Income Tax Act s. 127(18): Government Assistance Reduces Qualified Expenditures

Subsection 127(18) is the companion rule to paragraph 37(1)(d): it reduces a claimant’s qualified expenditures, the base on which investment tax credits are earned, by government assistance, non-government assistance and contract payments related to the SR&ED. As with the pool reduction, the netting is triggered when assistance can reasonably be expected, not only when it is received. Together the two rules prevent stacking full federal credits on top of other funding for the same work.

Text of the Provision

127(18) Where on or before the filing-due date for a taxation year of a person or partnership (referred to in this subsection as the “taxpayer”) the taxpayer has received, is entitled to receive or can reasonably be expected to receive a particular amount that is government assistance, non-government assistance or a contract payment that can reasonably be considered to be in respect of scientific research and experimental development, the amount by which the particular amount exceeds all amounts applied for preceding taxation years under this subsection or subsection 127(19) or 127(20) in respect of the particular amount shall be applied to reduce the taxpayer’s qualified expenditures otherwise incurred in the year that can reasonably be considered to be in respect of the scientific research and experimental development.

Source: Income Tax Act (Canada), subsection 127(18), as consolidated May 14, 2010. Archived excerpt; subsequent amendments are not reflected. For the current text see the Income Tax Act at Justice Laws.