Income Tax Act
Marginal note:Scientific research and experimental development
37 (1) Where a taxpayer carried on a business in Canada in a taxation year, there may be deducted in computing the taxpayer’s income from the business for the year such amount as the taxpayer claims not exceeding the amount, if any, by which the total of
(a) the total of all amounts each of which is an expenditure of a current nature made by the taxpayer in the year or in a preceding taxation year ending after 1973
(i) on scientific research and experimental development carried on in Canada, directly undertaken by or on behalf of the taxpayer, and related to a business of the taxpayer,
(i.1) by payments to a corporation resident in Canada to be used for scientific research and experimental development carried on in Canada that is related to a business of the taxpayer, but only where the taxpayer is entitled to exploit the results of that scientific research and experimental development,
(ii) by payments to
(A) an approved association that undertakes scientific research and experimental development,
(B) an approved university, college, research institute or other similar institution,
(C) a corporation resident in Canada and exempt from tax under paragraph 149(1)(j), or
(D) [Repealed, 1996, c. 21, s. 9(4)]
(E) an approved organization that makes payments to an association, institution or corporation described in any of clauses A to (C)
to be used for scientific research and experimental development carried on in Canada that is related to a business of the taxpayer, but only where the taxpayer is entitled to exploit the results of that scientific research and experimental development, or
(iii) where the taxpayer is a corporation, by payments to a corporation resident in Canada and exempt from tax because of paragraph 149(1)(j), for scientific research and experimental development that is basic research or applied research carried on in Canada
(A) the primary purpose of which is the use of results therefrom by the taxpayer in conjunction with other scientific research and experimental development activities undertaken or to be undertaken by or on behalf of the taxpayer that relate to a business of the taxpayer, and
(B) that has the technological potential for application to other businesses of a type unrelated to that carried on by the taxpayer, and
(b) the lesser of
(i) the total of all amounts each of which is an expenditure of a capital nature made by the taxpayer (in respect of property acquired that would be depreciable property of the taxpayer if this section were not applicable in respect of the property, other than land or a leasehold interest in land) in the year or in a preceding taxation year ending after 1958 on scientific research and experimental development carried on in Canada, directly undertaken by or on behalf of the taxpayer, and related to a business of the taxpayer, and
(ii) the undepreciated capital cost to the taxpayer of the property so acquired as of the end of the taxation year (before making any deduction under this paragraph in computing the income of the taxpayer for the taxation year),
(c) the total of all amounts each of which is an expenditure made by the taxpayer in the year or in a preceding taxation year ending after 1973 by way of repayment of amounts described in paragraph 37(1)(d),
(c.1) all amounts included by virtue of paragraph 12(1)(v), in computing the taxpayer’s income for any previous taxation year,
(c.2) all amounts added because of subsection 127(27), (29) or (34) to the taxpayer’s tax otherwise payable under this Part for any preceding taxation year, and
(c.3) in the case of a partnership, all amounts each of which is an excess referred to in subsection 127(30) in respect of the partnership for any preceding fiscal period,
exceeds the total of
(d) the total of all amounts each of which is the amount of any government assistance or non-government assistance (within the meanings assigned to those expressions by subsection 127(9)) in respect of an expenditure described in paragraph 37(1)(a) or 37(1)(b) that, at the taxpayer’s filing-due date for the year, the taxpayer has received, is entitled to receive or can reasonably be expected to receive,
(d.1) the total of all amounts each of which is the super-allowance benefit amount (within the meaning assigned by subsection 127(9)) for the year or for a preceding taxation year in respect of the taxpayer in respect of a province,
(e) that part of the total of all amounts each of which is an amount deducted under subsection 127(5) in computing the tax payable under this Part by the taxpayer for a preceding taxation year where the amount can reasonably be attributed to
(i) a prescribed proxy amount for a preceding taxation year,
(ii) an expenditure of a current nature incurred in a preceding taxation year that was a qualified expenditure incurred in that preceding year in respect of scientific research and experimental development for the purposes of section 127, or
(iii) an amount included because of paragraph 127(13)(e) in the taxpayer’s SR&ED qualified expenditure pool at the end of a preceding taxation year within the meaning assigned by subsection 127(9),
(f) the total of all amounts each of which is an amount deducted under this subsection in computing the taxpayer’s income for a preceding taxation year, except amounts described in subsection 37(6),
(f.1) the total of all amounts each of which is the lesser of
(i) the amount deducted under section 61.3 in computing the taxpayer’s income for a preceding taxation year, and
(ii) the amount, if any, by which the amount that was deductible under this subsection in computing the taxpayer’s income for that preceding year exceeds the amount claimed under this subsection in computing the taxpayer’s income for that preceding year,
(g) the total of all amounts each of which is an amount equal to twice the amount claimed under subparagraph 194(2)(a)(ii) by the taxpayer for the year or any preceding taxation year, and
(h) where the taxpayer is a corporation control of which has been acquired by a person or group of persons before the end of the year, the amount determined for the year under subsection 37(6.1) with respect to the corporation.
Marginal note:Business of related corporations
(1.1) Notwithstanding paragraph 37(8)(c), for the purposes of subsection 37(1), where a taxpayer is a corporation, scientific research and experimental development, related to a business carried on by another corporation to which the taxpayer is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) and in which that other corporation is actively engaged, at the time at which an expenditure or payment in respect of the scientific research and experimental development is made by the taxpayer, shall be considered to be related to a business of the taxpayer at that time.
Marginal note:Deemed time of capital expenditure
(1.2) For the purposes of paragraph 37(1)(b), an expenditure made by a taxpayer in respect of property shall be deemed not to have been made before the property is considered to have become available for use by the taxpayer.
Marginal note:SR&ED in the exclusive economic zone
(1.3) For the purposes of this section and section 127 of this Act and Part XXIX of the Income Tax Regulations, an expenditure is deemed to have been made by a taxpayer in Canada if the expenditure is
(a) made by the taxpayer in the course of a business carried on by the taxpayer in Canada; and
(b) made for the prosecution of scientific research and experimental development in the exclusive economic zone of Canada, within the meaning of the Oceans Act, or in the airspace above that zone or the seabed or subsoil below that zone.
Marginal note:Salary or wages for SR&ED outside Canada
(1.4) For the purposes of this section, section 127 and Part XXIX of the Income Tax Regulations, the amount of a taxpayer’s expenditure for a taxation year determined under subsection (1.5) is deemed to be made in the taxation year in respect of scientific research and experimental development carried on in Canada by the taxpayer.
Marginal note:Salary or wages outside Canada — limit determined
(1.5) The amount of a taxpayer’s expenditure for a taxation year determined under this subsection is the lesser of
(a) the amount that is the total of all expenditures each of which is an expenditure made by the taxpayer, in the taxation year and after February 25, 2008, in respect of an expense incurred in the taxation year for salary or wages paid to the taxpayer’s employee who was resident in Canada at the time the expense was incurred in respect of scientific research and experimental development,
(i) that was carried on outside Canada,
(ii) that was directly undertaken by the taxpayer,
(iii) that related to a business of the taxpayer, and
(iv) that was solely in support of scientific research and experimental development carried on in Canada by the taxpayer, and
(b) the amount that is 10 per cent of the total of all expenditures, made by the taxpayer in the year, each of which would, if this Act were read without reference to subsection (1.4), be an expenditure made in respect of an expense incurred in the year for salary or wages paid to an employee in respect of scientific research and experimental development that was carried on in Canada, that was directly undertaken by the taxpayer and that related to a business of the taxpayer.
Marginal note:Research outside Canada
(2) In computing the income of a taxpayer for a taxation year from a business of the taxpayer, there may be deducted expenditures of a current nature made by the taxpayer in the year
(a) on scientific research and experimental development carried on outside Canada, directly undertaken by or on behalf of the taxpayer, and related to the business (except to the extent that subsection (1.4) deems the expenditures to have been made in Canada); or
(b) by payments to an approved association, university, college, research institute or other similar institution to be used for scientific research and experimental development carried on outside Canada related to the business provided that the taxpayer is entitled to exploit the results of that scientific research and experimental development.
Marginal note:Minister may obtain advice
(3) The Minister may obtain the advice of the Department of Industry, the National Research Council of Canada, the Defence Research Board or any other agency or department of the Government of Canada carrying on activities in the field of scientific research as to whether any particular activity constitutes scientific research and experimental development.
Marginal note:Where no deduction allowed under section
(4) No deduction may be made under this section in respect of an expenditure made to acquire rights in, or arising out of, scientific research and experimental development.
Marginal note:Where no deduction allowed under ss. 110.1 and 118.1
(5) Where, in respect of an expenditure on scientific research and experimental development made by a taxpayer in a taxation year, an amount is otherwise deductible under this section and under section 110.1 or 118.1, no deduction may be made in respect of the expenditure under section 110.1 or 118.1 in computing the taxable income of, or the tax payable by, the taxpayer for any taxation year.
Marginal note:Expenditures of a capital nature
(6) An amount claimed under subsection 37(1) that may reasonably be considered to be in respect of a property described in paragraph 37(1)(b) shall, for the purpose of section 13, be deemed to be an amount allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a), and for that purpose the property shall be deemed to be of a separate prescribed class.
Marginal note:Amount referred to in para. (1)(h)
(6.1) Where a taxpayer is a corporation control of which was last acquired by a person or group of persons at any time (in this subsection referred to as “that time”) before the end of a taxation year of the corporation, the amount determined for the purposes of paragraph 37(1)(h) for the year with respect to the corporation in respect of a business is the amount, if any, by which
(a) the amount, if any, by which
(i) the total of all amounts each of which is
(A) an expenditure described in paragraph 37(1)(a) or 37(1)(c) that was made by the corporation before that time,
(B) the lesser of the amounts determined in respect of the corporation under subparagraphs 37(1)(b)(i) and 37(1)(b)(ii) immediately before that time, or
(C) an amount determined in respect of the corporation under paragraph 37(1)(c.1) for its taxation year ending immediately before that time
exceeds the total of all amounts each of which is
(ii) the total of all amounts determined in respect of the corporation under paragraphs 37(1)(d) to 37(1)(g) for its taxation year ending immediately before that time, or
(iii) the amount deducted by virtue of subsection 37(1) in computing the corporation’s income for its taxation year ending immediately before that time
exceeds
(b) the total of
(i) where the business to which the amounts described in clause (a)(i)(A), (B) or (C) may reasonably be considered to have been related was carried on by the corporation for profit or with a reasonable expectation of profit throughout the year, the total of
(A) the corporation’s income for the year from the business before making any deduction under subsection 37(1), and
(B) where properties were sold, leased, rented or developed, or services were rendered, in the course of carrying on the business before that time, the corporation’s income for the year, before making any deduction under subsection 37(1), from any other business substantially all the income of which was derived from the sale, leasing, rental or development, as the case may be, of similar properties or the rendering of similar services, and
(ii) the total of all amounts each of which is an amount determined in respect of a preceding taxation year of the corporation that ended after that time equal to the lesser of
(A) the amount determined under subparagraph 37(6.1)(b)(i) with respect to the corporation in respect of the business for that preceding year, and
(B) the amount in respect of the business deducted by virtue of subsection 37(1) in computing the corporation’s income for that preceding year.
Marginal note:Definitions
(7) In this section,
approved
agréé
approved means approved by the Minister after the Minister has, if the Minister considers it necessary, obtained the advice of the Department of Industry or the National Research Council of Canada; (agréé)
- scientific research and experimental development
scientific research and experimental development[Repealed, 1996, c. 21, s. 9(8)]
Marginal note:Interpretation
(8) In this section,
(a) references to expenditures on or in respect of scientific research and experimental development
(i) where the references occur in subsection 37(2), include only
(A) expenditures each of which was an expenditure incurred for and all or substantially all of which was attributable to the prosecution of scientific research and experimental development, and
(B) expenditures of a current nature that were directly attributable, as determined by regulation, to the prosecution of scientific research and experimental development, and
(ii) where the references occur other than in subsection 37(2), include only
(A) expenditures incurred by a taxpayer in a taxation year (other than a taxation year for which the taxpayer has elected under clause (B)), each of which is
(I) an expenditure of a current nature all or substantially all of which was attributable to the prosecution, or to the provision of premises, facilities or equipment for the prosecution, of scientific research and experimental development in Canada,
(II) an expenditure of a current nature directly attributable, as determined by regulation, to the prosecution, or to the provision of premises, facilities or equipment for the prosecution, of scientific research and experimental development in Canada, or
(III) an expenditure of a capital nature that at the time it was incurred was for the provision of premises, facilities or equipment, where at that time it was intended
1. that it would be used during all or substantially all of its operating time in its expected useful life for, or
2. that all or substantially all of its value would be consumed in,
the prosecution of scientific research and experimental development in Canada, and
(B) where a taxpayer has elected in prescribed form and in accordance with subsection 37(10) for a taxation year, expenditures incurred by the taxpayer in the year each of which is
(I) an expenditure of a current nature for, and all or substantially all of which was attributable to, the lease of premises, facilities or equipment for the prosecution of scientific research and experimental development in Canada, other than an expenditure in respect of general purpose office equipment or furniture,
(II) an expenditure in respect of the prosecution of scientific research and experimental development in Canada directly undertaken on behalf of the taxpayer,
(III) an expenditure described in subclause (A)(III), other than an expenditure in respect of general purpose office equipment or furniture,
(IV) that portion of an expenditure made in respect of an expense incurred in the year for salary or wages of an employee who is directly engaged in scientific research and experimental development in Canada that can reasonably be considered to relate to such work having regard to the time spent by the employee thereon, and, for this purpose, where that portion is all or substantially all of the expenditure, that portion shall be deemed to be the amount of the expenditure,
(V) the cost of materials consumed in the prosecution of scientific research and experimental development in Canada, or
(VI) 1/2 of any other expenditure of a current nature in respect of the lease of premises, facilities or equipment used primarily for the prosecution of scientific research and experimental development in Canada, other than an expenditure in respect of general purpose office equipment or furniture;
(b) for greater certainty, references to scientific research and experimental development related to a business include any scientific research and experimental development that may lead to or facilitate an extension of that business;
(c) except in the case of a taxpayer who derives all or substantially all of the taxpayer’s revenue from the prosecution of scientific research and experimental development (including the sale of rights arising out of scientific research and experimental development carried on by the taxpayer), the prosecution of scientific research and experimental development shall not be considered to be a business of the taxpayer to which scientific research and experimental development is related; and
(d) notwithstanding paragraph 37(8)(a), references to expenditures on or in respect of scientific research and experimental development shall not include
(i) any capital expenditure made in respect of the acquisition of a building, other than a prescribed special-purpose building, including a leasehold interest therein,
(ii) any outlay or expense made or incurred for the use of, or the right to use, a building other than a prescribed special-purpose building, and
(iii) payments made by a taxpayer to
(A) a corporation resident in Canada and exempt from tax under paragraph 149(1)(j), an approved research institute or an approved association, with which the taxpayer does not deal at arm’s length,
(B) a corporation other than a corporation referred to in clause (A), or
(C) an approved university, college or organization
to be used for scientific research and experimental development
(D) in the case of such a payment to a person described in clause (A) or (B), to the extent that the amount of the payment may reasonably be considered to have been made to enable the recipient to acquire a building or a leasehold interest in a building or to pay an amount in respect of the rental expense in respect of a building, and
(E) in the case of a payment to a person described in clause (C), to the extent that the amount of the payment may reasonably be considered to have been made to enable the recipient to acquire a building, or a leasehold interest in a building, in which the taxpayer has, or may reasonably be expected to acquire, an interest.
Marginal note:Salary or wages
(9) An expenditure of a taxpayer
(a) does not include, for the purposes of clauses (8)(a)(ii)(A) and (B), remuneration based on profits or a bonus, where the remuneration or bonus, as the case may be, is in respect of a specified employee of the taxpayer, and
(b) includes, for the purpose of paragraph (1.5)(a), an amount paid in respect of an expense incurred for salary or wages paid to an employee only if the taxpayer reasonably believes that the salary or wages is not subject to an income or profits tax imposed, because of the employee’s presence or activity in a country other than Canada, by a government of that other country.
Marginal note:Limitation re specified employees
(9.1) For the purposes of clauses (8)(a)(ii)(A) and (B), expenditures incurred by a taxpayer in a taxation year do not include expenses incurred in the year in respect of salary or wages of a specified employee of the taxpayer to the extent that those expenses exceed the amount determined by the formula
A × B/365
where
- A
- is 5 times the Year’s Maximum Pensionable Earnings (as determined under section 18 of the Canada Pension Plan) for the calendar year in which the taxation year ends; and
- B
- is the number of days in the taxation year on which the employee is a specified employee of the taxpayer.
Marginal note:Associated corporations
(9.2) Where
(a) in a taxation year of a corporation that ends in a calendar year, the corporation employs an individual who is a specified employee of the corporation,
(b) the corporation is associated with another corporation (in this subsection and subsection 37(9.3) referred to as the “associated corporation”) in a taxation year of the associated corporation that ends in the calendar year, and
(c) the individual is a specified employee of the associated corporation in the taxation year of the associated corporation that ends in the calendar year,
for the purposes of clauses (8)(a)(ii)(A) and (B), the expenditures incurred by the corporation in its taxation year or years that end in the calendar year and by each associated corporation in its taxation year or years that end in the calendar year do not include expenses incurred in those taxation years in respect of salary or wages of the specified employee unless the corporation and all of the associated corporations have filed with the Minister an agreement referred to in subsection 37(9.3) in respect of those years.
Marginal note:Agreement among associated corporations
(9.3) Where all of the members of a group of associated corporations of which an individual is a specified employee file, in respect of their taxation years that end in a particular calendar year, an agreement with the Minister in which they allocate an amount in respect of the individual to one or more of them for those years and the amount so allocated or the total of the amounts so allocated, as the case may be, does not exceed the amount determined by the formula
A × B/365
where
- A
- is 5 times the Year’s Maximum Pensionable Earnings (as determined under section 18 of the Canada Pension Plan) for the particular calendar year, and
- B
- is the lesser of 365 and the number of days in those taxation years on which the individual was a specified employee of one or more of the corporations,
the maximum amount that may be claimed in respect of salary or wages of the individual for the purposes of clauses (8)(a)(ii)(A) and (B) by each of the corporations for each of those years is the amount so allocated to it for each of those years.
Marginal note:Filing
(9.4) An agreement referred to in subsection 37(9.3) is deemed not to have been filed by a taxpayer unless
(a) it is in prescribed form; and
(b) where the taxpayer is a corporation, it is accompanied by
(i) where its directors are legally entitled to administer its affairs, a certified copy of their resolution authorizing the agreement to be made, and
(ii) where its directors are not legally entitled to administer its affairs, a certified copy of the document by which the person legally entitled to administer its affairs authorized the agreement to be made.
Marginal note:Deemed corporation
(9.5) For the purposes of subsections 37(9.2) and 37(9.3) and this subsection, each
(a) individual related to a particular corporation,
(b) partnership of which a majority interest partner is
(i) an individual related to a particular corporation, or
(ii) a corporation associated with a particular corporation, and
(c) limited partnership of which a member whose liability as a member is not limited is
(i) an individual related to a particular corporation, or
(ii) a corporation associated with a particular corporation,
is deemed to be a corporation associated with the particularcorporation.
Marginal note:Time for election
(10) Any election made under clause (8)(a)(ii)(B) for a taxation year by a taxpayer shall be filed by the taxpayer on the day on which the taxpayer first files a prescribed form referred to in subsection 37(11) for the year.
Marginal note:Filing requirement
(11) Subject to subsection 37(12), no amount in respect of an expenditure that would be incurred by a taxpayer in a taxation year that begins after 1995 if this Act were read without reference to subsection 78(4) may be deducted under subsection 37(1) unless the taxpayer files with the Minister a prescribed form containing prescribed information in respect of the expenditure on or before the day that is 12 months after the taxpayer’s filing-due date for the year.
Marginal note:Misclassified expenditures
(12) If a taxpayer has not filed a prescribed form in respect of an expenditure in accordance with subsection 37(11), for the purposes of this Act, the expenditure is deemed not to be an expenditure on or in respect of scientific research and experimental development.
Marginal note:Non-arm’s length contract — linked work
(13) For the purposes of this section and sections 127 and 127.1, where
(a) work is performed by a taxpayer for a person or partnership at a time when the person or partnership does not deal at arm’s length with the taxpayer, and
(b) the work would be scientific research and experimental development if it were performed by the person or partnership,
the work is deemed to be scientific research and experimental development.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 37
- 1994, c. 7, Sch. II, s. 21, c. 8, s. 4
- 1995, c. 1, s. 63, c. 3, s. 9, c. 21, s. 9
- 1996, c. 21, s. 9
- 1997, c. 25, ss. 6, 74
- 1998, c. 19, ss. 5, 86
- 1999, c. 22, s. 11
- 2001, c. 17, s. 21
- 2005, c. 30, s. 2
- 2008, c. 28, s. 3
- Date modified: