Citation: 2008 TCC 694
Date: 20081229
Dockets: 2004-986(IT)G,
2004-3531(IT)G
BETWEEN:
PSC ELSTOW RESEARCH FARM INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle, J.
[1]
The Appellant PSC
Elstow Research Farm Inc. (“PSC Elstow”) has appealed from loss determinations or
reassessments of its 1999, 2000 and 2001 taxation years. The issues for each
appeal are essentially the same and generally involve (i) the extent to which
PSC Elstow is entitled to a refundable investment tax credit in respect of
scientific research and experimental development expenditures; (ii) the
application of subsection 127(19) of the Income Tax Act in respect
of government assistance for research and development received by PSC Elstow’s
controlling shareholder, Prairie Swine Centre Inc. (“PSCI”); and (iii) whether
any portion of the government assistance received by PSCI was then received by
PSC Elstow from PSCI and should therefore be included in its income under paragraph 12(1)(x)
of the Act. It is fair to say that the Crown’s position with respect to
each of these issues arises from the fact that PSC Elstow is controlled by a
non‑profit corporation, PSCI. Non-profit corporations are not entitled to
refundable investment tax credits in respect of scientific research and
experimental development.
I. Facts
[2]
Prairie Swine Centre
Inc. is a non-profit corporation established in 1991. Its sole member is the University of Saskatchewan. Prior to the incorporation of PSCI,
the Prairie Swine Centre was part of the University of Saskatchewan. PSCI is involved in research and development in
support of the commercial pork industry including pork producers and feed growers.
PSCI is focused on providing “near market” research services for the benefit of
the pork industry and its “stakeholders”. That is, it is involved in the experimental
development aspect of research and development (moreso than basic or applied
research) in areas that directly relate to and effect a commercial market
operation. These are focused on the areas of (i) production efficiencies; (ii)
environmental sustainability; and (iii) animal welfare and well-being.
[3]
Three new full-time
research scientists were hired when PSCI was set up. A number of PSCI’s
employed research scientists are also faculty or lecture at the University.
[4]
At its outset, PSCI
conducted its research work primarily at a facility in Floral, Saskatchewan originally built by the University in 1988 for its
Prairie Swine Centre. PSCI’s Floral facility has a 250 sow breeding herd and
its piglets are bred, born, weaned and then sold when their weight is 25 kilograms.
The commercial pig farmer buyers feed and grow them to around 125 kilograms
at which weight-range pigs are marketed in the normal course for food. PSCI
also has a modest office building at Floral.
[5]
The University’s Prairie
Swine Centre had a half-dozen staff. Since being rolled into PSCI, staff has
increased to thirty to forty. With this type of growth, PSCI found excessive
backlogs were developing for the use of its Floral facility by its scientists
and graduate students. In addition, PSCI recognized that because it did not
grow its pigs to the 125 kilogram market-range, but sold them shortly
after weaning, they were unable to undertake potentially valuable research for
pigs during their growth from 25 kilograms to 125 kilograms even though
it was within their mandate to undertake research at the near-market level.
Also, in the period since construction of the Floral facility, the typical
commercial pig farm had increased significantly in size from a 300 swine
herd to a 600 swine herd. Since it aims to provide near-market research
results able to be used by producers for the benefit of the industry and its
stakeholders, it is important that much of the research be done in conditions
that are, as much as possible given the research, similar to a typical
commercial pig farm. For all of these reasons, by 1987 PSCI’s business and
strategic plans aimed to expand its facilities.
[6]
In 1997 or 1998 the Saskatchewan
government announced the creation of an agri-food innovation fund, the main
purpose of which was to make money available for research and infrastructure in
the agri-food sector. PSCI successfully applied for a three million dollar
capital grant for a new facility. In addition, it received a $300,000 per year
grant for three years for its research activities.
[7]
PSCI decided it would
be appropriate to construct its new facility in a separately incorporated
entity in order to have a separate entity that commercial operators could
better relate to as well as to protect its assets from the risks associated
with new construction. Financial structuring and tax advice was sought from
PSCI’s accountants and, it appears that following that, it was decided the new
entity would be an ordinary taxable business corporation.
[8]
To that end, PSCI
incorporated the Appellant PSC Elstow and at the outset was its sole
shareholder. PSCI loaned its three million dollar grant to PSC Elstow to
be used towards the construction of the new research farm facility at Elstow, Saskatchewan. PSC Elstow also obtained a construction mortgage of
approximately 2.4 million dollars from a major Canadian bank. During the
pre-construction period, PSC Elstow raised money by issuing shares to Agricoll
Research Institute, another non-profit corporation whose sole and controlling
member was the University of Saskatchewan. Since then, Agricoll has
held 15% of PSC Elstow’s shares and PSCI has been an 85% controlling
shareholder. Separately, PSC Elstow put in place an operating line of credit to
fund its operating activities.
[9]
The years in question
included the year of construction of the Elstow facility as well as the period
it took to be fully populated with a herd, through to when it began being able
to conduct its research.
A. The Elstow Facility
[10]
The size and design of
the PSCI facility at Floral was suitable to large amounts of data being
collected in respect of a small group of pigs. That made Floral more suited to
basic research. Elstow was therefore designed to conduct studies of a larger
number of animals in order to be more near market commercial conditions.
[11]
The facility was
designed and constructed for the express purpose of being suitable at which to
conduct the desired research. It is therefore in several key respects quite
different from a comparable structure that would be on an ordinary commercial
pig farm operator’s farm. On the ground, this includes construction to maintain
separate and apart, track, and mechanically collect the manure from the different
groupings of pigs. It also includes multiple different flooring areas so that
different floorings can be compared at the same time and changed from
experiment to experiment. Also, the housing of the pigs combines both group stalls
and individual housing in order to be able to study the effects on pigs in each
of the two approaches taken by the industry. Commercial operators would only
use one or the other throughout a facility. The barn was also designed to
accommodate multiple different feeding systems so that feeding systems can be
studied as a variable. At the ceiling and roof stage of the facility, there
were also key differences. Multiple separate lighting groupings were used and configured
so that different lighting could be assessed as variables in different
experiments and studies. The design for the roof had to be made notably higher
than a normal commercial operation would have in order to accommodate some of
these changes and to provide room for observation. This in turn necessitated
something unique be done with the rafter design to accommodate the change. The
building was also configured into multiple separately ventilated areas in order
to test the effects of different ventilation systems. The building had to
accommodate many more large hog scales as compared with those needed for a
commercial operator. The bio-security systems put in place in the research
facility as compared with those needed in a commercial pig barn were also
significantly increased.
[12]
In addition to impact
on the layout and construction of the facility, the research-driven objectives
of PSC Elstow, PSCI and others using the facility, necessarily affected the
day-to-day management of the facility from an operating point of view as well.
PSC Elstow would not be able to do anything from a hog production perspective
that would jeopardize the research. In contrast, it would need to do things
from a research perspective that would jeopardize the commercial production.
Indeed, these are some of the compelling reasons why PSCI could not simply have
arranged with a commercial operator to allow it to conduct research while the
operator took care of its hog production. With these limitations one could
imagine how a commercial operator upon observing the Elstow facility’s
operations for a period of time might wonder if it was the proverbial camel
created by a horse design committee.
[13]
In short, the research
to be done could not be done without a fully operational commercial size herd
being born and grown to market size in the same manner a commercial operator
would do. No commercial operator had a facility designed to permit or
facilitate the type of research to be done and, in any event, it would be
reasonable to conclude no commercial operator would expose its facilities to
such interference and risk in order to supplement its income with payments from
researchers. Commercial operators are worried about the batch of pigs from
birth to market. Researchers need to identify individual pigs and measure
individual pigs’ well-being, individual pigs’ statistics, individual pigs’
inputs and outputs. While commercial operators obviously monitor the well-being
of their pigs, they do not study them. Researchers need animals of known health
status and genetics and the like. Commercial operators do not keep track of
that level of information.
[14]
Scientific experiments
generally involve studying changes to one or a few variables while all other
variables remain known and unchanged. This cannot be done with random pigs. Research
on near market level sized pigs cannot be done by bringing in commercial pigs,
conducting the research, and then liquidating the pigs into the market.
Specific detailed histories of the pigs, going back before their conception,
need to be known.
[15]
Prior to the
construction of the PSC Elstow facility there were some research projects to be
done on a mature herd that could be accommodated at a commercial producer’s
farm. In PSCI’s experience the costs of doing that were horrendously prohibitive.
The biggest contributor to that was the requirement that the comings and goings
of barn personnel for the normal operations had to be severely restricted. In
addition, significant changes of no lasting benefit to the commercial
operator’s facility had to be done to install and change particular feeding or
ventilation systems. Probably most frustrating to the researchers was the loss
of data accumulated or the opportunity to accumulate data, when the commercial
operator’s commercial exigencies trumped the researchers’ objectives.
[16]
Commercial operators,
like all business people, avoid risk. Allowing scientists and technicians in to
do research and development creates change, uncertainty and disruptions that
are not needed for the commercial business and which commercial operators would
therefore seek to avoid. Pigs, like most animals, do not react positively to
stress. From a commercial operator’s point of view unnecessary change equals
unnecessary stress on the herd.
[17]
I do not need to
describe the types of research projects undertaken. There is ample description
in the evidence and exhibits of the research projects themselves. The research
was performed pursuant to a Research Service Agreement between PSCI and PSC
Elstow. There is also ample description in the evidence and exhibits of the
written reporting and financial accounting to the research funders who were
frequently multiple government agencies with detailed accounting requirements.
B. PSC Elstow’s Staff
[18]
Dr. John Patience
is the President and Chief Executive Officer of PSC Elstow. He has been since
its inception. He is also the Director of PSCI. Dr. Patience is on the
board of directors of PSC Elstow. In addition, there are two directors who are
or represent commercial pork producers and another who is a nominee or representative
of Agricoll and is also on the board of Agricoll.
[19]
PSC Elstow does not
have its own management staff but has entered into a management services
contract with PSCI.
[20]
PSC Elstow has its own
staff, known as barn staff, to keep the Elstow facility running and to provide
technical support to researchers using the Elstow facility.
[21]
There are also
differences at the barn staff level between commercial barns and the research
facility. Commercial operators have their staff specialized in a particular
part of a barn. In contrast, in the research facility staff are expected to be
aware of all of the barn’s operating areas, be able to work throughout, and be
able to assist the research workers in their tasks.
[22]
In addition to the barn
manager and four barn staff, for part of the period in question PSC Elstow had
a Research Coordinator. PSC Elstow did not have any scientists or researchers
on staff. It was able to contribute the availability of its facility to
research projects that it undertook with PSCI or that it performed for others
on a contract basis at PSC Elstow. In addition, PSC Elstow could make some of
its barn staff time available to assist researchers with the additional
measuring and weighing of pigs, monitoring their habits, monitoring or making
changes to lighting or ventilation, collecting identified manure and the like.
In the years in question, it was estimated that barn staff would devote 10% of
their time to assisting researchers on research projects.
C. Government Funding
[23]
In this appeal the
relevant aspects of the funding of the PSC Elstow facility and its operations
are the amount of government funding received by PSCI.
[24]
Firstly, PSCI received
a government grant of approximately 3 million dollars the proceeds of
which it loaned to PSC Elstow to be used towards the cost of building the
facility. The 3 million dollars was approximately half of the cost of the
project and most of the balance was arranged through mortgage financing.
[25]
Secondly, PSCI received
from the agri-food innovation fund $900,000 over three years for PSCI to
conduct research at the new facility. Some of it was spent by PSCI to conduct
research which it conducted at the Elstow facility. A number of the projects
funded with the grant were done by PSCI independently of PSC Elstow and not at
PSC Elstow’s premises. There were clearly very accurate accounting and
allocation of expenses amongst projects by PSCI given the accountability
imperatives of its funding organizations. Similarly, where a research project
was funded by more than one entity, each funding organization required separate
reporting of how its funds were spent on the approved research project.
[26]
There is no dispute
between the parties about the tax treatment of the facility for purposes of the
SR&ED provision in the Act since the building was a capital asset funded
with 3 million dollars of government assistance. The issue of refundable
investment tax credits and the paragraph 12(1)(x) issue in this
appeal are in respect of the $900,000 three-year government grant.
D. Financial Accounting
[27]
The audited financial
statements of PSC Elstow include revenues from research revenue. It is not broken
out as between payments from PSCI and payments from third parties. The amounts
received from the sale of pigs are not recorded by the auditor as revenues but
are netted against expenses as a reduction of expenses. The correctness of this
from a generally accepted accounting principles point of view or from an
ordinary business and commercial practice point of view was not challenged. I
accept that this is in accordance with both GAAP and ordinary business and commercial
practice.
E. CRA’s Assessing Position
[28]
The CRA Appeals Officer
also testified. He accepted the advice of CRA’s science advisors that the
projects conducted at the Elstow facility constituted scientific research and
experimental development. He similarly accepted the advice of the CRA financial
reviewer that the expenses identified and claimed did relate to these SR&ED
projects. His concern with PSC Elstow’s claim had been that PSC Elstow’s
SR&ED expenses had to be incurred on SR&ED related to its business and
he believed the concept of being in the business of providing research and
development, a so-called sole purpose R&D performer, no longer existed,
though it did at one time prior to certain amendments to the legislation.
[29]
While CRA allowed 10%
of PSC Elstow’s costs as SR&ED related to its business, CRA did not accept
that Elstow was a sole purpose research corporation and therefore looked for SR&ED
expenses on particular research projects related to Elstow’s pork business.
II. Findings
[30]
I find that this is not
a situation where the entities set out to run a commercial pig operation at
which they could also do their research. This is not even a case of the
entities deciding to do research and to build a commercial pig operation to
help defray the research costs. I am satisfied that, having set out to do the
research, a specialized facility that, like a commercial operator, used a herd
that went through the entire cycle of farrow to finish to market was a
scientific and technical necessity. The facility had to be built and operated
in order to do the research and the expenses for that had to be incurred in
order to do the research. Those research costs were of course in part offset or
reduced by the fact that once full grown the pigs could be sold to market for
cash as any other pigs. The Elstow facility is in essence a living workbench or
laboratory necessary for the research to be undertaken.
[31]
I am also satisfied
that the only business of PSC Elstow was the research business. It was not also
running a commercial pig farm as another business. Its pork production
activities could clearly not be described as being run in a business‑like
manner. Potential revenues from the sale of pigs were sacrificed for scientific
result, not vice versa.
[32]
I also find that the
research projects undertaken at the Elstow facility, other than any third party
contract research, was done by PSCI and PSC Elstow on a joint venture basis.
This is consistent with CRA having always accepted that 10% of PSC Elstow’s
otherwise qualified SR&ED expenditures were incurred by it and related to
its own business. Seemingly CRA viewed PSC Elstow as having two businesses:
commercial pork production its primary 90% business and pork-related research
as to 10%. This is important because it means the Respondent also accepted that
the arrangements in place between PSCI and PSC Elstow to complete particular
research projects were done by the two of them in some form of joint venture.
Importantly, this means that the research arrangements had PSC Elstow performing
research activities, not merely making research premises available to others. In
this joint venture research arrangement PSCI largely contributed the scientific
personnel and equipment and other direct costs of the research projects. PSC
Elstow largely provided the availability and use of the facility and the
assistance of its barn staff.
[33]
I find that PSC Elstow
did not deal at arm’s length with PSCI for purposes of the Act since
PSCI controlled the majority voting shares of PSC Elstow.
[34]
Lastly, as already
stated, I accept that netting pork sales receipts against operating expenses,
as was done on PSC Elstow’s audited financial statements, was in accordance
with GAAP and with ordinary business and commercial practice. What flows from
this is a finding that PSC Elstow’s revenues, such as they are, were all derived
from its research activities. Its receipts for the pigs sold are no different
in this respect from the sale for a more traditional researcher of unused,
transformed or leftover research inputs once no longer needed for
experimentation.
III. Issues
[35]
There are three issues
in these appeals.
[36]
The first is whether
PSC Elstow is solely in the business of providing research such that all of its
expenditures necessarily relate to SR&ED, or is it doing some research in
relation to its commercial pork business which requires that expenses be able
to be tracked and identified to particular research projects and not include
the cost of operating the pork business.
[37]
The second issue is
whether PSC Elstow’s SR&ED expenses or refundable investment tax credit
entitlement is reduced by all or part of the $900,000 government grant received
by PSCI by virtue of subsection 127(19).
[38]
The third issue is whether
paragraph 12(1)(x) includes any residual amount of the $900,000
PSCI government grant that is not accounted for under subsection 127(19)
into the income of PSC Elstow.
IV. Law and Analysis
A. SR&ED Investment Tax Credits
[39]
Scientific research and
experimental development is defined in subsection 248(1) of the Act.
The Minister does not take the position that the Appellant is not involved in
the pursuit of SR&ED. That is expressly accepted.
[40]
The quantum of PSC
Elstow’s expenses is also not in dispute.
[41]
The dispute focuses on
whether those expenses were “qualified expenditures” as defined in
subsection 127(9) for investment tax credit purposes. Such a qualified
expenditure includes an expenditure incurred by the taxpayer in respect of
SR&ED that is an expenditure described in paragraph 37(1)(a).
Prescribed expenditures are also excluded from the definition of qualified
expenditures.
[42]
Paragraph 37(1)(a)
generally describes current as opposed to capital SR&ED expenditures. In
order to satisfy paragraph 37(1)(a) a taxpayer must carry on a business
and, to satisfy subparagraph (1), be an expenditure of a current nature on
SR&ED undertaken by the taxpayer and related to its business.
[43]
For this purpose
paragraph 37(8)(c) provides that the prosecution of SR&ED will
not be considered a business to which SR&ED relates, except in the case of
a taxpayer who derives all or substantially all of its revenue from the prosecution
of SR&ED.
[44]
Subclauses 37(8)(a)(ii)(A)(I)
and (II) provide that the expenditures must also be expenditures attributable
to the prosecution of SR&ED or to the provision of premises, facilities or
equipment for the prosecution of SR&ED. Regulation 2900(2)(c)
provides that directly attributable expenditures include directly related
expenditures that would not have been incurred if the SR&ED prosecution had
not occurred. Regulation 2900(3)(b) provides that directly
attributable expenditures for premises, facilities and equipment include
maintenance and upkeep costs therefore as well as other expenditures that would
not have been incurred if the premises, facilities or equipment had not
existed.
[45]
On the facts of this
case PSC Elstow’s expenditures satisfy the requirement that they be described
in paragraph 37(8)(a) and they are not excluded by virtue of
paragraph 37(8)(c).
[46]
Prescribed expenditures
excluded from definition of qualified expenditures for investment tax credit
purposes are set out in Regulation 2902. Regulation 2902(a)(ii)
excludes current expenditures in respect of the maintenance and upkeep of
premises, facilities and equipment but only to the extent that such expenditure
is not attributable to the prosecution of SR&ED. On the facts of this case,
the closing language of Regulation 2902(a)(ii) applies such that
PSC Elstow’s expenditures are not prescribed expenditures.
[47]
For what it is worth,
as set out above, CRA was of the view that the concept of sole purpose R&D
performers was removed from the Act for SR&ED purposes. That is
clearly not the case. See for example paragraph 37(8)(c) as well as
the closing language of Regulation 2901(a). It appears CRA was
reading far too much into the deletion of similar language from the closing of
Regulation 2902(a).
[48]
Even if the proceeds
from the sale of the pigs once no longer needed for research purposes is
regarded as revenue, and not simply a reduction of expenses, PSC Elstow would
continue to be earning all of its revenues from the prosecution of its
SR&ED. The proceeds of sale of a by-product or transformed input of
research would still be derived from the research activities. This is all the
moreso since PSC Elstow does not have a commercial pork business or any other
business but its SR&ED prosecution. I very much doubt this issue would be
before the Court if these were not pigs but were white mice, rats or rabbits
for which there is no appreciable market.
[49]
I remain unclear on who
actually owned the rights to the results of the research or in what
proportions. However, for purposes of the particular SR&ED provisions
applicable to this issue the SR&ED performer is not expressly required to
own the rights to the research. There is such a requirement applicable to
certain other of the SR&ED provisions of the Act.
B. Subsection 127(19)
[50]
The taxpayer argues
that subsection 127(19) can not apply to PSC Elstow in respect of grants
received by PSCI and not by it. The Crown maintains that
subsection 127(19) applies to PSC Elstow in respect of the full amount
received by PSCI.
[51]
Subsection 127(19)
provides as follows:
|
(19) Where on
or before the filing-due date for a taxation year of a person or partnership
(referred to in this subsection as the “recipient”) the recipient has
received, is entitled to receive or can reasonably be expected to receive a
particular amount that is government assistance, non-government assistance or
a contract payment that can reasonably be considered to be in respect of
scientific research and experimental development and the particular amount
exceeds the total of
. . .
(c)
the total of all amounts each of which would, but for the application of this
subsection to the particular amount, be a qualified expenditure
(i) that was
incurred by a person or partnership in a taxation year of the person or
partnership that ended in the recipient’s taxation year, and
(ii) that can
reasonably be considered to be in respect of the scientific research
and experimental development to the extent that it was performed by the
person or partnership at a time when the person or partnership was not
dealing at arm’s length with the recipient,
the
particular amount shall be applied to reduce each qualified expenditure
otherwise determined that is referred to in paragraph 127(19)(c).
|
(19) Dans le
cas où une personne ou une société de personnes (appelées « bénéficiaire
» au présent paragraphe) reçoit, est en droit de recevoir ou peut
vraisemblablement s’attendre à recevoir, au plus tard à la date d’échéance de
production qui lui est applicable pour son année d’imposition, un montant
donné qui représente une aide gouvernementale, une aide non gouvernementale
ou un paiement contractuel qu’il est raisonnable de considérer comme se
rapportant à des activités de recherche scientifique et de développement
expérimental, le montant donné est appliqué en réduction de chaque dépense
admissible, déterminée par ailleurs, qui est visée à l’alinéa c) s’il dépasse
le total des montants suivants :
[…]
c) le total des montants dont chacun représenterait, n’eût été
l’application du présent paragraphe au montant donné, une dépense admissible
qui répond aux conditions suivantes :
(i) elle a
été engagée par une personne ou une société de personnes au cours de son
année d’imposition qui s’est terminée dans l’année d’imposition du
bénéficiaire,
(ii) il est
raisonnable de considérer qu’elle se rapporte aux activités de recherche
scientifique et de développement expérimental, dans la mesure où celles-ci
ont été exercées par la personne ou la société de personnes à un moment où
elle avait un lien de dépendance avec le bénéficiaire.
[Emphasis
added.]
|
[52]
It is clear from the
opening and closing phrases of subsection 127(19) (and from the opening
phrase of the French version) that the Crown is correct that, in certain
circumstances, the qualified expenditures on SR&ED performed by one person,
PSC Elstow, can be reduced by the amount of government assistance received by
another person, PSCI. This is clear from both the French and English versions
of the subsection although each requires careful, slow and multiple readings.
This is because the qualified expenditures to be reduced are specifically said
to be those described in paragraph (c) of the subsection, those of
the person other than the recipient.
[53]
This reduction can only
apply if the two persons do not deal at arm’s length with each other. PSCI and
PSC Elstow do not deal with each other at arm’s length since PSCI holds the
majority of the shares of PSC Elstow.
[54]
I am satisfied that the
$900,000 of government assistance received by PSCI can reasonably be considered
to have been received in respect of SR&ED. The government funding
initiative was for research and development and the government’s funding commitment
to PSCI was for a particular research program.
[55]
However,
paragraph (c) also requires that it be reasonable to consider the
qualified expenditures of PSC Elstow on its SR&ED which are subject to
reduction be in respect of “the” SR&ED in respect of which the government
assistance was received by PSCI. In this case, the evidence is clear that
twelve of the sixteen research projects funded by PSCI with the grants received
had nothing to do with PSC Elstow or the Elstow facility. The amount of PSCI’s
$900,000 of government assistance that funded those twelve projects does not
meet the requirements of paragraph 127(19)(c) and therefore will
not reduce PSC Elstow’s qualified expenditures. Subsection 127(19) will only
apply to grind PSC Elstow’s qualified expenditures in respect of the other four
research projects.
C. Paragraph 12(1)(x)
[56]
In the assessment and
loss determinations at issue, CRA took the position that, to the extent the
$900,000 of government assistance exceeded the subsection 127(19)
reduction of PSC Elstow’s qualified expenditures, such excess was included in
PSC Elstow’s income under paragraph 12(1)(x).
[57]
Paragraph 12(1)(x)
provides:
|
12.(1) Income inclusions — There
shall be included in computing the income of a taxpayer for a taxation year
as income from a business or property such of the following amounts as are
applicable:
. . .
(x) Inducement,
reimbursement, etc. — any particular amount (other than a prescribed
amount) received by the taxpayer in the year, in the course of earning income
from a business or property, from
(i) a person
or partnership (in this paragraph referred to as the “payer”) who pays the
particular amount
(A) in the
course of earning income from a business or property,
(B) in order
to achieve a benefit or advantage for the payer or for persons with whom the
payer does not deal at arm’s length, or
(C) in
circumstances where it is reasonable to conclude that the payer would not
have paid the amount but for the receipt by the payer of amounts from a
payer, government, municipality or public authority described in this
subparagraph or in subparagraph (ii), or
(ii) a
government, municipality or other public authority,
where the particular amount can
reasonably be considered to have been received
(iii) as an
inducement, whether as a grant, subsidy, forgivable loan, deduction from tax,
allowance or any other form of inducement, or
(iv) as a
refund, reimbursement, contribution or allowance or as assistance, whether as
a grant, subsidy, forgivable loan, deduction from tax, allowance or any other
form of assistance, in respect of
(A) an amount
included in, or deducted as, the cost of property, or
(B) an outlay
or expense,
to the extent that the particular amount
(v) was not
otherwise included in computing the taxpayer’s income, or deducted in
computing, for the purposes of this Act, any balance of undeducted outlays,
expenses or other amounts, for the year or a preceding taxation year,
(vi) except
as provided by subsection 127(11.1), 127(11.5) or 127(11.6), does not reduce,
for the purpose of an assessment made or that may be made under this Act,
the cost or capital cost of the property or the amount of the outlay or
expense, as the case may be,
. . .
|
article 12 : Somme à inclure dans le revenu.
(1) Sont à inclure dans le calcul du
revenu tiré par un contribuable d’une entreprise ou d’un bien, au cours d’une
année d’imposition, celles des sommes suivantes qui sont applicables :
[…]
x) Paiements
incitatifs et autres — un montant (à l’exclusion d’un montant prescrit)
reçu par le contribuable au cours de l’année pendant qu’il tirait un revenu
d’une entreprise ou d’un bien :
(i) soit
d’une personne ou d’une société de personnes (appelée « débiteur » au
présent alinéa) qui paie le montant, selon le cas :
(A) en vue de
tirer un revenu d’une entreprise ou d’un bien,
(B) en vue
d’obtenir un avantage pour elle‑même ou pour des personnes avec qui
elle a un lien de dépendance,
(C) dans des
circonstances où il est raisonnable de conclure qu’elle n’aurait pas payé le
montant si elle n’avait pas reçu des montants d’un débiteur, d’un
gouvernement, d’une municipalité ou d’une autre administration visés au
présent sous‑alinéa ou au sous‑alinéa (ii),
(ii) soit
d’un gouvernement, d’une municipalité ou d’une autre administration,
s’il est raisonnable de considérer le
montant comme reçu :
(iii) soit à
titre de paiement incitatif, sous forme de prime, de subvention, de prêt à
remboursement conditionnel, de déduction de l’impôt ou d’indemnité, ou sous
toute autre forme,
(iv) soit à
titre de remboursement, de contribution ou d’indemnité ou à titre d’aide,
sous forme de prime, de subvention, de prêt à remboursement conditionnel, de
déduction de l’impôt ou d’indemnité, ou sous toute autre forme, à l’égard,
selon le cas :
(A) d’une
somme incluse dans le coût d’un bien ou déduite au titre de ce coût,
(B) d’une
dépense engagée ou effectuée,
dans la mesure où le montant, selon le
cas :
(v) n’a pas
déjà été inclus dans le calcul du revenu du contribuable ou déduit dans le
calcul, pour l’application de la présente loi, d’un solde de dépenses ou
autres montants non déduits, pour l’année ou pour une année d’imposition
antérieure,
(vi) sous
réserve des paragraphes 127(11.1), (11.5) ou (11.6), ne réduit pas, pour
l’application d’une cotisation établie en vertu de la présente loi, ou
pouvant l’être, le coût ou le coût en capital du bien ou le montant de la
dépense,
[…]
|
[58]
It is clear from
paragraph 12(1)(x) that an amount cannot be included in a taxpayer’s
income unless it was actually received by the taxpayer. Clause 12(1)(x)(i)(C)
can extend to amounts received by a taxpayer from a person other than the
government that are sourced with government assistance received by the other
person. PSCI’s government assistance cannot increase PSC Elstow’s income to the
extent PSCI spent it on PSCI projects unrelated to PSC Elstow or PSC Elstow’s
facility.
[59]
To the extent PSCI’s
$900,000 of government assistance related to PSC Elstow research projects and
thus reduced PSC Elstow’s qualified expenditures as a result of the application
of subsection 127(19), the amounts cannot also be included in PSC Elstow’s
income under paragraph 12(1)(x) by virtue of subparagraph 12(1)(x)(v).
On the facts of this case paragraph 12(1)(x)
can therefore have no application.
[60]
The appeals will be
allowed in part and the assessments and determinations will be referred back to
the Minister for reconsideration and reassessment in accordance with these
reasons. In the circumstances there will be no award of costs.
Signed at Ottawa,
Canada, this 29th day of December 2008.
"Patrick Boyle"
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