Satisfying the negative test of intention
You may well feel that it’s nearly impossible to try to prove that you did not intend to do a given thing at any point in time. However, this doesn’t have to be as tricky as it seems.
The reason for this question is that, under the SR&ED program, you cannot claim the costs of capital equipment used for “commercial production”. And the law goes further – even if you were buying the equipment for the initial purpose of doing SR&ED with it, the law then asks if you knew, at the time of the purchase, that you intended subsequently to redeploy that equipment into commercial production, once the SR&ED work was complete? If your intention at the time of purchase was to redeploy the equipment to production after the SR&ED was done, then you cannot claim the equipment costs.
However, I have emphasized the phrase “at the time of purchase” for good reason. Even if you did not initially intend to redeploy such equipment (and in the absence of any evidence demonstrating any different, earlier intent) you may subsequently change your mind about the disposition of the equipment. If you then chose to deploy the SR&ED equipment for commercial purposes, then existing rules apply for the “recapture” of some of the ITCs related to the equipment. The law allows you to change your mind. (Ask your accountant how this would work.) Recapture rules are generally not as punitive as totally disallowing the equipment cost.
So therefore, one of the keys to satisfying the test of negative intent is simply to avoid commenting at all on the ultimate or eventual disposition of the SR&ED equipment, at the time of purchase. That leaves you free to decide, once the SR&ED is finished, how the equipment should be disposed of or re-used. And if the equipment in question remains in a dedicated, captive facility -- such as a development or testing lab or other non-production environment -- then the questions about intent are fully satisfied.
Of course, if you fully intend to redeploy the equipment to production, afterward, then by all means say so, and “bite the bullet” – those costs will not be claimable. (Though in that situation, you might want to consider leasing the equipment in question, because then the lease costs of the SR&ED equipment would be claimable for the duration of the SR&ED work, assuming it is otherwise eligible. Again, check with your accountant.)
In conclusion, to satisfy the tests of intent, you need first to create positive evidence in support of the linkage between your capital equipment purchase and the SR&ED work, at the time of purchase. Secondly, you might want to consider what your intentions might be for the eventual disposition of the equipment – either to be clear about your intentions, or to consider the options and impacts of alternative approaches.
Bruce Madole