For SR&ED tax credit purposes, how far does "Canada" extend?
The 2005 Budget changed the definition of "in Canada" for SR&ED purposes:
"That, with respect to expenditures made after February 22, 2005 on scientific research and experimental development carried on in Canada, the expression "in Canada" include the exclusive economic zone of Canada as defined in the Oceans Act, including the airspace, seabed and subsoil in respect of that zone."
Before this point, for SR&ED tax credit purposes Canada had been considered to include the 12-nautical-mile territorial sea. SR&ED that was undertaken outside that limit was generally not considered to be performed in Canada, even if it was performed within 200 nautical miles from the Canadian coastline, commonly referred to as Canada's Exclusive Economic Zone.
The result is that Canadian businesses, such as some Canadian fishermen, doing research within the 200 nautical mile limit may now claim investment tax credits.
More information about this issue can be found in MEUK Newsletter 2005-1.