Subsection 2900(2)
See Also
Armada Equipment Corp. v. The Queen, 2007 DTC 879, 2007 TCC 260
In finding that fees paid to an accounting firm to file claims for investment tax credits did not qualify as "directly related" to the prosecution of scientific research and experimental development, Mogan D.J. stated (at para. 15) that:
"In order to be 'directly related'', an expenditure must be incurred in the research itself or in the development itself. The amount paid to Deacur & Co. was a consequence of research and development which would already taken place."
Consoltex Inc. v. The Queen, 97 DTC 724 (TCC)
The cost of yarn that the taxpayer expended in the course of R&D project qualified under both s. 37(7)(c)(ii)(A) and Regulation 2900(2)(c), notwithstanding that the yarn subsequently was sold. Bowman TCJ. stated (at p. 736) that "the word 'expenditures' is a reasonably comprehensible English word ... . It is something one spends, an outlay. No meaning of which I am aware, either in ordinarily parlance or in decided cases, would justify adding after it 'net of sales proceeds'".
He went on to note in light of former s. 4(4) that as the expenditures qualified under s. 37, they could not also be deducted as cost of sales under s. 9.
Administrative Policy
Application Policy SR & ED 96-06 "Directly Undertaking, Supervising or Supporting v. 'Directly Engaged' SR & ED Salary and Wages".
28 July 1992 Memorandum 921859 (April 1993 Access Letter, p. 151, ¶C180-136)
Use of the term "paid" in s. 2900(2)(b) was intended to deny deductions for accruals of salaries, wages and bonuses. However, in order to assist District Offices in processing refundable investment tax credit claims, RCT will consider normal year-end accruals which are systematically provided for in a payroll system to have been paid in the year accrued, provided that they are paid shortly after the year-end.
23 April 1990 Memorandum (September 1990 Access Letter, ¶1412)
The concession in IT-151R3, para. 11 (that normal year-end accruals would be considered to have been "paid") is a practical but minor concession made to assist district offices in processing refundable investment tax credit claims.
18 December 1989 Memorandum (May 1990 Access Letter, ¶1212)
Cost associated with bidding for a contract, do not satisfy the requirements of s. 2900(1)(c) because the bidding costs would have been incurred even if the bid were unsuccessful and no scientific research had occurred.
87 C.R. - Q. 27
Each employee's employment duties must be examined and a determination made as to whether his duties directly relate to the undertaking, supervision or support of R & D.
IT-151R4 "Scientific Research and Experimental Development Expenditures"
Subsection 2900(4)
Administrative Policy
Prescribed Proxy Amount Policy 19 December 2012
The objective of the overall cap is to ensure that the total qualified SR&ED expenditures and PPA and other deductions specifically allowed under the Regulations are not greater than the total business expenditures made in the year. Generally, the overall cap on the PPA should not apply to claimants carrying on a diversified business (that includes, for example, production, marketing, and research and development). Specifically, the overall cap will usually not restrict the calculated PPA if the claimant has deducted more than $65 of non-SR&ED expenses (excluding the deductions specifically identified by the Regulations as mentioned below) for each $100 of eligible salary included in the salary base.
The overall cap is calculated based on the total expenditures for tax purposes minus certain deductions allowed under other sections of the Income Tax Act (ITA). These latter deductions are specifically identified by the Regulations, for example capital cost allowance (CCA), SR&ED deduction as per line 411 of Schedule T2SCh1, building rent, interest, etc.
Table 2 illustrates the calculation of the overall cap on the PPA.
Table 2 Overall cap on the prescribed proxy amount
Enter the total amounts deducted when calculating the net income for tax purposes from the business for the year (including the cost of goods sold). 1) ______________ Enter the deductions claimed in the year under sections 20 (for example, capital cost allowance, interest, bad debts), 24 (if you cease to carry on a business), 26 (for a bank), 30 (improving land for farming), 32 (if your business is that of an insurance agent or broker), 37 (for SR&ED expenditures), 66 to 66.8 (for example, exploration and development expenditures), and 104 (for a trust). 2) ______________ Enter the amount of expenditures incurred for the use of, or the right to use, a building (other than a prescribed special-purpose building). 3) ______________ Enter the amount from line 1, minus the amounts on line 2 and line 3. This is the amount of the overall cap on the PPA. 4) ______________ If a claimant carries on more than one business, the claimant should add the amounts specified under the Regulations that were deducted when calculating the claimant's income for the year from all businesses.