In 2023, the Government of Canada proposed a way to offset the effect of a (then) recent court ruling on the treatment of non-interest bearing or below-market interest rate loans from public authorities, known as “concessional loans”, which established the principal amount of such loans as assistance for purposesof the Income Tax Act (ITA). In the 2023 Fall Economic Statement, the government proposed that a genuine concessional loan with reasonable repayment terms from a public authority in Canada would not generally be treated as government assistance as of November 21, 2023, to appease the foregoing consideration.

The proposal was subsequently incorporated into Bill C-69, Budget Implementation Act 2024, No.1 , which also stipulated that the relieving rule would take effect on 1 January 2020 and would apply to loans made after 2019. On June 20, 2024, Bill C-69 was enacted, and it signals a significant impact on the Scientific Research and Experimental Development (SR&ED) tax incentive program.

With this balancing measure to be effective retroactively from January 1, 2020, to loans made only after 2019, the bill includes certain specific changes regarding the treatment of concessional loans, as well as implementations of the revised rules:

• The subsection 127(9) of the ITA has been revised to exclude certain bona fide concessional loans from being considered government assistance. Prior to this amendment, the Canada Revenue Agency (CRA) considered certain types of loans to be government assistance, requiring the deduction of the loan amount from eligible SR&ED expenses associated with the relevant project.
• In subsection 12(11) of the ITA, an “excluded loan” is defined as a non-forgivable loan, evidenced in writing, from a payer characterized as a public authority in Canada (or from a Canadian resident or partnership that would not have made the loan but for the receipt of funds from a public authority, such as a government, municipality or other public authority). In addition, bona fide arrangements for the repayment of the loan within a reasonable time must be made at the same time the loan is made, and the funds must be used to earn income from a business or property.
• As the amendments are effective retroactively to January 1, 2020, and apply to loans made after 2019, SR&ED claims for the 2020 tax year onwards should be impacted.
• likely increase, as concessional loans will no longer reduce the pool of eligible expenses; this will also impact the R&D expenses allowable for purposes of the SR&ED pool deduction.

With this change, taxpayers who received concessional loans since the beginning of 2020 should review their SR&ED claims and ITC calculations to be certain whether they were affected. If there is a change, it is expected that there will be an opportunity to adjust prior years’ returns, although this has not yet been clarified by the CRA.

How can we help you? 

FI Group is a global tax consultancy that helps multiple industries obtain tax credits and incentives. With more than 1,800 qualified employees, FI Group has specialists from many fields who can identify qualified activities for your business. We specialize in helping companies finance innovation and secure funding for their R&D activities through the comprehensive management of R&D Tax credits.