CAE Inc. v. The Queen: A Case in Government Assistance

CAE Inc. v. The Queen Docket: 2016-4984 (IT) G

Basic Facts

CAE Inc. appealed two assessments made by the Minister of National Revenue in 2016 pertaining to their SR&ED tax claims for the 2012 and 2013 tax years. The company had received funding under the ISAD Program titled “SADI Agreement NO. 780-5-3924 – Strategic Aerospace and Defense Initiative – Project Falcon” in the sum of $57,084,395 and $59,148,888 in 2012 and 2013 respectively. CAE Inc. had submitted SR&ED tax credit claims for these years, wherein the Minister concluded that this funding counted as government assistance and therefore had to be subtracted from qualified and eligible expenditures in those years.

The appeal sought to assess if this conclusion to exclude this funding (totaling XXX) from the eligible expenses and therefore from the calculations for the SR&ED credit was appropriate. If the Court were to find that the amounts received under the SADI agreement did not constitute a form of government assistance, they will then have to decide if they constitute incentive payments, refunds, or contributions within the meaning of paragraphs 12 (1) x) (iii) abd (iv) if the ITA.

ITA Paragraph 12 (1) x) (iii)

This paragraph states that an incentive payment in the form of a premium, grant, loan with conditional repayment, tax deduction, or an indemnity in any form should be included in computing the income of a taxpayer.

ITA Paragraph 12 (1) x) (iv)

This paragraph states that a repayment, contribution or indemnity or assistance in the form of a premium, grant, conditionally repayable loan, tax deduction, or an indemnity should be included in computing the income of a taxpayer.

Court Decision

In order to come to a solid conclusion, the Court had to evaluate the context of the ISAD program. This funding could go to an R&D project from a company working in the aerospace, space or defense sectors. Only a portion of the sums received by CAE Inc. were used to pay SR&ED expenditures in 2012 and 2013 – $41,003,491 and $40,652,952 respectively. These contributions must be reimbursed in 15 annual installments starting 5 years after the first contribution.

Government assistance is defined in the ITA as “assistance received from a government, municipality, or other administration in the form of a bonus, grant, conditional loan, tax deduction, or placement allowances or in any other form, to the exclusion of a deduction under subsection (5) or (6).”

This underlined phrase is the key in the conclusion made by the court. Government assistance includes that given in any form. Other case law examples include Immunovaccine Technologies, Inc. v. R. have similar conclusions. 

The Court concluded that the ISAD Agreement does not constitute a commercial agreement and is in fact considered government assistance. The appeal was dismissed as a result.


While funding may come in many forms, and is more than helpful in assisting with financing SR&ED projects, a deep look into those contracts may be needed to determine if it qualifies as commercial agreements or government assistance. The government tends to back many funding programs and agreements to try and drive innovation projects but this can really impact the credit you claim if you’re not careful.  

Who We Are:

Swanson Reed is one of Canada’s largest Specialist SR&ED tax advisory firms. We manage all facets of the SR&ED tax credit program, from claim preparation and audit compliance to claim disputes.

If you would like to find out more about how your business could benefit from R&D Tax Credit, contact a Swanson Reed R&D Tax Advisor today.

Recent Posts