Updated SR&ED During Production Runs Policy [2016-07-19]
This document presents the specific situations when experimental development (ED) is carried out during the operation of equipment or processes in a production or manufacturing environment. This occurs when the operation is part of the systematic investigation or search by experiment or analysis—for example, when experiments are carried out during production runs. Specifically, this document looks at how to determine the costs associated with experimental development carried out during the operation of a commercial facility that are allowable expenditures for scientific research and experimental development (SR&ED) tax incentives.
The key principles and methodology described in this document may also apply to other situations when there is SR&ED during production. However, the principles and methodology described in this document do not apply when there is no experimental development during the production even if the production output will be used in SR&ED, for example, the production of material to be used in SR&ED for testing or for experimentation, when the production does not involve SR&ED.
CRA Explanation of Changes
Reasons for revision
This revision accommodates the legislative changes that have been announced.
The percentage used for the proxy method is reduced for the 2014 and later calendar years. The proxy calculation is prorated based on the number of days in the tax year that straddle January 1, 2014.
Appendix B.1 provides more detailed descriptions of the changes.
The following are the explanation of changes to the SR&ED During Production Runs Policy as part of the revision of July 19, 2016.
Section 1.0 example illustrating the EP+CP scenario was revised to clarify that the context of a run required forSR&ED is by default ED+CP if it is not ED+EP.
Section 4.0 example 2 has been revised to use the rate of 55% to calculate the prescribed proxy amount.
Appendix A.2 “CRA publications” has been removed.
Other minor formatting and editing corrections were made throughout the document
The full document can be read here.