Attention: Policies May Have Been Updated
*** Some of the policies referenced were updated 2021-08-13. We are working to update this article and others. ***


There are new SR&ED rules for capital equipment—do you know how they affect you?

There are new SR&ED rules for capital equipment—do you know how they affect you?


January 1, 2014 marked a monumental change for the Scientific Research & Experimental Development (SR&ED) tax credit: On that day, capital expenditures—depreciable property to be used >90% of its expected life for the purpose of SR&ED—became ineligible expenses under the program. The amendment was largely derided—especially by the manufacturing industry—but now that it’s official, it’s important to understand how the new rule affects your claim.

Capital expenditures are ineligible…but can you still claim them?

When filling out the new T661,1

it’s critical to use the T4088 2 as a guideline to ensure you’re filling out each line precisely how the Canada Revenue Agency (CRA) wants you to. When you scroll down to Line 390 – Capital Expenditures, here’s what it has to say:

Enter the amount of SR&ED capital expenditures made before 2014. Expenditures of a capital nature made after 2013 will not qualify for SR&ED tax incentives.

We’ve bolded the important part: While capital expenditures are ineligible now, if they were purchased before 2014 (i.e., before the new rule became official) they can still be claimed. This is an easy point to miss if you’re not reading the fine print.

“Ready and available for use”

There is a small catch, of course. It’s not enough to just have purchased the equipment prior to 2014; all capital expenditures need to have been ready and available for use by the cut-off date. You don’t necessarily have to have used the equipment by that point, but it’s vital that the equipment was ready to be used—taken “out of the box” and ready to be put to work for your SR&ED project by December 31, 2013. This is an incredibly important distinction; given the sharp increase in CRA reviews over the past year, it’s inevitable that any submissions claiming capital expenditures will be heavily scrutinized. Be prepared to provide supporting documentation—receipts, pictures of the equipment showing it as ready and available for use, etc.—to substantiate your numbers.

What will you do to account for the loss of SR&ED income from capital expenditures?
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Show 2 footnotes

  1. Canada Revenue Agency. (2015, November 10.) T661 Scientific Research and Experimental Development (SR&ED) Expenditures Claim. Retrieved from:
  2. Canada Revenue Agency. (2015, November 10.) T4088 Scientific Research and Experimental Development (SR&ED) Expenditures Claim- Guide to Form T661. Retrieved from:

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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