SR&ED Lease Expenditures Policy

Date: December 18, 2014

Changes to the SR&ED Lease Expenditures Policy

Reasons for revision

This revision accommodates the legislative changes that have been announced.

Revision overview

Scientific research and experimental development (SR&ED) lease expenditures made after December 31, 2013, no longer qualify for SR&ED tax incentives. The rules applicable to claiming SR&ED lease expenditures contained in this policy document are applicable to those expenditures made before 2014.

The text of this document has been revised to reflect these changes, see Appendix B.1 Explanation of changes.

Table of contents


1.0 Overview

The legislation resulting from the 2012 budget announcement provides that lease expenditures made after December 31, 2013, no longer qualify for scientific research and experimental development (SR&ED) tax incentives. The rules contained in this policy document allowing lease expenditures for SR&ED are applicable to lease expenditures made before 2014.

1.1 Purpose

This policy document deals with lease expenditures incurred by a claimant before 2014 that are for the prosecution of SR&ED carried on in Canada. The purpose of this document is to clarify the position of the Canada Revenue Agency (CRA) regarding leases when administering the SR&ED legislation under the federal Income Tax Act (ITA) and the Income Tax Regulations.

The purpose of this document is to:

  • explain which expenditures made before 2014 may be claimed for the leasing of equipment used in SR&ED;
  • explain the differences in claiming lease expenditures under the traditional and proxy methods; and
  • identify issues surrounding the lease of SR&ED equipment.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(A)(I) SR&ED expenditures in Canada under the traditional method – all or substantially all (ASA)
Subclause 37(8)(a)(ii)(A)(II) SR&ED expenditures in Canada under the traditional method – directly attributable
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease costs ASA [Repealed]
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]
Subsection 127(9) Definition of “qualified expenditure”

1.2 Introduction to lease expenditures

SR&ED lease expenditures made after December 31, 2013, no longer qualify for SR&ED tax incentives (see section 2.1).

Lease expenditures made before 2014, for equipment that may be claimed for SR&ED, differ according to whether the claimant uses the traditional or proxy method and to the extent the equipment was used in the prosecution of SR&ED carried on in Canada. Furthermore, the SR&ED usage of the equipment is determined as a percentage of the total operating time (see section 3.3).

Under the traditional method, lease expenditures that are either all or substantially all (ASA) (see section 3.1) attributable or directly attributable to the prosecution of SR&ED carried on in Canada may be included in the pool of deductible SR&ED expenditures. Lease expenditures allowable under the traditional method are discussed in section 2.2.1. For more information on the traditional method, please refer to the Traditional and Proxy Methods Policy. For more information on ASA attributable or directly attributable, please refer to the SR&ED Overhead and Other Expenditures Policy. For more information on the pool of deductible SR&ED expenditures, please refer to the Pool of Deductible SR&ED Expenditures Policy.

Under the proxy method, an expenditure that is ASA attributable to the lease of premises, facilities or equipment for the prosecution of SR&ED carried on in Canada, or half of an expenditure in respect of the lease of premises, facilities or equipment used primarily (see section 3.2) for the prosecution of SR&ED carried on in Canada may be included in the pool of deductible SR&ED expenditures. The rules concerning lease expenditures under the proxy method are discussed in section 2.2.2. Note that despite allowing the lease of premises and facilities, lease (rent) of a building (see section 3.5) is specifically excluded and cannot be claimed as an SR&ED expenditure. For further explanation refer to section 2.2.3.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(A)(I) SR&ED expenditures in Canada under the traditional method – ASA
Subclause 37(8)(a)(ii)(A)(II) SR&ED expenditures in Canada under the traditional method – directly attributable
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease costs ASA [Repealed]
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]
Former subparagraph 37(8)(d)(ii) SR&ED expenditures specifically excluded – use or right to use a building

Legislative Reference Income Tax Regulations
Paragraph 2900(2)(c) Other expenditures directly related and incremental to the prosecution of SR&ED – traditional method

2.0 Legislation

2.1 Lease expenditures made after 2013 cannot be claimed

An SR&ED expenditure of a current nature cannot include an expenditure for the use of, or the right to use, property that would be capital property of the claimant if it were owned by the claimant. A lease cost for a capital property is any expense incurred to use capital property or to have the right to use capital property. Thus, an expenditure incurred for leasing a capital property does not qualify for SR&ED.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subparagraph 37(8)(d)(ii) SR&ED expenditures specifically excluded – use or right to use capital property

2.2 Lease expenditures made before 2014 can be claimed

2.2.1 Lease expenditures under the traditional method

When a claimant uses the traditional methodcurrent expenditures on or in respect of SR&ED carried on in Canada include lease expenditures made before 2014 that are all or substantially all (ASA) (see section 3.1) attributable or directly attributable to the prosecution of SR&ED carried on in Canada.

Since expenditures for the lease of buildings (see section 2.2.3) are precluded from being included in the pool of deductible SR&ED expenditures, generally only expenditures made before 2014 for the leasing of equipment are allowable. Thus, lease expenditures of equipment made before 2014 that are ASA attributable to the prosecution of SR&ED carried on in Canada may be claimed when using the traditional method. For more information on the traditional method, please refer to the Traditional and Proxy Methods Policy.

Lease expenditures of equipment made before 2014 that are not ASA attributable to the prosecution of SR&ED carried on in Canada may be included in the pool of deductible SR&ED expenditures provided the lease expenditures are directly attributable to the prosecution of SR&ED carried on in Canada. An expenditure is directly attributable where it is directly related and incremental to the prosecution of SR&ED carried on in Canada. For more information on directly attributable (directly related and incremental), please refer to the SR&ED Overhead and Other Expenditures Policy.

When using the traditional method, lease expenditures made before 2014 that are directly attributable to the prosecution of SR&ED carried on in Canada are included in the pool of deductible SR&ED expenditures as “overhead and other expenditures” on Form T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(A)(I) SR&ED expenditures in Canada under the traditional method – ASA
Former subparagraph 37(8)(d)(ii) SR&ED expenditures specifically excluded – use or right to use a building

Legislative Reference Income Tax Regulation
Paragraph 2900(2)(c) Other expenditures directly related and incremental to the prosecution of SR&ED – traditional method

2.2.2 Lease expenditures under the proxy method

When a claimant uses the proxy methodcurrent expenditures on or in respect of SR&ED carried on in Canada include expenditures made before 2014 that are ASA (see section 3.1) attributable to the lease of premises, facilities or equipment for the prosecution of SR&ED in Canada but do not include expenditures in respect of general purpose office equipment or furniture (GPOEF) (see section 3.4). For more information on the proxy method, please refer to the Traditional and Proxy Methods Policy.

When a claimant uses the proxy method, and the lease expenditure made before 2014 is not ASA attributable to the lease of premises, facilities or equipment for SR&ED carried on in Canada, current expenditures on or in respect of SR&ED carried on in Canada may include 50% of an expenditure made before 2014 in respect of the lease of premises, facilities or equipment used primarily (see section 3.2) for the prosecution of SR&ED in Canada, but does not include an expenditure in respect of GPOEF.

Since expenditures for the lease of buildings (see section 2.2.3) are precluded from being claimed for SR&ED, generally only the costs of leasing equipment are allowable.

Thus, for claimants using the proxy method, if leased equipment was used 90% or more of its operating time (see section 3.3) for SR&ED in Canada, the total cost for leasing the equipment (other than GPOEF) may be claimed. Furthermore, if leased equipment was used more than 50% but less than 90% of its operating time for SR&ED in Canada, 50% of the cost to lease the equipment (other than GPOEF) may be claimed.

Lease expenditures for the lease of premises, facilities or equipment not used primarily for the prosecution of SR&ED in Canada (used 50% or less of its operating time for SR&ED in Canada) cannot be claimed under the proxy method.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease costs ASA   [Repealed]
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]
Former subparagraph 37(8)(d)(ii) SR&ED expenditures specifically excluded – use or right to use a building

2.2.3 Lease expenditures for buildings – Not allowed

Outlays and expenses made or incurred for the use of, or the right to use, a building (see section 3.5) cannot be included as an expenditure on or in respect of SR&ED. Thus, an expenditure incurred for leasing a building does not qualify for SR&ED. A lease cost for a building is any expense incurred to use a building or to have the right to use a building.

For years prior to 2014, the only exception to a building is for a special-purpose building prescribed by the Regulations. Prescribed special-purpose buildings are buildings the Department of Finance Canada approves on a building-by-building basis. For more information on special-purpose buildings, please refer to Appendix A of the SR&ED Capital Expenditures Policy.

When under the terms of a lease agreement it is clear that the lessee has the right to use a building and equipment, the claimant should make a reasonable allocation of the lease costs between the building (expenditure not allowable for SR&ED purposes) and the equipment (may be an allowable expenditure).

In certain cases, a lease expenditure made before 2014 attributable to the lease of something other than a building may be allowable provided the requirements discussed in sections 2.2.1 and 2.2.2 are otherwise met. For example, a lease expenditure for a structure (a bridge or a dam) may be allowable under the traditional method if the structure meets the requirements discussed in section 2.2.1. A lease expenditure for a structure may be allowable under the proxy method if the expenditure meets the requirements discussed in section 2.2.2. Please refer to Interpretation Bulletin IT-79R3, Capital cost allowance – Buildings or other structures for further discussion on structures.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Former subparagraph 37(8)(d)(ii) SR&ED expenditures specifically excluded – use or right to use a building

Legislative References Income Tax Regulation
Subsection 1102(19) Additions and alterations
Section 2903 Special-purpose buildings [Repealed]
Schedule II Capital cost allowances

3.0 Terms

3.1 All or substantially all

All or substantially all (ASA) is generally accepted to mean 90% or more.

Generally for SR&ED purposes where an expenditure is ASA, the total amount of the expenditure is deductible. Where a lease expenditure made before 2014 is ASA attributable to the prosecution of SR&ED carried on in Canada, the total amount of the lease expenditure may be included in the pool of deductible SR&ED expenditures.

The ASA test for lease expenditures is based on actual use (operating time). For more information on operating time, please refer to section 3.3.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(A)(I) SR&ED expenditures in Canada under the traditional method – ASA
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease costs ASA [Repealed]

3.2 Primarily

Primarily generally means more than 50%.

Under the proxy method, leased equipment is used primarily for the prosecution of SR&ED if the equipment is used more than 50%, but less than 90% of its operating time (see section 3.3) for the prosecution of SR&ED in Canada. Under the proxy method, an expenditure for equipment that is used 90% or more ( ASA ) for SR&ED is precluded from also being claimed as an expenditure for equipment used primarily for SR&ED.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease costs ASA [Repealed]
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]

3.3 Operating time

Total operating time is determined on an annual (tax year) basis. A particular portion of operating time during the tax year may not be used as the basis to determine SR&ED use of equipment. Thus, a claimant that uses the proxy method and leases equipment that normally operates during an entire 12 month tax year would not be able to include the portion of the cost of leased equipment, for example, for a two or three month period within the 12 month tax year that the leased equipment was used primarily (or ASA) for SR&ED in Canada. The rationale is the operating time for the entire tax year must be used as the basis to determine SR&ED use of equipment.

SR&ED lease expenditures made after December 31, 2013, no longer qualify for SR&ED tax incentives (see section 2.1). For tax years that end before 2014, the SR&ED usage is determined as a percentage of the total operating time for the entire tax year. For the tax year that straddles January 1, 2014, the SR&ED usage is determined as a percentage of the total operating time for the period that relates to 2013.

For more information on operating time, please refer to section 4.2 of the SR&ED Capital Expenditures Policy.

Legislative Reference Income Tax Act
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]

3.4 General purpose office equipment or furniture

General purpose office equipment or furniture (GPOEF) includes all furniture, such as desks, chairs, lamps, filing cabinets, and bookshelves. It also includes photocopiers, fax machines, telephones, pagers, typewriters, word processors, teletypes and calculators.

Computers, including hardware, software, and ancillary equipment are not considered to be GPOEF.

Any expenditure related to GPOEF is intended to be covered by the prescribed proxy amount. Thus, when a claimant uses the proxy method, GPOEF is specifically excluded when determining lease costs. However, when a claimant chooses the traditional method, any lease costs incurred before 2014 related to GPOEF, may be claimed as a “lease cost of equipment” if it is used  ASA in the prosecution of SR&ED in Canada. When a claimant chooses the traditional method, any lease costs incurred before 2014  related to GPOEF may be claimed as an “overhead and other expenditure” if it is directly attributable (directly related and incremental) to the prosecution of SR&ED in Canada. For more information on the traditional and proxy methods, please refer to the Traditional and Proxy Methods Policy. For more information on directly attributable (directly related and incremental), please refer to the SR&ED Overhead and Other Expenditures Policy.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(A)(II) SR&ED expenditures in Canada under the traditional method – directly attributable
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease costs ASA [Repealed]
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]

3.5 Meaning of “building”

Building is a broad term covering any structure with walls and a roof affording protection and shelter that is affixed to the land. For example, a mobile home would be considered a building if the wheels, the trailer hitch, brakes and emergency lights are removed and the unit is affixed to cement pads on the ground and services, such as hydro and water, are installed.

The term “structure” includes anything of substantial size that is built up from component parts and intended to remain permanently on a permanent foundation. This definition of "structure" was considered by the Supreme Court of Canada in British Columbia Forest Products Ltd v. Minister of National Revenue, 71 DTC 5178, which also concluded that the term structure—when used in the context of building or other structure—does not mean only a structure in the nature of a building. Bridges or hydro-electric transmission towers, for example, while clearly not buildings, are structures.

Portable shelters such as housing, office and other service units are regarded as buildings if they are installed and intended to remain in a particular location. Such things as tents, canvas marquees, and air-supported fabric domes that are not part of a rigid structure are not considered to be buildings or structures.

Property that is attached to a building, however firmly, is included in capital cost allowance (CCA) Class 8 if it is acquired exclusively for those purposes stated in CCA Class 8. For example, concrete footings, foundations and structural steel exclusively for the support of machinery are regarded as CCA Class 8 property. Stairs and platforms, the sole purpose of which is to provide access to machinery, also fall within CCA Class 8, whether they are attached to the building or the machinery.

The comments in Interpretation Bulletin IT-79R3, Capital cost allowance – Buildings or other structures, may be of assistance in distinguishing between buildings and other structures.

Legislative References Income Tax Regulation
Subsection 1102(19) Additions and alterations
Schedule II Capital cost allowances

4.0 Issues concerning SR&ED lease expenditures

4.1 Lease or sale

It is the CRA's view that the determination of whether a contract is a lease or sale is based on the legal relationship created by the terms of the agreement, rather than on any attempt to ascertain the underlying economic reality. The Supreme Court of Canada has held, in Shell Canada Limited v. The Queen, 99 DTC 5669, and in other decisions, that the economic realities of a situation cannot be used to re-characterize a taxpayer's bona fide legal relationships. It has held that, absent a specific provision of the Income Tax Act to the contrary, or a finding that they are a sham, the taxpayer's legal relationships must be respected in tax cases. Thus, generally and subject to the general anti-avoidance rule, re-characterization is permissible only if the label attached by the taxpayer (claimant) to the particular transaction does not properly reflect its actual legal effect. Therefore, in the absence of a sham, it is the CRA's view that a lease is a lease and a sale is a sale.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Paragraph 37(1)(b) Pool of deductible SR&ED expenditures – capital expenditures [Repealed]

4.2 Software and software licences

An expenditure for software or software licences may be considered an SR&ED capital expenditure or a current lease expenditure depending on the facts of the case. For more information on this subject, please refer to the SR&ED Capital Expenditures Policy.

4.3 Specific lease expenditures allowed

Note

SR&ED lease expenditures made after December 31, 2013, no longer qualify for SR&ED tax incentives (see section 2.1).

4.3.1 Bandwidth allowed as lease of equipment under proxy method

It may be difficult to determine whether the lease of bandwidth is an overhead expenditure covered by the proxy amount or the lease of equipment. The Tax Court of Canada dealt with a similar issue in the case Data Kinetics Ltd v. Her Majesty the Queen, 98 DTC 1877. In this case the claimant used the proxy method to calculate its SR&ED expenditures and included the cost to lease a dedicated telephone line and a mainframe located outside of Canada. The Judge concluded that the amount represented the lease of equipment.

The Judge stated:

"When used with reference to tangible personal property, [the] word "lease" means a contract by which one owning such property grants to another the right to possess, use and enjoy it for a specified period of time in exchange for periodic payment of a stipulated price, referred to as rent."

The Judge concluded that Data Kinetics Ltd was in fact leasing equipment from the party providing the telephone line and that the lease was not for general-purpose office equipment or furniture (GPOEF).

The claimant was paying for time associated with the use of bandwidth. However, the bandwidth could only be made available through the use of highly sophisticated optoelectronic equipment. Applying the principles asserted in Data Kinetics Ltd , the cost associated with bandwidth made before 2014 would be allowed as a lease of equipment under the proxy method because it was dedicated for SR&ED and it was not a lease for GPOEF.

Legislative References Income Tax Act
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]
Former subparagraph 37(8)(d)(ii) SR&ED expenditures specifically excluded – use or right to use a building

4.3.2 Lease of land allowed under the traditional method

The cost of leased land incurred before 2014 may be considered an SR&ED expenditure where a claimant uses the traditional method in determining SR&ED expenditures. The cost associated with the lease of land is allowable, provided it is a current expenditure that is all or substantially all (ASA) attributable or directly attributable, as determined by regulation to the prosecution of SR&ED carried on in Canada.

The limitation on SR&ED expenditures for the right to use a building (see section 2.2.3) does not apply to the cost associated with the lease of land.

Where a claimant has elected to use the proxy method in determining SR&ED expenditures the cost associated with the lease of land is not an allowable SR&ED expenditure, but rather it is considered to be replaced by the prescribed proxy amount.

Legislative References Income Tax Act
Subclause 37(8)(a)(ii)(A)(I) SR&ED expenditures in Canada under the traditional method – ASA
Subclause 37(8)(a)(ii)(A)(II) SR&ED expenditures in Canada under the traditional method – directly attributable
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease cost ASA [Repealed]
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]

Legislative Reference Income Tax Regulation
Paragraph 2900(2)(c) Other expenditures directly related and incremental to the prosecution of SR&ED – traditional method

5.0 Documentation and other evidence

It is recommended that claimants keep a list of equipment and other items they used in the year for the prosecution of SR&ED carried on in Canada, to support their claim for SR&ED lease expenditures. Claimants should be able to provide explanations and supporting evidence of how the leased equipment was used in the prosecution of SR&ED carried on in Canada. Claimants should be able to provide enough information to establish actual use prior to 2014. This information should be retained and ready to be provided upon request. For more information concerning documentation and other supporting evidence, please refer to Information Circular IC78-10R5, Books and Records Retention / Destruction and Keeping records.

5.1 Examples of documentation and other evidence

Examples of documentation and other evidence that support SR&ED lease expenditures are:

  • lease agreement, lease contract;
  • logbooks or other documentation that support the SR&ED use of equipment for the period; and
  • invoices, cancelled cheques, and so forth.

For more information on documentation, please refer to Appendix 2 of T4088, Guide to Form T661 – Scientific Research and Experimental Development Expenditures (SR&ED) Claim.

Appendix A – References

A.1 Legislative references

List of provisions
Income Tax Act Description
Paragraph 37(1)(a) Pool of deductible SR&ED expenditures – current expenditures
Paragraph 37(1)(b) Pool of deductible SR&ED expenditures – capital expenditures [Repealed]
Subclause 37(8)(a)(ii)(A)(I) SR&ED expenditures in Canada under the traditional method – ASA
Subclause 37(8)(a)(ii)(A)(II) SR&ED expenditures in Canada under the traditional method – directly attributable
Subclause 37(8)(a)(ii)(B)(I) SR&ED expenditures in Canada under the proxy method – lease costs ASA [Repealed]
Subclause 37(8)(a)(ii)(B)(VI) SR&ED expenditures in Canada under the proxy method – lease costs primarily [Repealed]

Subparagraph 37(8)(d)(ii)

SR&ED expenditures specifically excluded – use or right to use capital property

Former subparagraph 37(8)(d)(ii) SR&ED expenditures specifically excluded – use or right to use a building
Subsection 127(9) Definition of “qualified expenditure”
List of regulations
Income Tax Regulations Description
Subsection 1102(19) Additions and alterations
Paragraph 2900(2)(c) Other expenditures directly related and incremental to the prosecution of SR&ED – traditional method
Section 2903 Special-purpose buildings [Repealed]
Schedule II Capital cost allowances

A.2 Jurisprudence

List of court cases

Case number

Case name

99 DTC 5669 Shell Canada Ltd v. The Queen
98 DTC 1877 Data Kinetics Ltd v. Her Majesty the Queen
96 DTC 1765 Dew Engineering & Development Ltd v. Her Majesty the Queen
71 DTC 5178 British Columbia Forest Products Ltd v. Minister of National Revenue

Appendix B – Revisions

B.1 Explanation of changes

The following are the explanation of changes to the SR&ED Lease Expenditures Policy as part of the revision of December 18, 2014:

Section 1.0 has been revised to include additional wording to explain that the rules contained in this policy document are applicable to lease expenditures made before 2014.

Section 1.1 has been revised to delete the first sentence of the previous policy which mentioned that this policy document was a consolidation of the CRA publications.

Section 1.2 has additional wording to describe that SR&ED lease expenditures made after December 31, 2013, no longer qualify for SR&ED tax incentives.

Section 2.1 has been added to reflect the legislative changes resulting from the 2012 federal budget measures preventing a lease cost for a capital property from being included as an SR&ED expenditure after 2013.

Section 2.2 has been added to reflect the legislative changes resulting from the 2012 federal budget measures with respect to lease expenditures made before 2014.

As a consequence of new sections 2.1 and 2.2 being added, previous sections 2.1, 2.2, and 2.3 have been renumbered as sections 2.2.1, 2.2.2, and 2.2.3 respectively.

Section 3.3 has been revised to explain operating time of equipment for tax years that straddle January 1, 2014.

Section 4.1 has been revised to remove the reference to the cancelled Income Tax Technical News 21.

Appendix A.1 has been revised to update the legislative references.

Appendix A.3 ''CRA publications'' has been removed.

Legislative references have been updated throughout the document and wording throughout the document has been added to indicate that capital expenditures and expenditures for the right to use capital property no longer qualify for SR&ED tax incentives after 2013.

Other minor formatting and editing corrections were made throughout the document.

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