At SREDucation, we’re taking the time to document all of the changes that have occurred to the SR&ED program over the years. In our “From the Archives” series, you’ll be able to see how the program has evolved since its inception in 1986. For a timeline of these events, check out the SR&ED Tax Credit page on Facebook. Stay current with the program by understanding the historical context.
On Feb. 18, 2003, the government released an application policy to address what the intentions are of a claimant who is looking to acquire capital property for the purposes of SR&ED in Canada. At the time, the legislation allowed for that to happen under the following circumstances:
- The claimant plans to use the property “in its expected useful life for the prosecution of SR&ED in Canada”;
- Or the value of the property would be “consumed” by pursuing SR&ED in Canada.
Restrictions on SR&ED Claims
The policy notice outlined additional restrictions for when capital property could and could not be used for the purposes of SR&ED:
- Capital claims cannot include furniture or “general purpose office equipment”;
- Capital expenditures do not qualify until the property can be used by the claimant;
- Certain expenditures do not qualify for tax credits. For example, leasing a capital property before acquiring it would not qualify.
Figuring out a SR&ED Claim’s “intent”
The policy said it would be up to the Canada Revenue Agency’s financial reviewer and the research and technology advisor to determine what a claimant was intending when making a SR&ED claim. “However,” the notice stated, “there is neither a unique test nor exacting jurisprudence that can be fully utilized in establishing the intent of a claimant in regards to the acquisition of a capital property.”
Factors determining the decision can include the following:
- Reason for purchasing the property;
- What the potential and actual uses of the property are;
- The type of SR&ED (for example, if it involves building a custom product and the capital property is needed to assist in building that product);
- “SR&ED environment” (meaning, the property was used for SR&ED and the claimant “is a dedicated SR&ED corporation.”)
- The length of time of the SR&ED project, and whether it is congruent with the “expected useful life of the property.”
- How the claimant made SR&ED claims in the past (for example, a claim from this year for capital property should be consistent with last year’s);
- The use of planning documents.
This article is based upon a Government of Canada application policy at the time: Application Policy: Capital Property Intended to be Used All or Substantially All for SR&ED.