Does Government Assistance Reduce Your SR&ED Claim?
Yes. A fundamental principle of the SR&ED program is that it reflects the "net costs" of performing research and development. The government ensures that true company costs are reflected net of any other potential government subsidies. Accepting government funding for R&D-related resources will reduce your eligible SR&ED expenditures, as claiming SR&ED should not become a profit-generating activity for companies.
Understanding Government Assistance
According to the Income Tax Act, "government assistance is broadly defined...as assistance from a government, municipality, or other public authority" in various forms including grants, subsidies, forgivable loans, tax deductions, and investment allowances — but excluding the federal investment tax credit.
Common examples include:
- IRAP Grant Funding
- MITACS Contributions
- Canada Media Fund Loans
- Co-op Student Wage Subsidies
- COVID-related subsidy programs (CEWS and similar)
The "Grind" on SR&ED Claims
The reduction caused by government assistance is often called a "grind" on SR&ED or referred to as "stacking rules." The critical question becomes: to what extent does government assistance reduce a SR&ED claim?
Courts have addressed this issue in cases like Immunovaccine Technologies Inc. v. The Queen, establishing that government assistance has a broad interpretation covering a wide range of non-commercial funding from public bodies, including crown corporations and foreign governments.
When Does Assistance Apply?
SR&ED policy indicates that government assistance reduces claims when it is "in respect of SR&ED" — meaning it has a direct relation to the SR&ED work. Assistance covering direct SR&ED wages and proxy overhead treatment amounts must be applied as SR&ED government assistance.
It's important to distinguish between genuine assistance and commercial transactions. If funding comes from a publicly funded body with non-commercially available terms, it's likely considered government assistance. Clear documentation of funding sources and terms should support your claim position.
The Practical Reality
While government assistance typically reduces SR&ED claims, opportunities may still exist. Many companies can optimize their SR&ED claims despite significant government funding by engaging professionals to assess the specific circumstances.
We recommend consulting with SR&ED specialists to evaluate whether pursuing an SR&ED claim remains worthwhile given your particular government assistance situation.