This post outlines Scientific Research and Experimental Development (SR&ED) program updates from January-March 2022, including administrative, policy, tax law, and court cases. As the country’s focus and atmosphere have been dominated by the easing of Covid-19 restrictions, SR&ED Education and Resources has been busy keeping our readers up to date. We have identified some key trends to watch in the SR&ED environment.
SR&ED Policy and Program Updates
On March 30, 2022, the Canada Revenue Agency (CRA) made updates reflecting the legislative changes that have been announced to four SR&ED program policies. These policies include the Pool of Deductible SR&ED Expenditure Policy, the Traditional and Proxy Methods Policy, the Third-Party Payments Policy, and the Contract Expenditures for SR&ED Performed on Behalf of a Claimant Policy. We have detailed the changes made in our article CRA Updates to Select SR&ED Program Policies – March 30, 2022.
The CRA posts any changes and updates within the SR&ED program by order of date to the What’s new – SR&ED Program page. This page is an important source of information for SR&ED taxpayers.
SR&ED Education and Resources Articles
SR&ED Education and Resources spent the months of January-March 2022 exploring some lesser-known expenditures which may be considered eligible for SR&ED including testing costs and equipment costs. We also took a closer look at the Canada Revenue Agency’s (CRA) Materials for SR&ED Policy in the hopes of further illuminating the world of SR&ED.
- First, on February 4, 2022, we examined the testing costs that may be associated with SR&ED work and how the related expenditures may be applied to taxpayers’ SR&ED claims in Are testing costs SR&ED eligible?
- On February 22, 2022, we educated our readers on how materials used for SR&ED projects may constitute as SR&ED eligible expenditures and how to apply these expenditures to maximize their tax returns in CRA Policy Review – Materials for SR&ED.
- On March 15, 2022, we analyzed equipment costs related to SR&ED work in Can Equipment Costs be Claimed for SRED? This article details the difference between expenditures of a capital nature, and those of a current nature, and which of the two may be utilized as an SR&ED eligible expenditure.
On February 1, 2022, the Alberta Canola Producers Commission announced that Alberta Canola growers who did not request a refund of their check-off fees qualify for an SR&ED tax credit for the 2021 tax year at a rate of 14.59%. We detailed this announcement and how check-off or levy fees can be applied within the SR&ED program in 2021 SR&ED Tax Credits for Alberta Canola Farmers.
Additionally, the Saskatchewan Wheat Development Commission announced that Saskatchewan wheat growers who did not request a refund of their check-off fees qualify for a federal SR&ED tax credit for the 2021 tax year at a rate of 69.93%, and a provincial SR&ED tax credit at a rate of 48.97%. We detailed this announcement and how check-off or levy fees can be applied within the SR&ED program in 2021 SR&ED Tax Credits for Saskatchewan Wheat Farmers.
We did not publish any articles regarding the T661 – Scientific Research and Experimental Development (SR&ED) Expenditures Claim Form from January-March 2022. Keep an eye on our posts as we enter the next quarter of 2022. We will continue to delve into topics of interest and demystify the SR&ED application process for prospective claimants.
Administrative, Policy, and Legislative
On January 6, 2022, the Tax Court of Canada (TCC) released a Notice to the Public and Profession stating that all in-person sittings of the TCC between January 10, 2022, and January 28, 2022, inclusively had been cancelled. Read more about this notice in Tax Court of Canada Update: Notice to the Public and the Profession, January 6, 2022.
The first quarter of 2022 was quiet in terms of judicial proceedings. We analyzed one SR&ED court ruling for our readers
6398316 Canada Inc. v. The Queen (2021)
This ruling addressed the eligibility requirements of the SR&ED program. The Appellant, Global Sustainable Solutions, sought to appeal two federal Income Tax Act determinations made on September 23, 2015, by the Minister of National Revenue pertaining to the Appellant’s 2012 and 2013 taxation years respectively with regards to scientific research and experimental development (SR&ED) expenditures (and accordingly refundable investment tax credits) under the Act. The claimed expenditures were incurred by the Appellant in connection with a construction project involving a house in southern Ontario, which was intended to be uniquely energy efficient while staying within the price range of a “regular home”. The initial claimed SR&ED expenditures for the 2012 taxation year had been reduced by $3,485.65 to the amount of $139,631.67, and likewise, the 2013 taxation year total had been reduced by $34,032.69 to the amount of $61,752.60. The judge used the five questions developed in the Northwest Hydraulic Consultants Limited v. The Queen (1998) to evaluate the eligibility of the Appellants’ SR&ED ITC application. The Judge noted there was an absence of organized and specific evidence, as well as a lack of expert witness evidence pertaining to the state of technological knowledge within this industry. The Judge concluded that the work performed did not meet the eligibility requirements for SR&ED and dismissed the Appellants’ appeal, stating the two appealed loss determinations made on September 23, 2015, would therefore be upheld.
Of interest, it took six years to reach a determination (2015 to 2021) on two tax returns filed nearly a decade ago (2012, 2013). The Appellant had received a refund for each year ($139,631.67 and $61,752.60) – they were disputing the reduction of $3,485.65 and $34,032.69, respectively.
For more details and analysis, please view our complete analysis of 6398316 Canada Inc. v. The Queen (2021).
Summary of SR&ED Updates
SR&ED program updates from January-March 2022 were quiet as the country dealt with the pandemic and the resuming of operations. As in the prior three months, SR&ED Education and Resources continued our educational mandate, writing two more informative blog posts. Check back for more updates as we enter the new year.