Definition of “Assistance” broadened in the context of SR&ED tax credits

On September 11 2014, the Federal Court of Appeal upheld a lower court decision involving a Halifax-based biotechnology company and the Canada Revenue Agency (CRA) that impacts R&D funding on the SR&ED program.

Between 2005 and 2008, Immunovaccine Technologies received approximately $3.8 million in cash “advances” from the Atlantic Canada Opportunities Agency to develop vaccines. They also claimed SR&ED tax credits during this period. CRA deemed the advances to be government assistance, which effectively reduces the SR&ED investment tax credits.

This court ruling set precedence and implies that even repayable loans obtained on favorable, non-commercial terms could be considered assistance and would need to be deducted from total SR&ED expenditures.  It is also to be noted that once these loans are repaid, the tax credit may be claimed on the associated R&D expenditures, but only a non-refundable tax credit would be available and only at this later repayment date.

The subject is complex, has considerable impact on investment and innovation in Canada, and will likely open the door for additional court rulings. However, the bottom line is that if your company is taking advantage of loans or other financial instruments with unconventional terms, you will need to evaluate the potential impact of this funding on your SR&ED tax credit claims.

How R&D Partners Can Help

If you have questions or comments about these tax credits, please do not hesitate to contact Sahar Ansary at 1-800-500-7733 for more information.