Changes to SR&ED Legislation

The Canadian Department of Finance released a draft package of technical amendments to the Income Tax Act (ITA) on September 16th, 2016. Among them were the following changes to the existing legislation governing the SR&ED tax incentive program:

• Sub clause 37(8)(a)(ii)(B)(II) – In this clause, the term “in respect of scientific research and experimental development” will be changed to “for scientific research and experimental development.” This is intended to narrow down the scope of the expenditures and work that attract the SR&ED tax credits. This change in the clause applies to the expenditures that are incurred after September 16, 2016.
• ITA subsection 37(11) – This clause had stated that SR&ED claims should be filed alongside the prescribed information contained in the prescribed forms within the deadline (18 months from a firm’s year end). This has since been changed to specifically state that, “claim preparer information” (Section 9 of the T661 form) is part of the information that must be provided to the CRA.
• There will be an addition of a new subsection that is tied to the above clause. The new subsection 37(11.1) will now contain the rule stating that no deduction is allowed if the prescribed form with prescribed information is not filed on time. It intentionally excludes the “claim preparer information,” so while failure to provide “claim preparer information” will still attract penalties, it will not result in the claim being disallowed.
• ITA subparagraph 127(9) “specified percentage“(f.1) (i) – This clause allows an ITC where government assistance is repaid and will be corrected and changed to match the changes in ITC rates that took effect in 2014 as a result of the 2012 federal budget. This would mean that the ITC that accrues to a taxpayer who repays assistance that had reduced qualified SR&ED expenditures incurred after 2014 will be calculated at a rate of 15 percent rather than 20 percent as appears in the extant legislation.

The bills and amendments are likely to be enacted in 2017. Contact Swanson Reed R&D Tax Advisors to find out how recent changes in legislation affect the SR&ED tax incentive.