Thank you for your question regarding amendments to SR&ED claims to remove certain repayable loans that were reported as "government assistance" but should not have been for taxation years that are beyond the 18-month window to file/amend an SR&ED claim. We wish to inform you that claimants affected by the change in the definition of government assistance can submit amended tax returns with their revised SR&ED forms for the years affected even if their SR&ED reporting deadline has passed, so long as the tax year is not statute barred.
The government assistance amounts that are no longer considered government assistance (as a result of the retroactive application of the amended definition of "government assistance"), can be removed from line 431on Form T661. If additional amounts of the assistance related to the "excluded loan", as defined in subsection 12(11), were included in income on the T2SCH1 in the same tax year, these amounts of government assistance can also be removed from the T2SCH01 (net income for income tax purposes). A larger deduction from the pool of deductible SR&ED expenditures may be taken, or the additional balance can be carried forward to be deducted in subsequent years. Additionally, the calculation of the qualified expenditures for investment tax credit purposes can be adjusted by removing the portion of the excluded loan that was previously deducted. The T2SCH31 or T2038 should be amended to reflect the changes made on the amended T661. This results in an increased amount of earned ITC. The increased ITC, if non-refundable, may be applied to Part I income tax payable, if any, carried back up to 3 years to recover Part I income Tax previously paid, or carried forward to be applied against the Part I income tax payable in any of the next 20 tax years; however, we wish to remind you that no new SR&ED expenditures will be accepted on the amended T661 if it is past the SR&ED reporting deadline.
Additionally, negative amounts of government assistance should not be reported in the current tax year on Form T661 to correct for an "excluded loan" amount deducted from qualified expenditures in a prior year. Any amended forms submitted could be reviewed to verify that the amounts removed were previously deducted as government assistance for SR&ED and that they are "excluded loans" according to the new definition in the Income Tax Act. More complex scenarios may exist wherein government assistance that was previously deducted from qualified expenditures and from the expenditures pool balance, is now determined to be an "excluded loan".
When the return that included the government assistance is statute barred, the claimant can still show repayments of the government assistance in the tax year the amount was repaid (irrespective of whether the government assistance would now be considered an "excluded loan") to recover investment tax credits; however, the ITC earned is non-refundable. Furthermore, provincial tax returns and R&D schedules should also be amended at the same time to recover provincial R&D tax. Finally, we note that there will be consequential changes to subsequent tax years filed as a result of any amended filings to recognize an excluded loan and remove government assistance for SR&ED previously included on Form T661 and carried to either a T2SCH31 or a T2038.
Originally posted on LinkedIn on November 15, 2024