What activities can be claimed in SR&ED for 3D printing?

Three-dimensional (3D) printing has reached the point in its popularity where you can now manufacture pieces for your garden hose1 or a phone case from your home, and medical professionals are printing prosthetic limbs and appendages.2

Additive manufacturing (3D printing) enables the creation of a three-dimensional, solid object from a file on a computer. Designs are created in computer-aided design programs and then sent to the printer, much like a laser cutter, or standard inkjet or laser printer.3 

This technology has created an alternative to traditional or subtractive manufacturing, where plastic or metal is cut out or hollowed using machinery such as a milling machine. 3D printing allows hundreds, or even thousands of layers to be printed using plastic or other materials, which are printed together or are assembled after printing to create the finished piece. The introduction of various metal alloys is a recent development in 3D printing technology and has allowed the technology to be used for airplanes and automobiles. Printing the parts allows them to be less mechanically complex and lighter, which reduces maintenance, costs and fuel consumption.4

Claiming SR&ED for 3D Printing

Creating a 3D printed product does not guarantee eligibility for SR&ED. 3D printed products are more likely to be eligible for the U.S. Research and Development (R&D) tax incentive as product innovation falls under its criteria.5 However, using 3D printing in the process of manufacturing a product in Canada may make it eligible for SR&ED.

Making changes to equipment, investigating the use of new materials in manufacturing, or developing new printing processes may all be eligible for SR&ED. You may also be able to claim the materials and labour used in the process, in addition to the cost of producing prototypes. In addition to this, it is also possible that manufacturers of 3D printed parts, and the manufacturers who use these parts to create products, may both qualify for SR&ED.

Use Caution when Claiming SR&ED for 3D Printing

The Canada Revenue Agency (CRA) has become more stringent in reviewing SR&ED applications recently. Exercise caution if you’re using 3D printing in your prototyping work and want to claim it as an SR&ED expense.  

3D printing is both a manufacturing and digital technology. The CRA could consider 3D printing to be digital design. Categorizing 3D printing as digital design may cause the CRA concern as to the owner of the intellectual property, as this could potentially be the manufacturer of the product or the supplier of the 3D printed parts.

As an example, consider the following scenario: A manufacturer buys a digital design; however, it prints the parts used in prototyping and manufacturing on its own. Would this grant SR&ED eligibility to the manufacturer that produces the parts in the manufacturing process, or would the designer of the parts qualify for SR&ED instead? It is uncertain whether both, or neither, would be eligible for SR&ED.6

Conclusion 

In summary, there may be some confusion around claiming SR&ED for 3D printing. In products that use 3D printing in their process or manufacturing, it is unclear whether SR&ED eligibility would apply to the designer of the 3D printed part, the supplier of the 3D printed part, or the manufacturer that produces the final product. It is also a possibility that all, or none, of these parties would be eligible.

As SR&ED consultants have an in-depth understanding of the SR&ED program, it may be beneficial to seek their services if you plan to file a claim for SR&ED for 3D printing. Seeking the professional advice of an SR&ED consultant may save you time and money if they determine that your project would not be eligible for SR&ED. Alternatively, they can also help you maximize your SR&ED claim if your project is found to qualify.

A pre-ruling consultation from the CRA may also be able to help you determine if your project is eligible. A pre-ruling consultation costs “$100 (plus applicable tax) for each of the first 10 hours, or part of an hour,” and “$155 for each subsequent hour, or part of an hour.” File your request for a pre-ruling consultation as soon as you can, as the CRA works on a “first come, first served” principle.7 

You can mail, e-mail or fax your request for a pre-ruling consultation to the following.       

Income Tax Rulings Directorate
Canada Revenue Agency
11th floor, Tower B
Place de Ville, 112 Kent Street
Ottawa ON  K1A 0L5
Email: itrulingsdirectorate@cra-arc.gc.ca
Fax: (613) 957-2088 

 

Have you successfully claimed SR&ED for 3D printing? Have you ever requested or undergone a pre-ruling consultation with the CRA?
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Show 7 footnotes

  1. Goulding, C. (September 29, 2017.) 3D Printing Hoses and the R&D Tax Credit. 3DPrint.com. Retrieved October 26, 2017, from: https://3dprint.com/188160/3d-printed-hoses/.
  2. Royte, E. (May, 2013.) Retrieved October 26, 2017, from: https://www.smithsonianmag.com/science-nature/what-lies-ahead-for-3-d-printing-37498558/https://www.smithsonianmag.com/science-nature/what-lies-ahead-for-3-d-printing-37498558/.
  3. 3DPrinting.com. (n.d.) What Is 3D Printing? Retrieved October 26, 2017, from: https://3dprinting.com/what-is-3d-printing/.
  4. Pearson, M. (November, 2015.) 3D printing as an indicator for SR&ED. EY.com. Retrieved October 26, 2017, from: http://www.ey.com/ca/en/services/tax/taxmatters-nov2015-article3.
  5. Riley, T. (n.d.) Your Guide to Claiming the Federal R&D Tax Credit. Do You Qualify? Moss-Adams LLP. White Paper. Retrieved October 26, 2017, from: https://www.mossadams.com/getmedia/3fd15bb1-e9ef-452e-8efe-3bb9bf022f62/Moss-Adams_RnD-White-Paper_rev111516. (PDF Document.)
  6. Pearson, M. (November, 2015.) 3D printing as an indicator for SR&ED. EY.com. Retrieved October 26, 2017, from: http://www.ey.com/ca/en/services/tax/taxmatters-nov2015-article3.
  7.  Government of Canada. (April 22, 2016.) Canada Revenue Agency. Income Tax Information Circular. Retrieved October 26, 2017, from: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic70-6r7-advance-income-tax-rulings-technical-interpretations/ic70-6r7-advance-income-tax-rulings-technical-interpretations.html#sec4.

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