SR&ED Shared-Use-Equipment Policy

Date: May 22, 2026

On this page

• 1.0 Purpose
• 2.0 Overview
• 3.0 Shared-use-equipment
  • 3.1 First term shared-use-equipment
  • 3.2 Second term shared-use-equipment
  • 3.3 Qualified expenditures
  • 3.4 The test: Intended use versus actual use
  • 3.5 Example: First and second term shared-use-equipment
  • 3.6 Assistance
    • 3.6.1 Example: Assistance amount
  • 3.7 Recapture of SR&ED investment tax credits
    • 3.7.1 Example: Recapture
    • 3.7.2 Conversion to commercial use
    • 3.7.3 Non-arm's length transfers
• 4.0 Prescribed depreciable property
  • 4.1 Definition
  • 4.2 Prescribed depreciable property and intended use
  • 4.3 Examples: Prescribed depreciable property
    • 4.3.1 Property used primarily for SR&ED during the implementation of a new production line and then for commercial purposes
    • 4.3.2 Property used primarily for SR&ED only during the first period
    • 4.3.3 Property used primarily for SR&ED during the first period and then for business's operation
    • 4.3.4 Property intended to be used primarily for operational activities, but used for SR&ED
    • 4.3.5 Property used primarily for SR&ED during commissioning
• Appendix A: References
  • A.1 Legislative references
• Appendix B: Revisions
  • B.1 Explanation of changes

1.0 Purpose

The purpose of this document is to clarify the Canada Revenue Agency’s position regarding shared-use-equipment (SUE) and prescribed depreciable property when administering the scientific research and experimental development (SR&ED) provisions in the federal Income Tax Act and the Income Tax Regulations.

2.0 Overview

The 2024 Fall Economic Statement (FES) and the 2025 budget reintroduced the eligibility of capital expenditures for property acquired after December 15, 2024.

Expenditures on depreciable property could qualify as capital expenditures if the business’s intention is one of the following:

• To use the property during all or substantially all (ASA) of its operating time in its expected useful life in SR&ED activities carried out in Canada
• To consume ASA of the property's value for the purpose of the SR&ED carried out in Canada

SUE is an expenditure relating to a new depreciable property that does not meet the ASA test in relation to SR&ED but which meets the criterion of being used primarily for these activities. The 2024 FES reintroduced eligibility for first and second term SUE expenditures for property acquired after December 15, 2024. 

Prescribed depreciable property (PDP) (see section 4.0) is not first term or second term SUE. Therefore, expenditures related to that property do not qualify for an investment tax credit (ITC). PDP is defined in subsection 2900(11) of the Income Tax Regulations.

Consult the SR&ED Capital Expenditures Policy for more information on SR&ED capital expenditures and the intent test.

3.0 Shared-use-equipment

3.1 First term shared-use-equipment

To be first term shared-use-equipment (SUE), property must:

• Be depreciable property
• Be acquired after December 15, 2024
• Not meet the ASA criterion applicable to SR&ED capital expenditures
• Not be a PDP according to subsection 2900(11) of the Income Tax Regulations (see section 4.0)
• Not be general purpose office equipment or furniture
• Be new property (it must not have been used, acquired to be used, or rented for any purpose before its acquisition)
• Be a property that the applicant uses primarily for SR&ED in Canada during its operating time in the first period

The first period begins when the taxpayer acquires the property. It ends at the end of the first tax year which occurs at least 12 months after that time. The equipment is considered acquired when it is available for use.

The SR&ED Capital Expenditures Policy discusses depreciable property, operating time, and SR&ED capital expenditures.

3.2 Second term shared-use-equipment

To be second term SUE, the property must:

• Have been first term SUE
• Have been used primarily for SR&ED in Canada during its operating time in the second period

The second period begins when the taxpayer acquires the equipment. It ends at the end of the first tax year ending at least 24 months after that time.

See the example in section 3.5.

3.3 Qualified expenditures

The definition of "qualified expenditure" includes an expenditure that is a first term SUE or a second term SUE. The amount of an expenditure for a first or second term SUE is deemed to be 1/4 of the capital cost of the equipment. The calculation of the cost is determined:

• Without taking into account the cost of borrowed money
• Without reference to the Income Tax Act provisions related to deemed capital costs
• After adjustments for persons not dealing at arm’s length according to subsection 127(11.6) of the Act

Assistance received and contract payments related to SUE reduce the amount of qualified expenditures.

Rules for SUE are found in the definitions of "qualified expenditure", "first term shared-use-equipment" and "second term shared-use-equipment" in subsection 127(9) of the Act.

The Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy discusses qualified expenditures.

3.4 The test: Intended use versus actual use

The test for SUE is based on its actual use of the equipment during its operating time in the first and second period. However, the test for PDP (see section 4.0) is based on its intended use (see section 4.2).

The test of whether the equipment qualifies as SUE begins when the claimant acquires the equipment and it is available for use. The test ends in the tax year in which the relevant period ends. The test is based on how the claimant used the equipment during the entire period up to the end of that tax year.

3.5 Example: First and second term shared-use-equipment

On January 2, 2025, a company purchased and put into use a new machine for $300,000. The company intends to use the machine 75% of the operating time for SR&ED. The company also intends to use the machine 25% of the time in manufacturing and processing (M&P) over its expected useful life. As a result, the cost of the new machine is not an SR&ED capital expenditure. And the machine is not a PDP (see section 4.0). The machine runs 8 hours a day, 5 days a week. The company’s fiscal year ends on December 31. The actual operating time of the machine for SR&ED and M&P is as follows:

For the tax year ending December 31, 2025

The cost of the equipment will be included in the regular capital cost allowance (CCA) class. It will be subject to the normal CCA rules since the period from the acquisition of the equipment to the end of the tax year is less than 12 months.

For the tax year ending December 21, 2026

The machine was used primarily in SR&ED (2,900 / 3,600 or 81%) for the period which:

• Starts at the time the machine is available for use (January 2, 2025)
• Ends at the end of the first tax year ending at least 12 months after that time (December 31, 2026)

Therefore, the machine is the first term SUE (see section 3.1). The company can claim 25% of $300,000 ($75,000) as a qualified expenditure for calculating the ITC.

For the tax year ending December 31, 2027

The machine was used primarily in SR&ED (3,700 / 5,600 hours or 66%) for the period from the time the machine is available for use (January 2, 2025) to the end of the first tax year ending at least 24 months after that time (December 31, 2027). Therefore, the machine is second term SUE (see section 3.2). The company can claim 25% of $300,000 ($75,000) as a qualified expenditure for calculating the ITC.

Any ITC earned for SUE and applied to reduce taxes payable or refunded will reduce the undepreciated capital cost of the class in the subsequent year.

3.6 Assistance

A claimant’s qualified expenditures are reduced by any amount from government assistance, non-government assistance, or contract payments:

• That the claimant has received, is entitled to receive, or can reasonably be expected to receive
• That can be reasonably considered to be related to SR&ED, on or before their filing due date for a taxation year

For more information on government assistance, non-government assistance, and contract payments, refer to the Assistance and Contract Payments Policy.

3.6.1 Example: Assistance amount

A company incurred an $80,000 expenditure on equipment on December 19, 2024. Their fiscal year ends on December 31. The equipment meets the SUE criteria in both the year ending December 31, 2025, (the first period) and the year ending December 31, 2026, (the second period). In 2024, the company received $21,000 of assistance for SR&ED to purchase this equipment. For the purpose of this example, assume that there are no other qualified expenditures during these 2 years.

The qualified expenditures determined before the reduction for the assistance received are $20,000 (25% of $80,000) for 2025 and $20,000 for 2026.

The assistance received for SR&ED must be deducted from the qualified expenditures incurred in the year. For 2025, the assistance of $21,000 will fully reduce the qualified expenditures of $20,000 for the first term SUE (see section 3.1). The remaining $1,000 of assistance will be carried forward to 2026. This amount reduces the qualified expenditures for the second term SUE (see section 3.2) to $19,000 for that year.

3.7 Recapture of SR&ED investment tax credits

The ITC recapture rules apply when the claimant disposes of the property (that earned an ITC) or converts it to commercial use (see section 3.7.2). Whether a property has been converted to commercial use is a question of fact. For more information on recapture, refer to the Recapture of SR&ED Investment Tax Credit Policy.

For SUE to be considered converted to commercial use, the usage of the equipment for SR&ED must be only incidental. For this purpose, there will be ITC recapture related to the SUE only when all or substantially all of the property has been converted to commercial use.

Under the current rules, only a portion of the cost of the property that is SUE (25% or 50%) is a qualified expenditure. Furthermore, only this percentage of the proceeds of disposition or the fair market value (rather than the full amount) will be included in the recapture calculation.

3.7.1 Example: Recapture

A Canadian-controlled private corporation acquires equipment for $160,000 on February 13, 2025. The tax year ends on December 31. The equipment is SUE, and the corporation is submitting an SR&ED claim for the first period ending December 31, 2026, and the second period ending December 31, 2027. The applicable ITC rate is 35%.

First term SUE: ITC calculation
35% × ($160,000 × 25%) = ITC of $14,000

Second term SUE: ITC calculation
35% × ($160,000 × 25%) = ITC of $14,000

The corporation then sells the equipment during its 2028 tax year for proceeds of disposition of $100,000.

The ITC recapture would be the lesser of:

• $28,000, which is the amount of the ITC obtained for the property as a first and second term SUE
• $17,500, which is the amount of ITC calculated on 50% of the proceeds of disposition (35% × $100,000 × 50%)

The ITC recapture is therefore $17,500.

3.7.2 Conversion to commercial use

In the case of a commercial asset, the fact that the SR&ED work is complete on a particular date does not necessarily mean that the asset is being converted to commercial use on that date. The commercial asset will be considered to be converted to commercial use when it becomes available for use. For the purposes of determining when the conversion to commercial use occurs, the available-for-use rules will apply. For more information on the conversion to commercial use, consult the SR&ED while Developing an Asset Policy.

3.7.3 Non-arm's length transfers

The rules for non-arm’s length transfers are not applicable to the transfer of SUE to a non-arm’s length person. However, there will be no ITC recapture in this case, unless the usage of the equipment for SR&ED becomes only incidental. That is, there will be recapture related to SUE only when the property is sold to an arm’s-length person or all or substantially all of the property has been converted to commercial use.

4.0 Prescribed depreciable property

4.1 Definition

The claimants depreciable property that is prescribed for the purposes of the definition "first term shared-use-equipment" is:

• A building
• A leasehold interest in a building
• A property or part of a property which would, according to the intention of the claimant or a person related to the claimant, at the time it was acquired:
  • Be used for SR&ED during the assembly, construction, or commissioning of a facility, plant, or line for commercial manufacturing, commercial processing, or other commercial purpose (other than SR&ED)
  • Be used during its operating time in its expected useful life primarily for purposes other than SR&ED
  • Have its value consumed primarily in activities other than SR&ED

A prescribed depreciable property (PDP) does not qualify as first term SUE (see section 3.1) and, consequently, it does not qualify as second term SUE either (see section 3.2). Therefore, the property is not eligible for an ITC.

Buildings are discussed in the SR&ED Capital Expenditures Policy. Lease expenditures are discussed in the SR&ED Lease Expenditures Policy.

4.2 Prescribed depreciable property and intended use

Property does not qualify as a PDP if, at the time it was acquired, the claimant did not intend to use it for SR&ED during the assembly, construction, or commissioning of a facility, plant, or line for commercial manufacturing, commercial processing, or other commercial purpose (other than SR&ED).

Whether a particular property is a PDP is determined at the time the property is acquired. To determine this, we must take into account the intended use of the property over its expected useful life.

Subsequent use of the property may also indicate the claimant’s intention at the time they made the expenditure. This use may differ from the claimant’s initial intention. However, if the claimant can support that, at the time they acquired the property, they intended to use primarily for SR&ED work over its expected useful life or that its value would be consumed primarily in SR&ED activities, the property is not considered a PDP.

Equipment used in pilot plants will not be considered PDP. Pilot plants are discussed in the SR&ED while Developing an Asset Policy.

4.3 Examples : Prescribed depreciable property

4.3.1 Property used primarily for SR&ED during the implementation of a new production line and then for commercial purposes

Facts

The SR&ED work consists of the development of a new process for manufacturing and processing (M&P). A new production line was installed as part of the SR&ED project, including modifications to M&P equipment, which is incorporated in the new production line. The claimant carries out more than 75% of their total production on this new production line. The percentage of use of the M&P equipment for SR&ED during the first period is 70%.

Question: Does the M&P equipment qualify as first term SUE?

A property or part of a property will be a PDP and will not qualify as SUE if it meets both the following conditions:

1. The claimant intended, at the time they acquired the equipment, that they would use it for SR&ED during the assembly, construction, or commissioning of a facility, plant, or line for commercial manufacturing, commercial processing, or other commercial purpose (other than SR&ED)
2. The claimant intended, at the time they acquired the equipment, that they would use it during its operating time in its expected useful life primarily for purposes other than SR&ED or that its value would be consumed primarily in activities other than SR&ED

In this case, the project involves the development of a new process, and the M&P equipment claimed as SUE is incorporated into a new production line. The M&P equipment was intended to be used for SR&ED during the assembly, construction, or commissioning of a facility, plant, or line for commercial manufacturing, commercial processing, or other commercial purpose.

The first condition above has, therefore, been met. For the second condition, the claimant’s intention for the use of the property during its expected useful life must be determined.

The facts indicate that all or substantially all of the production is carried out on this new line. Therefore, it seems that the claimant’s intention at the time they acquired the property was to use the property primarily for activities other than SR&ED during its expected useful life. The claimant must demonstrate that they intended to use the property primarily for SR&ED during its operating time in its expected useful life.

Conclusion

In this example, the property is a PDP. Therefore, the claimant would not be able to claim the property as SUE. And, therefore, the property is not eligible for the ITC.

4.3.2 Property used primarily for SR&ED only during the first period

Facts

The claimant acquires a new machine and intends to use it primarily for SR&ED. The machine is not an SR&ED capital expenditure on line 390 of the T661.

The claimant used this machine primarily for SR&ED in the first period. They did not use or intend to use it in the assembly, construction, or commissioning of a facility, plant, or line for commercial manufacturing, commercial processing, or other commercial purpose.

Question: Can this property qualify as SUE?

To qualify as first term SUE (see section 3.1), the property must:

• Be depreciable property, acquired and available for use after December 15, 2024
• Not qualify as an SR&ED capital expenditure
• Not be a PDP
• Not be general purpose office equipment or furniture (GPOEF)
• Be new
• Be used primarily for SR&ED during the first period

The property was not used or intended to be used for SR&ED purposes during the assembly, construction, or commissioning of a facility, plant, or line for commercial manufacturing, commercial processing, or other commercial purpose. Therefore, the property is not a PDP.

Conclusion

The facts indicate that the property was used primarily for SR&ED purposes during the first period. It therefore qualifies as first term SUE. The claimant must demonstrate that the property was primarily used for SR&ED.

Note
There will be ITC recapture for SUE when the property is sold or all or substantially all of the property has been converted to commercial use.

4.3.3 Property used primarily for SR&ED during the first period and then for the business’s operation

Facts

A claimant acquires a piece of equipment to use for SR&ED during the construction of an assembly line for commercial production. They also intend to continue using it primarily in other SR&ED activities after the assembly line is completed. Because of unforeseen circumstances, the equipment cannot be used primarily for SR&ED purposes during its operating time in its expected useful life. The percentage of real use of the equipment for SR&ED during the first period is 70% of its operating time.

Question: Is the equipment a PDP?

Whether a particular property is a PDP is determined at the time the property is acquired. To determine this, the intended use of the property over its expected useful life must be considered. The subsequent use of a property may differ from the claimant’s intention at the time they made the expenditure. If the claimant can support that, at the time it was acquired, the property was intended to be used primarily for SR&ED activities over its expected useful life, the property is not a PDP. If the original intent can be justified and all other first term SUE conditions are met, the claimant may get the ITC for SUE.

Conclusion

The property is not a PDP. It could qualify as SUE to the extent that it meets all the other criteria listed in section 4.3.2. To pass the use test, the property needs to be used during its operating time primarily for SR&ED in the first period. The facts indicate that the property meets the use test because its actual operating time for SR&ED during the first period exceeds 50%. After the first period, there will be ITC recapture if the property is sold or all or substantially all of the property has been converted to commercial use.

See section 3.7 for more information.

4.3.4 Property intended to be used primarily for operational activities, but used for SR&ED

Facts

A claimant acquires a new machine to replace an existing one that is part of a line for commercial manufacturing. The machine performs one of five steps of a continuous manufacturing process. When the new machine is installed into the line and the initial work is started, unexpected technical difficulties arise, and, as a result, the property is used primarily for SR&ED during the first and second periods.

Question: Is the machine a PDP?

At the time the property was acquired, the claimant did not intend that the property be used for SR&ED in the context of the assembly, construction, or commissioning of a facility, plant, or line for commercial manufacturing, commercial processing, or other commercial purpose. The machine was acquired to replace an existing machine that is used for commercial production. The property is not a facility within the meaning of subsection 2900(11) of the Regulations. The Regulations refer to part of a property, not part of a facility.

Conclusion

The property is not a PDP. It could qualify as SUE if it meets all the other criteria listed in section 4.3.2.

4.3.5 Property used primarily for SR&ED during commissioning

Facts

A company planned to build a new, industrial fluidized-bed boiler for continuously recovering chemicals and energy from pulp and kraft paper black liquor in a fully commercial and pre‑existing pulp and paper mill operation. The cost of construction for the company would be $20 million. The company decided to bypass an expensive and time-consuming pilot step in favour of full-scale plant trials.

As a result, the planned scale-up factor between the original bench-scale proof‑of‑concept equipment and the full-scale recovery boiler exceeded 1,100, and significant technological uncertainties remained before the commissioning of the new boiler.

The design of the new, full-scale recovery boiler was based on data from a much smaller bench-scale test. As a result, company staff expected that extensive SR&ED, done through mill trials, would be required during the commissioning phase and throughout the first full year of operation. Before the commissioning phase, there were numerous technological uncertainties that were associated with the end products and with the process operation and reliability.

Operations data indicated that SR&ED was carried out for 55% of the boiler’s operational time for the first period and that the time decreased to 30% in the second period.

Question: Can the fluidized bed recovery boiler be claimed as SUE?

The company intended that SR&ED would be carried out on this boiler during its assembly, construction, and commissioning. In addition, the company intended to use this boiler primarily for commercial work after the SR&ED was complete. According to the Regulations, the equipment is a PDP.

Conclusion

Even though the equipment’s use exceeded 50% for the first period, no ITC can be claimed. The PDP exclusion applies as outlined in the Regulations.

Appendix A: References

A.1 Legislative references

Appendix B: Revisions

B.1 Explanation of changes

This is the explanation of changes made to the SR&ED Shared-Use-Equipment Policy related to the revision of May 22, 2026.

Sections 2, 3.1, 3.2, 3.3, 3.5, 3.7.1, 4.1, and 4.3.2 have been revised to reflect legislative changes to the 2024 FES and the 2025 budget.

Minor changes and formatting adjustments have been made to the entire document.