Do SR&ED credits survive a change of control?

Sellers and buyers discussing SR&ED in a deal tend to ask one question — do we keep the credits — when there are really two separate questions hiding inside it. One is whether credits already claimed for prior years remain valid and payable after the ownership change. The other, often more consequential for the buyer, is what a change of control does to the company’s ability to claim the more generous refundable credit rate on research spending going forward.

Past claims generally aren’t clawed back just because ownership changed

A change of control does not, on its own, undo a SR&ED claim that has already been filed and assessed for a prior taxation year, though the claim remains subject to the same CRA review and reassessment risk it always was, based on the quality of the underlying documentation and technical narrative, not on who now owns the company. Buyers should still treat unreviewed or recent claims as a diligence item, since a reassessment risk that existed before the sale doesn’t disappear because the business changed hands.

The expenditure limit is where change of control actually bites

A Canadian-controlled private corporation’s access to the enhanced, refundable SR&ED credit rate depends on its expenditure limit, which is affected by the size and associated-company status of the corporation and its controlling shareholders. A change of control — particularly a sale to a non-Canadian buyer, a public company, or a group that changes who controls the corporation — can trigger a deemed taxation year-end and can reduce or eliminate access to that enhanced rate going forward, even though nothing about the underlying research activity changed.

Deal structure affects who can claim what, and when

Whether the transaction is structured as a share sale or an asset sale affects which entity is positioned to claim SR&ED on work performed around the time of closing, and outstanding or in-progress claims are sometimes treated as a receivable in the deal once a buyer is satisfied the supporting documentation holds up. This is a genuinely technical area where the right structure depends on the specific facts, the buyer’s own status, and the timing of the closing date relative to the company’s taxation year.