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