Both the Federal and Provincial government offer assistance in the form of repayable contributions. FedDev is an example where in essence, the assistance is like a loan in that the funds you receive are repayable. However, typically the funds received do not carry an interest rate, or terms of security. For these reasons many companies find this type of government assistance more favourable than bank financing or equity financing.

However for SR&ED purposes any repayable contribution received from a government is considered to be government assistance for purposes of the Act, and therefore must be netted against any SR&ED costs. For example, say a company received $50K in FedDev funding and all funding was spent on SR&ED costs. In the year the company received the $50K of FedDev funds, it still would have to net this amount against its qualified SR&ED expenditures in that year.

While the company could earn back federal SR&ED tax credits in the year the FedDev funds are repaid, it would not be eligible for a refundable SR&ED tax credit in the year of repayment. While it seems unfair, companies have fallen into this pitfall.

If you have clients considering this type of government assistance, keep this rule in mind.

If you have any situations where your clients could use assistance to increase government funding while maximizing SR&ED claims, please do not hesitate to contact us.