Line 602 - Recapture of investment tax credit (ITC)

Line 602 - Recapture of investment tax credit (ITC)

Scientific research and experimental development

A corporation that disposed of a property used in scientific research and experimental development (SR&ED), or converted it to commercial use, should report a recapture in its income tax return for the year in which the disposition or conversion occurred.

If you disposed of a property on which you earned SR&ED ITC, the recapture will be whichever is less:

• the ITC earned for the property

• the amount determined by applying the percentage you used in calculating the ITC earned on the property to:

  • the proceeds of disposition of the property if you dispose of it to an arm's length person

  • in any other case, the fair market value of the property

If you did the SR&ED and transferred the qualified expenditures to a non-arm's length party according to an agreement as described in subsection 127(13), the recapture will be whichever is less:

• the ITC earned by the transferee on the qualified expenditures for the property that was transferred

• the amount determined by the formula:

  A × B - C

  where

  • "A" is the percentage that the transferee used in determining its ITC

  • "B" is the proceeds of disposition of the property if you dispose of it to an arm's length person, or in any other case, the fair market value of the property

  • "C" is the amount, if any, added to the tax payable under subsection 127(27) for the property. This allows for the situation where you transferred only a portion of the cost of the property in an agreement under subsection 127(13)

If you transferred a portion of the expenditures and claimed a portion of that expenditure for ITC purposes, both calculations will apply.

The recapture period for ITCs is 20 years.

For more information, see parts 16 and 17 of Schedule 31, Investment Tax Credit - Corporations, on how to calculate the recapture of SR&ED ITC or go to canada.ca/taxes-sred.

Child care spaces

The ITC for child care spaces will be added to the taxpayer's tax otherwise payable if, at any time within the 60 months of the day on which the taxpayer acquired the property:

• the new child care space is no longer available, or

• eligible property for purposes of this credit is sold or leased to another person or converted to another use

If the property disposed of is a child care space, the amount to be recaptured will be the amount that can reasonably be considered to have been included in the original ITC.

For eligible expenditures, the amount to be recaptured will be the lesser of:

• the amount that can reasonably be considered to have been included in the original ITC

• 25% of the proceeds of disposition of the eligible property or of its fair market value at the time of disposition, if the property was disposed of to a non-arm's length person

Use Schedule 31 to calculate the recapture of ITC.

On line 602, enter the total amount of recaptured ITC.

References
Subsections 127(27) to (35)

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