Federal SR&ED legislative proposals status - As at December 31, 2016
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Federal SR&ED legislative proposals status
As at December 31, 2016
The following table tracks the progress of outstanding federal draft legislation amending the Income Tax Act that impacts on the Scientific Research and Experimental Development (SR&ED) Program.
Legislation receiving royal assent will be maintained in this table for up to one year from the date of assent unless coming into force provisions warrant otherwise.
On September 16, 2016 the Department of Finance released Legislative proposals relating to the Income Tax Act and the Income Tax Regulations and to Related legislation. Interested parties were invited to provide comments on the legislative and regulatory proposals by November 15, 2016 – Department of Finance consults on updates to the tax system.
| Provision | Description |
|---|---|
| 37(8)(a)(ii)(B)(II) |
Clause 37(8)(a)(ii)(B) provides for the alternative "proxy" method for determining SR&ED expenditures and lists the expenditures that a taxpayer can deduct, if the taxpayers makes an election to use the proxy method for determining SR&ED expenditures. Subclause 37(8)(a)(ii)(B)(II) is amended by replacing the phrase “in respect of” in the subclause with “for” in the English version of the Act. This change ensures that wording in the English and French versions of the Act is consistent and ensures that the English version reflects properly the underlying tax policy. The case law has established that the phrase “in respect of” has the broadest meaning possible. However, this is not the tax policy intent in respect of expenditures described in subclause 37(8)(a)(ii)(B)(II). This amendment applies in respect of expenditures incurred after September 16, 2016. |
| 37(11) |
Subsection 37(11) is amended to clarify the filing requirements (and the consequences for failing to provide required information) in respect of SR&ED claims. Under subsection 37(11), a taxpayer must file a prescribed form with the Minister in respect of any expenditure that is claimed by the taxpayer for the year as a deduction under subsection 37(1), identifying the expenditure and supporting its characterization as SR&ED as well as any claim preparer information (as defined in subsection 162(5.3)). The form must be filed with the Minister within one year of the taxpayer’s filing-due date for the year in which the expenditure was incurred. This amendment applies on royal assent. |
| New 37(11.1) |
New subsection 37(11.1) generally provides that a taxpayer who fails to file a prescribed form, containing information identifying an expenditure and supporting its characterization as SR&ED (as referred to in paragraph 37(11)(a)), with the Minister may not deduct that amount as a SR&ED expenditure under subsection 37(1). This amendment clarifies that failure to provide the required claim preparer information will not prevent a taxpayer from deducting an amount in respect of the expenditure under subsection 37(1). This amendment applies on royal assent. |
| 127(9) definition of “specified percentage” (f.1)(i) |
The definition “specified percentage” in subsection 127(9) sets out the relevant rates at which investment tax credits (ITCs) are earned in different circumstances. Budget 2012 reduced the general ITC rate for qualified scientific research & experimental development (SR&ED) expenditures to 15% from 20%. The 15% rate is fully phased in for taxation years that begin after 2014. Subparagraph (f.1)(i) of the definition of “specified percentage” is amended to reduce the ITC rate to 15% for any repayment of any government assistance, non-government assistance or contract payments (assistance) received by a taxpayer in a taxation year beginning after 2014. This amendment applies to repayments made after September 16, 2016 (the announcement). |
Law
Bill C-43 A second Act to implement certain provision of the budget tabled in Parliament on February 11, 2014 and other measures received royal assent on December 16, 2014.
On October 10, 2014, the Government tabled a detailed Notice of Ways and Means Motion to implement certain provisions of the budget tabled in Parliament on February 11, 2014, and other measures.
History:
On June 3, 2013, the Minister of Finance issued news release 2013-080, Government invites comments on proposals to improve the integrity of the federal tax system by limiting access to graduated rates for trusts and certain estates.
Please refer to the legislative proposal for more details: Consultation on eliminating graduated rate taxation of trusts and certain estates.
| Provision | Description |
|---|---|
|
127(7) |
Taxpayers, including trusts, are permitted to claim investment tax credits (ITCs) in respect of certain expenditures. Inter vivos trusts are generally required to recognize ITCs in the trust. Testamentary trusts, on the other hand, can make ITCs available to their beneficiaries for use by the beneficiaries in computing their own income tax liability. The proposed measures would require that the ITCs of trusts created by will and flat top-rate estates be recognized in the trust or estate. Effective for 2016 and subsequent tax years |
Law
Bill C-45 (2012)
Royal assent: December 14, 2012 / Bill C-45 became law.
The 2012 federal budget and Notice of Ways and Means Motion were tabled on March 29, 2012 (Jobs Growth and Long-term Prosperity – Economic Action Plan 2012; pages 68-71).
Legislative proposals relating to the Income Tax Act and Income Tax Regulations with explanatory notes were announced August 2012.
Legislative proposals relating to the Income Tax Act and Regulations
Budget 2012 announced a number of changes in respect of the SR&ED program:
- Expenditures of a capital nature will no longer qualify for SR&ED tax incentives.
- The rate at which overhead SR&ED expenditures are accounted for under the proxy method will be reduced from 65% to 55% over a two year period.
- Contract-SR&ED and third‑party payments for SR&ED expenditures will only be 80% eligible for ITCs.
- The basic 20% ITC for SR&ED qualified expenditures will be reduced to 15%.
| Provision | Description |
|---|---|
| 37(1)(a)(i) 37(1)(a)(i.01) new |
Subparagraph 37(1)(a)(i) describes expenditures of a current nature made by a taxpayer on SR&ED carried on in Canada directly by or on behalf of the taxpayer and related to the taxpayer’s business. New subparagraph (i.01) describes SR&ED carried out on behalf of a taxpayer. As a consequence, subparagraph (a)(i) is amended to remove the reference to SR&ED carried out on behalf of a taxpayer. Effective date: For expenditures made after 2012 |
| 37(1)(b) | Subparagraph 37(1)(b) describes expenditures of a capital nature directly made by a taxpayer on SR&ED carried on in Canada and related to the taxpayer’s business. Paragraph 37(1)(b) is repealed. Capital expenditures can no longer be claimed for SR&ED purposes. Effective date: For expenditures made after 2013 and for expenditures that subsection 37(1.2) deems not to have been made before 2014 (available for use rules). |
| 37(8)(a)(ii)(A)(III) repealed 37(8)(a)(ii)(B)(I) repealed 37(8)(a)(ii)(B)(III) repealed 37(8)(a)(ii)(B)(VI) repealed 37(8)(a)(ii)(B)(II) amended |
Subparagraph 37(8)(a)(ii) provides rules for interpreting the expression expenditures on or in respect of scientific research and experimental development incurred in Canada. The noted sub‑clauses to the left have been amended or repealed consequential to the repeal of paragraph 37(1)(b). Expenditures of a capital nature can no longer be claimed for SR&ED purposes. Effective date: For expenditures made after 2013 and for expenditures that subsection 37(1.2) deems not to have been made before 2014 (available for use rules). |
| 37(8)(d) | Paragraph 37(8)(d) provides, amongst other things, that a capital expenditure made for, or in respect of, a building (other than a prescribed special‑purpose building) does not qualify as an expenditure on, or in respect of SR&ED. This paragraph has been amended consequential to the repeal of paragraph 37(1)(b). Expenditures of a capital nature, including expenditures for the right to use capital property, can no longer be claimed for SR&ED. Effective date: For expenditures made after 2013 and for expenditures that subsection 37(1.2) deems not to have been made before 2014 (available for use rules). |
| 37(14) new | New section 37(14) provides for a look through rule to ensure that expenditures incurred by a claimant in respect of SR&ED performed on behalf of the claimant or by third party entities include only expenditures of a current nature consequential to the repeal of paragraph 37(1)(b). For the purposes of subparagraphs 37(1)(a)(i.01) to (iii) the amount of a particular expenditure (of the payer) is reduced by any related expenditure (of the performer) that is not an expenditure of a current nature. Effective date: For expenditures made after 2013 and for expenditures that subsection 37(1.2) deems not to have been made before 2014 (available for use rules). |
| 37(15) new | New subsection 37(15) provides that where a claimant is required to reduce an expenditure because of new subsection 37(14), the performer is required to inform the payer in writing of the amount of the reduction. The information is to be provided immediately if requested by the payer and in any other case no later than 90 days after the end of the calendar year in which the expenditure was made. Effective date: For expenditures made after 2013 and for expenditures that subsection 37(1.2) deems not to have been made before 2014 (available for use rules). |
| 127(9) Definition of “contract payment” | In the case of contract-SR&ED and third-party SR&ED, qualified expenditures of a performer are reduced by the amount of a payor’s contract payment to the performer. Subparagraph (a)(i) is amended consequential to the introduction of new paragraph 37(1)(a)(i.01) to replace the reference to 37(1)(a)(i), with 37(1)(a)(i.01). Effective date: For expenditures made after 2012 |
| Paragraph (b) is amended consequential to the repeal of paragraph 37(1)(b). Capital expenditures can no longer be claimed for SR&ED purposes. Effective date: For expenditures made after 2013 |
|
| 127(9) Definition of “first term shared‑use‑equipment” 127(9) Definition of “second term shared‑use‑equipment” |
Where a property is not all or substantially used by a taxpayer for SR&ED, but is primarily used by the taxpayer in SR&ED (referred to as shared‑use‑equipment (SUE)), part of the cost of such property can be included in the taxpayer’s qualified expenditures and therefore is partially eligible for an ITC. The definitions are amended as of March 29, 2012, consequential to the repeal of paragraph 37(1)(b) to ensure that the definitions only apply in respect of property acquired before 2014. Because of the interaction of the definition first term SUE and second term SUE , ITCs may still be claimed in tax years ending after 2013 in respect of first term SUE acquired before 2014. ITCs will not be available in respect to either first term or second term SUE for taxation years ending after February 1, 2017. Effective: The definitions of first term and second term SUE are repealed as of February 1, 2017. |
| 127(9) Definition of “investment tax credit”, paragraph (a.1) | The definition of investment tax credit is amended to reduce the SR&ED ITC rate from 20% to 15%. Effective: For tax years that end after 2013. The reduction will be pro-rated for fiscal years that straddle January 1, 2014. |
| 127(9) Definition of “qualified expenditure”, paragraph (a) | The definition of qualified expenditure is being amended with the Budget 2012 announcement that capital expenditures will no longer qualify for SR&ED ITCs and that only 80% of expenditure in respect of contract SR&ED and third-party payments for SR&ED are eligible for an ITC. |
| Subparagraph (a)(i), which previously referred to an expenditure for first term SUE and second term SUE , is amended to refer to an expenditure described in subparagraph 37(1)(a)(i). Effective date: For expenditures made after 2012 |
|
| Subparagraph (a)(ii), which previously referred to an expenditure described in 37(1)(a), is amended to refer to 80% of an expenditure described in subparagraph 37(1)(a.01) to (iii). Effective date: For expenditures made after 2012 |
|
| Subparagraph (a)(iii), which previously referred to an expenditure described in 37(1)(b)(i), is amended to refer to an expenditure for first term SUE and second term SUE . Effective date: For expenditures made after 2012 Consistent with the repeal of the definitions of first term and second term SUE, this amended subparagraph will also be repealed as of February 1, 2017. |
|
| New subparagraph (a)(iv) refers to expenditures described in subparagraph 37(1)(b)(i). Effective date: For expenditures made after 2012 Consistent with the repeal of 37(1)(b), this new subparagraph is also repealed in respect of expenditures made after 2013. |
|
| 127(9) Definition of “qualified expenditure”, paragraph (b) | This paragraph is amended to remove the reference to paragraph (e) of the definition of qualified expenditure. Paragraph (e) had been previously repealed. Effective date: For expenditures made after 2012 |
| 127(10.1) | Subsection 127(10.1) provides a 15% ITC in addition to the basic 20% ITC for certain SR&ED expenditure incurred by a Canadian-Controlled Private Corporation (CCPC). Subparagraph 127(10.1) is amended by replacing the reference to 15% with 20% in order to maintain the enhanced ITC rate of 35%. Effective date: For tax years that end after 2013. The 5% increase will be pro-rated for fiscal years that straddle January 1, 2014. |
| 127(11.2) | Subsection 127(11.2) provides that property, for ITC purposes under subsections (5), (7), and (8), is not considered to have been acquired and expenditures are not considered to have been made, by a taxpayer until the property is considered to have become available for use by the taxpayer. |
| Paragraph 127(11.2)(a) is amended to remove the reference to first term SUE . Effective date: February 1, 2017 |
|
| Paragraph 127(11.2)(b) is amended to remove the reference to 37(1)(b)(i). Effective date: For expenditures made after 2013 |
|
| 127(11.5) | Subsection 127(11.5) reduces, in certain circumstances, qualified expenditures incurred by a taxpayer. |
| Paragraph 127(11.5)(a) is amended consequential to the repeal of 37(1)(b), and removes the reference to 13(7.1) and (7.4). Effective date: For expenditures made after 2013 |
|
| Paragraph 127(11.5)(b) is repealed consequential on the repeal of the definitions of first term SUE and second term SUE . Effective date: February 1, 2017 |
|
| 127(11.6) | Subsection 127(11.6) provides rules for determining expenditures for the purposes of subsection 127(11.5) in respect of purchases of goods and services acquired from non‑arm’s length parties. Consequential on the repeal of 37(1)(b), the mid amble of subsection 127(11.6) and subparagraph 127(11.6)(d)(i) are amended by removing the reference to “capital” in the phrase “capital cost to the taxpayer of the property”. Effective date: February 1, 2017 |
| 127(11.8) | Paragraph 127(11.8)(c) provides that the leasing of a property is considered to be the rendering of service for certain purposes. Paragraph 127(8)(c) is repealed consistent with the repeal of 37(1)(b) and the amendments to 37(8)(d). Effective date: For expenditures made after 2013 |
| 127(33) | Subsection 127(33) to (35) apply where a non‑arm’s length transfer of property to another taxpayer would otherwise trigger the SR&ED ITC recapture provisions. Subsection 127(33) is amended to ensure that notwithstanding the repeal of 37(1)(b) and subclauses 37(8)(a)(ii)(A)(III) and (B)(III), the non‑application of the recapture rules will remain in effect for non‑arm’s length transfers of SR&ED property. Effective date: March 29, 2012 |
| 127.1(2), definition of “refundable investment tax credit” | The definition of refundable tax credit is amended consequential on the repeal of 37(1)(b) and the amendments to 37(8)(d). Subparagraph (f)(i) is amended to remove the phrase “(other than expenditure of a capital nature)”. Effective date: February 1, 2017 |
| 127.1(2.01) |
Subsection 127(2.01) provides for the refundability of certain ITCs earned by a CCPC that is neither a qualifying corporation nor an excluded corporation as defined in 127.1(2). This is consistent with expenditures of a capital nature which no longer qualify for SR&ED tax incentives. Effective date: February 1, 2017 |
| Regulation 2900(4) | Subsection 2900(4) of the Regulations determines the prescribed proxy amount for the purposes of paragraph (b) of the definition of qualified expenditure in 127(9). The percentage rate in the calculation of the prescribed proxy amount is amended to 55% over a two year period. Effective date: For tax years that end after 2012 except that for tax years that include days in 2012 and 2013, the applicable percentage will be prorated using 65% and 60%, respectively based on the number of days in the tax year that are in those calendar years. |
| Regulation 2902 | Section 2902 of the Regulations sets out the expenditures that are prescribed for the purposes of the definition qualified expenditure in subsection 127(9). Prescribed expenditures do not qualify for ITCs. |
| Paragraph 2902(b) of the Regulations provides that certain expenditures of a capital nature are prescribed for the purposes of qualified expenditures in subsection 127(9). Paragraph 2902(b) of the Regulations is amended consequential on the repeal of 37(1)(b), the amendments to 37(8)(d) and the repeal of definitions first and second term SUE. Effective date: For expenditures incurred after 2013 |
|
| Subparagraph 2902(b)(ii) of the Regulations is amended to add a reference to the new definition “qualified resource property” in subsection 127(9) of the ITA. This amendment ensures that the cost of the acquisition of qualified resource property is not a qualified expenditure for SR&ED ITC purposes. Effective date: For expenditures incurred after 2013 |
|
| Paragraph 2902(e) of the Regulations is amended to remove a reference to “of a current or a capital nature”. Paragraph 2902(e) of the Regulations is amended consequential on the repeal of 37(1)(b), and the amendments to the definition of qualified expenditure in subsection 127(9). Effective date: For expenditures incurred after 2013 |
|
| Regulation 2903 | Section 2903 of the Regulations describes a prescribed special‑purpose building for the purposes of paragraph 37(8)(d). Section 2903 is repealed consequential on the repeal of 37(1)(b) and the amendments to 37(8)(d). Effective date: after 2013 |
Law
Bill C-48 (2012)
Royal assent: June 26, 2013 / Bill C-48 became law
On October 24, 2012, the Minister of Finance issued news release 2012-129, Government of Canada Moves to Implement Outstanding Tax Amendments to implement outstanding income tax technical measures. These measures were previously included in Bill C-10 and Bill C-33 which were introduced in the 39th Parliament.
Please refer to part 5 of the notice of ways and means motion and to the corresponding clauses of the explanatory notes for more details: Notice of Ways and Means Motion to amend the Income Tax Act, the Excise Tax Act and Related legislation.
| Provision | Description |
|---|---|
| 37(8)(a)(ii)(B)(V) "Materials transformed" can now be claimed under the proxy method. Originally part of the December 20, 2002 Notice of Ways and Means Motion. |
Materials under the proxy method Under the proxy method, the phrase "materials consumed" is changed to "materials consumed or transformed." Also, the reference in the French version of subclause 37(8)(a)(ii)(B)(V) to "matériel" is changed to "matériaux" in the ITA. Effective Date: For costs incurred after February 23, 1998 |
| 127(27)(b),(c),(e),(f) Originally part of the December 20, 2002 Notice of Ways and Means Motion. |
ITC recapture—Unpaid amount / shared-use-equipment (SUE) First, paragraphs 127(27)(b) and (c) are amended to refer to the "cost, or a portion of the cost, of the particular property" instead of to the "cost of the particular property". Second, paragraphs 127(27)(b) and (c) are amended to provide that the reference therein to a qualified expenditure included in a taxpayer’s investment tax credit be read without reference to subsection 127(26) relating to unpaid amounts. Third, consequential changes are made to the wording between paragraphs 127(27)(d) and (e) of the ITA. In particular, the first of the two amounts in the "lesser of" formula is moved to new paragraph 127(27)(e). The second of these two amounts is described in amended paragraph 127(27)(f), which combines former paragraphs 127(27)(e) and (f). Fourth, paragraph 127(27)(f), which combines former paragraphs 127(27) (e) and (f), is changed to account for circumstances where the property that is disposed of or converted is first term SUE or second term SUE . |
|
143.3 new Originally introduced in the November 17, 2005 Notice of Ways and Means Motion. |
Stock option benefit denial of expenditure Effective Date: November 17, 2005 except that for securities issued or sold before the announcement date (October 24, 2012), the definition "option" in subsection 143.3(1) of the Act, as enacted by subsection (1), is to be read without reference to its paragraph (a). |
|
220(2.2) new Originally introduced in the November 17, 2005 Notice of Ways and Means Motion. |
Removal of subsection 220(2.1) discretion Effective Date: November 17, 2005 |
|
248(1) Technical Notes: Explanatory Notes to Legislative Proposals Relating to Income Tax: 4 |
"Engineering" work is among the work listed in paragraph 248(1)(d). The French version of paragraph (d) of the definition is changed to refer to "travaux de génie" instead of "travaux techniques." It was never intended for there to be a difference between the English and French versions of the ITA. Effective Date: Upon royal assent |
- Date modified:
- 2017-01-19