved from Canada Revenue Agency website:
  3. CME. (2012, November). Business research and development incentives in Canada: The impact of proposed changes to Canada’s SR&ED tax credit. Retrieved from Canadian Manufacturers & Exporters website:

Elizabeth Lance

Elizabeth is known as the "SR&ED Maven" in the industry. With a love of documentation and the nuances of language, she is often engaged by multi-million dollar companies to help improve documentation and workflow processes. Her favourite sentence (which she hears regularly) is "Accepted as Filed". Find out more about her on LinkedIn.

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