Ottawa Tweaks SR&ED Legislation
Scitax Bulletin #66
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DIRECTORS:
David R. Hearn, Managing Director
Michael C. Cadesky, FCPA FCA CA BSc MBA
Ottawa Tweaks SR&ED Legislation
Filing requirements bolstered, loopholes closed
On September 16, 2016 the Canadian Department of Finance released a package of draft technical amendments to the Income Tax Act (ITA).
Included in the 33 pages of technical changes are four amendmen ts to existing legislation governing SR&ED tax deductions and credits.
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The most important amendment is to ITA subclause 37(8)(a)(ii)(B)(I I). The phrase "in respect of scientific research and experimen tal development" will be changed to "for scientific research and experimental development". This will narrow the scope of SR&ED expe nditures that attract SR&ED investment tax credits (ITCs), and will effe ctively shut down the broad-brush entitlement created by the Tax Court of Canada's February 2015 dec ision in Feedlot Health Services Ltd., at paragraphs [50] [58] [61-62] [68]. This change will apply to expend itures incurred after September 16, 2016.
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ITA subsection 37(11) currently requires t hat SR&ED claims be fi led with all prescribed information contained on the prescribed forms within the filing deadline (usually 18 months from the corporation's year-end). This rule has been reworded and clarif ied, primarily to add a new paragraph (b), specifically providing that "claim preparer information" (Section 9 of the T661 form) is part of the information that must be provided to the CRA.
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Tied in with #2 above, proposed 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. However, it explicitly excludes the "claim preparer information". Finance's intention appears to be that the failure to provide "claimpreparer information", while still attracting penalties, will not result in the claim being disallowed. (This draft may not have been wo rded correctly and may well be amended before this legislation is enacted.)
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ITA subparagraph 127(9) "specif ied percentage" (f.1)(i), which allows an ITC where government assistance (which reduced an earlier ITC) is repaid, will be corrected to match changes in ITC rates that took effect in 2014 asa result of the 2012 federal budget. Thus, the ITC that accrues to a taxpayer who repays assistance that had reduced qua lified SR&ED expenditures incurred after 2014 will be calculated at a rate of 15% insteadof 20% as appears in theextant legislation.
This rule also reinforces that claims filed us ing other than the prescribed forms or with information deficiencies are unacceptable. O ne all too common deficiency is the taxpayer providing the project technical description narra tives (i.e. lines 242, 244 and 246) as attachments instead of on the t661 form itself.
These amendments will not be enacted untilthey are introduced in a Bill in Parliament, likely in 2017.
Learn More
Tax court Canada Ruling Feedlot Health Management Services Ltd. in Tax Court Canada February 2015
https://scitax.com/pdf/Dckt_2012-1292-IT-G_06-Feb-2015.pdf
CRA Publication SR&ED Filing Requirements Policy December 18, 2014 (detailed explanation of requirements as of this date)
http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/flngrqrmnts-eng.html#s3_0
Scitax Bulletin #58: New TCC Ruling Defines Key SR&ED Terms (FHMS Feedlot Health Management Services Ltd. in TCC)
https://scitax.com/pdf/Bulletin.58.New.TCC.Ruling.Defines.Key.SR&ED.Terms.19-Feb-2015.pdf
Supreme Court Declines Immunovaccine SR&ED Case (discusses meaning of "government assistance")
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About Scitax
Scitax Advisory Partners LP is a Canadian professional services firm with specialist expertise in all aspects of planning, preparing and defending Scientific Research and Experimental Development (SR&ED) tax credit claims.
We offer a multi-discipline team of engineers, chartered accountants and tax lawyers to ensure that your SR&ED issues are covered from every angle.
While we normally work in concert with our client’s existing accountants, our affiliated tax-dedicated chartered accounting firm – Cadesky Tax – is an expert resource for advice on any taxation matter such as may arise either during the planning and preparation of your claim or while dealing with CRA afterwards.
In addition to planning and preparing new claims, we also engage on claims that have been challenged by CRA auditors or that have received negative assessments for either scientific or expenditure eligibility. If a satisfactory settlement cannot be achieved with CRA at the local office level, we will appeal your assessment through either Notice of Objection or Tax Court of Canada procedures with the assistance of our affiliated firm of tax lawyers.
DIRECTORS:
David R. Hearn, Managing Director
Michael C. Cadesky, FCPA FCA BSc MBA
Scitax Advisory Partners LP
Exchange Tower, 130 King Street West, Suite 2300, PO Box 233, Toronto ON M5X 1C8 | 416-350-1214 | www.scitax.com
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This bulletin is provided as a free service to clients and friends of Scitax Advisory Partners and Cadesky Tax. The content is believed to be accurate and reliable as of the date it is written, but is not a substitute for qualified professional advice.
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