CRA Updates to Select SR&ED Program Policies - April 28, 2022

CRA Updates to Select SR&ED Program Policies – April 28, 2022

On April 28, 2022, the Canada Revenue Agency (CRA) announced updates to the Prescribed Proxy Amount Policy, the SR&ED Claims for Partnerships Policy, and the SR&ED Investment Tax Credit Policy. These updates reflect the legislative changes that have been announced.

Updates to the Prescribed Proxy Amount Policy

The Prescribed Proxy Amount Policy revision overview states:

The percentage to calculate the prescribed proxy amount (PPA) is 55%. References to 60% for 2013 and 65% for 2012 and prior years has been removed.
The text of this document has been revised to reflect these changes, see Appendix B.1 Explanation of changes.1

The changes detailed within Appendix B.1 Explanation of changes are as follows:

Section 3.0 has been revised to delete the references to 60% for 2013, and 65% for 2012 and prior years. The formula to calculate the PPA is updated to delete the reference that accounts for a proration of the rate for the 2013 and 2014 calendar years.

Other minor formatting and editing corrections were made throughout the document.2

Updates to the SR&ED Claims for Partnerships Policy

The SR&ED Claims for Partnerships Policy revision overview states:

All references to capital expenditures and the basic investment tax credit rate of 20% have been removed, as these no longer apply after 2014.
The text of this document has been revised to reflect these changes, see Appendix B.1 Explanation of changes.3
The changes detailed within Appendix B.1 Explanation of changes are as follows:

Sections 4.8.1, 4.8.3 and 4.10 have been revised to remove all references to capital expenditures and the basic investment tax credit rate of 20%, as these no longer apply after 2014.

Other minor formatting and editing corrections were made throughout the document.4

Updates to SR&ED Investment Tax Credit Policy

The SR&ED Investment Tax Credit Policy revision overview states:

For tax years ending after March 18, 2019, the use of previous year taxable income is removed as a factor in determining a Canadian-controlled private corporation’s annual expenditure limit (section 3.1.1) for the purpose of the refundable enhanced scientific research and experimental development (SR&ED) investment tax credit.

All references to capital expenditures and the basic investment tax credit rate of 20% have been removed, as these no longer apply after 2013.

The text of this document has been revised to reflect these changes, see Appendix C.1 Explanation of changes.5

The changes detailed within Appendix C.1 Explanation of changes are as follows:

Throughout the document the reference to the basic ITC rate of 20% for tax years ending before 2014, and the reference that for tax years that include January 1, 2014, the reduction in the basic ITC rate is pro-rated based on the number of days in the tax year that are after 2013, have been removed. These were previously found in sections 1.1, 2.1, 2.2.1, 4.0, 4.1, and Appendix A.

Section 2.1 wording under the heading “ITC from a trust” has been revised to include that only graduated rate estates and communal organizations that are deemed to be inter vivos trusts can designate an ITC to their beneficiaries. A previous note at the end of this section has been removed as the 20% ITC no longer applies after 2013.

Section 2.3.3 has been revised to only include discussion on the ITC carry forward of 20 years based on legislation applicable to 2008 and later tax years. The ITC from older years can no longer be claimed.

Section 3.1 has been revised to reflect the legislative changes resulting from the 2019 federal budget enacted measures, specifically the change in the calculation of the expenditure limit. For tax years ending after March 18, 2019, the use of previous year taxable income is removed as a factor.

Section 3.3 now only discusses the effects of the specified future tax consequences on the previous year taxable income, when calculating the qualifying income limit for the purposes of the definition of qualifying corporation.

Section 4.2 has been revised to remove the explanation of what meets the definition of qualifying corporation before February 26, 2008, as this no longer applies.

Section 4.2.1 has been revised to remove the explanation of what is the qualifying income limit for 2009 and previous tax years, as this no longer applies.

Other minor formatting and editing corrections were made throughout the document.6

Conclusion

The changes to the above policies reflect the legislative changes that have been announced. The CRA has removed discussions concerning capital expenditures, the basic investment tax credit rate of 20%, and the previous PPA rates of 60% and 65% as these no longer apply. They have also adjusted the wording of various sections. As the SR&ED related policies can be confusing, it is our hope that these changes will enhance the taxpayers understanding of the individual policies and the program as a whole. Other articles of interest may be: What is The Prescribed Proxy Amount (PPA) Cap? and Can Equipment Costs be Claimed for SR&ED? We will keep our readers updated on any additional changes or updates to the SR&ED Policies mentioned in this article, other SR&ED policies, and reporting deadlines. To keep up to date on all SR&ED program changes please keep an eye on the What’s new – SR&ED Program CRA page.

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