Tax Court Broadens Definition of Contractor Cost

Posted on Feb 26, 2015

The Tax Court of Canada has strengthened the understanding that work done by a contractor that is not SR&ED but is necessary for the SR&ED to take place is a contractor expense for the purposes of ITC. And has broadened the meaning of contractor costs beyond current CRA interpretation.

In Feedlot Health Management Services Limited. v The Queen (2015 TCC 32) Justice Woods used the ruling in a previous case The Queen v Savage that work “in relation to”, “with reference to” or “in connection with” SR&ED work can qualify as contract work in respect of SR&ED so long as the work is  work undertaken by or on behalf of the contracting company and has some relation to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research.

In the case of Feedlot Health Management the court ruled that Access Fees paid (fees paid to give Feedlot Health access to test cattle) bears sufficient relation to  data collection and testing to qualify as such. In other words, the expenditure does not have to be for data collection but for expenditures that are related to data collection. In this case, once the company had access to the cattle they could collect data.

This is a major broadening of the current CRA interpretation of expenses which qualify as contractor costs. Currently only expenses which are specifically and very narrowly engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research are allowable SR&ED expenditures. Now the definition of what qualified under these terms has been much, much widened.

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