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SR&ED Program Updates: October-December 2022

SR&ED Program Updates: April-June 2022
SR&ED Program Updates: October-December 2022

What happened with SR&ED in the third quarter (October to December) of 2022? Here, we discuss the updates.

This post outlines Scientific Research and Experimental Development (SR&ED) program updates from October-December 2022, including administrative, policy, tax law, and court cases. SR&ED Education and Resources was quiet in the fourth quarter of 2022. Still, we kept our readers up to date, including summarizing two legal rulings on the subject of SR&ED, examining how SR&ED contract expenditure outside Canada may affect your claim, and detailing the SR&ED Program Policy changes made by the CRA in this quarter.

SR&ED Policy and Program Updates

There was only one new announcement. On October 14, 2022, the CRA released updates to the Recapture of SR&ED Investment Tax Credit Policy, and the SR&ED Overhead and Other Expenditures Policy. These updates reflected the legislative changes that were announced. We detailed these changes in our article CRA Updates to Select SR&ED Program Policies – October 14, 2022.

The What’s new – SR&ED Program page is an important source of information for SR&ED taxpayers as the CRA lists any changes or updates to the SR&ED program by order of date.

SR&ED Education and Resources Articles

In the hopes of further illuminating the world of SR&ED during the fourth quarter of 2022, we published one post on how contract expenditures incurred outside Canada may affect SR&ED claims and how the CRA requires claimants to address such expenditures: SR&ED Contract Expenditures Outside of Canada.

T661 Guidance

We did not publish any articles regarding the T661 – Scientific Research and Experimental Development (SR&ED) Expenditures Claim Form from October-December 2022. Keep an eye on our posts as we enter the first quarter of 2023. We will continue to delve into topics of interest and demystify the SR&ED application process for prospective claimants.

Judicial Proceedings

The fourth quarter of 2022 was busy about judicial proceedings. We summarized two SR&ED court rulings for our readers.

CAE Inc. c. La Reine (2021)

Topic: Financial Eligibility – specifically, Government Assistance & The SADI Program

CAE Inc. (“CAE”), the Appellant, entered into an agreement with the Minister of Industry of Canada, the Respondent, entitled the “SADI Agreement NO. 780-503924 – Strategic Aerospace and Defense Initiative – Project Falcon” (“SADI Agreement”). In this case, the Appellant is appealing two assessments made on December 15 and October 26, 2016, by the Minister of National Revenue (the “Minister”) relating to the Appellant’s 2012 and 2013 taxation years. In these assessments, the Minister concluded that the sums received by CAE under the SADI Agreement constituted asgovernment assistance” within the meaning of subsection 127(9) of the Income Tax Act (“ ITA”). The Appellant disagreed, stating that the amounts of $57,084,395 and $59,148,888 received under the SADI Agreement during the 2012 and 2013 taxation years respectively do not constitute “government assistance”, and treated the contributions received from the Minister of Industry of Canada, as a long-term obligation in CAE’s consolidated financial statements, and did not use the amounts to reduce their eligible SR&ED expenditures. 

In this case, the Judge reviewed the relevant sections within the ITA and the Civil Code of Quebec and considered the testimonies presented by both the Appellant and the Respondent’s witnesses. The services of Mr. Neil de Gray, the expert in corporate finance and the valuation of debt instruments and securities, were initially retained by the Respondent but were also retained to assist the Court during this case. Mr. de Gray was asked whether, in his view, the SADI Agreement has the attributes of a “trade” and constitutes an “ordinary trade agreement”. Mr. de Gray concluded, after a thorough and complete examination, that the SADI Agreement did not possess the attributes of a “commercial enterprise” and did not constitute an “ordinary commercial agreement”.

The judge concluded that the SADI Agreement was not an ordinary commercial agreement, and therefore the amounts paid to CAE under the agreement during the 2012 and 2013 taxation years respectively constituted amounts received as “government assistance”. The appeal was dismissed with costs.

For more details and analysis, please view our complete analysis of CAE Inc. c. La Reine (2021).

Agri-Innovatech c. Cèdres Dupont Inc. (2020)

Topic: Financial Eligibility – specifically, SR&ED Consultant Fees & Contract Interpretations

The Plaintiff, Agri-Innovatech, claimed $12,242.54 from the defendant in fees following the completion of the Defendants, Cèdres Dupont Inc., 2017-2018 tax year SR&ED application. The defendant disputed this fee on the basis that the Plaintiff misinterpreted how the fee was to be calculated.

The amount of $12,242.54 was calculated by the Plaintiff at 17% of the total SR&ED expenditures claimed ($62,638). The Defendant claimed that the fee was to be charged at a rate of 17% of the total SR&ED refund received ($35,585).

The judge reviewed the contract signed between the two parties and found the related clause to read as:

“5. Cost and method of payment for the service

The rate of 17% of the credit for eligible SR&ED expenditures of the projects submitted.

Payments are applicable upon receipt of invoice and report within 30 days. After this period, interest is 1.5% per month. (sic)

The judge stated the contract was clear and unambiguous, clearly stating the plaintiff’s fees were to be established based on the final SR&ED tax credits obtained, not on the credit application submitted to the tax authorities. Although the Plaintiff was incorrect in their calculations, the judge partially granted their request at the correct rate of 17% of the final SR&ED refund received ($6,955.36) in addition to interest at the rate of 18% per annum as well as $308 in legal fees.

For more details and analysis, please view our complete analysis of Agri-Innovatech c. Cèdres Dupont Inc. (2020)

Summary of SR&ED Updates

SR&ED program updates from October-December 2022 were quiet; however, we wrote two more informative blog posts, summarized two more legal rulings, and kept our readers up to date regarding topics that may affect the SR&ED program. Check back for more updates as we head into 2023.

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