SR&ED Look-Through – By Dawn Loeffler

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Dawn Loeffler, BA (Hons), CPA, CA Staff Accountant, Gilmour Knotts
Dawn Loeffler, BA (Hons), CPA, CA Staff Accountant, Gilmour Knotts
Dawn Loeffler, BA (Hons), CPA, CA
Staff Accountant, Gilmour Knotts

Tax Question:

What the look-through rule ITA 37(14) is and how it applies to Scientific Research and Experimental Development (SR&ED) claims?

 

Facts:

The look-through rule allows Canada Revenue Agency (CRA) to look beyond an entity making a SR&ED claim to further examine the expenses claimed. This helps CRA ensure expenses are of a current nature and that they occurred in Canada.

 

Discussion:

Current in Nature

Capital expenditures made after 2013 no longer qualify for SR&ED tax incentives. This includes acquisition of land, leasehold interest in land and depreciable property. For a SR&ED expense to be current in nature, it cannot include an expenditure for the use of a property that would be capital property if owned by the claimant (i.e. a lease). The look-through rule allows CRA to look beyond the claimant to examine the expenditure and ensure it is not a lease or capital item.

Occur in Canada

SR&ED contract expenditures made after 2012 are claimable at 80% provided that the work is performed in Canada. A company does not need to be a Canadian entity in order to make a SR&ED claim (a foreign company doing business in Canada can also make a SR&ED claim), but all contract expenses claimed must have been performed in Canada to get the tax credit. The look-through rule allows CRA to look beyond the claimant to ensure that all contract work claimed was performed in Canada. The general rule is that the recipient must be a Canadian taxpayer. Therefore, they can be a non-resident as long as they pay Canadian taxes.

 

If your company is involved in SR&ED, please contact us to to discuss filing your SR&ED return.

 

Dawn Loeffler, BA (Hons), CPA, CA
Staff Accountant, Gilmour Knotts
Chartered Accountant.
Email: faqs@gilmour.ca
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