A subsidiary, which carries out SR&ED work on its own behalf and on behalf of its parent, uses the proxy method under s. 37(8)(a)(ii)(B. Can the parent (whose employees performed administrative support tasks directly related to the SR&ED performed by the subsidiary) deduct, pursuant to s. 37(1)(a), the expenditures for such administrative support using the traditional method under s. 37(8)(a)(ii)(A)? CRA responded:
[A] taxpayer may use the traditional method provided for in clause 37(8)(a)(ii)(A) even if another taxpayer, related to the taxpayer, elects to use the alternative method provided for in clause 37(8)(a)(ii)(B). It should be noted that expenses related to administrative support are generally not included in the expenses described in clause 37(8)(a)(ii)(B) of the Act (proxy method), whereas they could possibly be included, depending on the facts of a particular situation, in those described in clause 37(8)(a)(ii)(A) (traditional method).
After referring to s. 37(13), CRA stated:
[A]dministrative support tasks in respect of the activities of a subsidiary of a taxpayer would not be considered to be SR&ED of the taxpayer because the condition in paragraph 37(13)(b) is not satisfied since the administrative support tasks would not be SR&ED of the subsidiary … .
[Here] the administrative support expenditures related to the subsidiary's operations would not be SR&ED expenditures under subsection 37(1) of the parent. With respect to the administrative support expenditures related to the parent's own operations, we do not have sufficient facts to determine whether these expenditures would be deductible pursuant to paragraph 37(1)(a).