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Important legislative amendments to the Income Tax Act (ITA) contained in Bill C‑69, Budget Implementation Act, 2024, No. 1,1 have a direct impact on the scientific research and experimental development (SR&ED) tax incentive program. These amendments provide clarity on the treatment of concessional loans with respect to the legislation governing government assistance for SR&ED purposes, which has implications for the computation of SR&ED investment tax credits (ITCs).
In the 2023 Fall Economic Statement, the government proposed a relieving rule to counteract the effect of a court decision on the treatment of “concessional loans,” which are loans from public authorities that are either non-interest bearing or are granted at below-market interest rates. The court decision determined that the principal amount of a concessional loan constituted government assistance for purposes of the ITA. The amendments proposed that, effective 21 November 2023, a bona fide concessional loan with reasonable repayment terms from a public authority in Canada would generally not be treated as government assistance.
The proposal was subsequently included in Bill C‑69, which also provided that the relieving rule would be effective 1 January 2020 (instead of 21 November 2023, as originally proposed) and applies to loans made after 2019. Bill C‑69 was enacted on 20 June 2024.
Bill C‑69 included the following changes with respect to the treatment of concessional loans:
The following amendments were made to the ITA to implement the revised rules:
Taxpayers who have received concessional loans since 1 January 2020 should review their SR&ED claims to determine if the change in the treatment of concessional loans affects their ITC calculations.
There may also be a potential opportunity to adjust prior year returns within a taxpayer’s normal reassessment period (i.e., for non-statute barred years); however, we have requested clarification from the CRA on this issue and are waiting for their response. It is advisable to consult with EY tax professionals to ensure compliance with the new legislative provisions and to optimize SR&ED benefits.
For further information or assistance in reviewing and adjusting your SR&ED claims in light of these amendments, please contact one of the following EY advisors. Our team can assist you in assessing how the changes to the concessional loan rules affect your SR&ED claims.
Susan Bishop
+ 1 416 943 3444 | susan.g.bishop@ca.ey.com
Navid Hemmati
+ 1 780 638 6657 | navid.hemmati@ca.ey.com
Dean Anderson
+ 1 306 649 8354 | dean.anderson@ca.ey.com
James Christianson
+ 1 902 421 6249 | james.christianson@ca.ey.com
Elizabeth Pringle
+1 416 943 5453 | elizabeth.pringle@ca.ey.com
Budget information: For up-to-date information on the federal, provincial and territorial budgets, visit ey.com/ca/Budget.