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Before you buy…tests of intent

Claiming expensive capital purchases as a part of your SR&ED tax claim requires that you satisfy a test of your intent for the equipment at the time of purchase.  Long before you get to any discussion about how the equipment was actually used, and the level of usage, you will have to defend an intention that you may not (or not yet) have documented (or even fully formed) when you were buying the equipment. The wrong answer can sink you … so read on.

The test of intent consists of two linked questions; the first seeks evidence of a positive intention, and the second seeks to demonstrate the absence of a different intention, which is trickier.  These questions are:

  • At the time of purchase, did you intend to use the equipment for the purposes of performing SR&ED, as opposed to any purely commercial purpose?[the positive intent for SR&ED]
  • At the time of purchase, did you intend to redeploy the equipment to production purposes (i.e. commercial use), once the SR&ED work was complete?[the absence of intent re: commercial production]

Reviewers will seek answers and evidence related to both of these questions.

Satisfying the positive test of intent

You need to create a paper trail, at the time of purchase, which demonstrates your positive intent for that equipment to be used in the SR&ED work.  This should be relatively easy, though it isn’t always, in practice.

Creating a positive paper trail in support of intent may be as simple as retaining and documenting the emails and internal correspondence which leads up to the approval and budget for actually buying the equipment in question.  If you are buying the equipment because you need it for certain specific purposes within a technology project, state what those purposes are (e.g. development, testing), and document the name of that specific project for which it was purchased. You may have had correspondence with the equipment vendor that speaks to your intentions in buying the equipment, or which includes discussions of project-specific technical requirements.  If you have included a project name (or even a code name) in the vendor correspondence, you can provide that correspondence as evidence that positively links the purchase to the project work.

If the equipment you are buying is destined to be used in some kind of dedicated development or testing facility, by all means, say so in your internal correspondence and the vendor correspondence:  i.e. “ We’re ordering the XYZ unit for the R&D Lab.” The importance of doing so is related to the second, negative test, discussed in the next article.

Jun 1, 2012 6:08 by
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