Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether amounts received from a government agency are considered government assistance?
Position: Yes.
Reasons: The contributions are not ordinary commercial investments.
XXXXXXXXXX 2007-022419
May 3, 2007
Dear XXXXXXXXXX:
Re: Amounts Received from Technology Partnerships Canada ("TPC")
We are writing in reply to your February 12, 2007 request concerning amounts received from TPC. Specifically, you requested our comments on the tax treatment to be accorded to payments received in a particular situation.
The situation upon which you have requested our views is an actual situation. As explained in Information Circular 70-6R5, written confirmation of the tax implications inherent in actual situations are given by this Directorate only where the transactions involved are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office with all the particular facts. However, we are prepared to provide the following general comments.
The definition of government assistance in subsection 127(9) states:
"government assistance" means assistance from a government, municipality or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than as a deduction under subsection (5) or (6)."
To the extent that a government is not making an ordinary commercial investment in respect of contributions that it makes to a taxpayer, the government would be providing 'assistance' within this definition of government assistance. TPC is a special agency of Industry Canada whose business is not investment for profit and is, accordingly, unlike that of a normal commercial investor. In our view, the definition of government assistance is broad enough to include contributions received from TPC.
Although not reflected in your incoming submission, you are aware of two previous documents issued by this Directorate, 9812556 and 2003-0009553, with respect to amounts received from TPC. In 9812556, the decision in Radio Engineering Products Limited v M.N.R., 73 DTC 5071, was further provided as support for considering amounts received from TPC as government assistance and not a loan. In that decision, the Federal court held that the character of the payment of $450,000 from the Department of Defence Production was that of a contribution towards the costs of the project, and although there were provisions for repayment and contingencies, it was not a loan or an advance in the nature of a loan of capital or a payment on capital account.
We also refer you to 2005-0141131C6, an APFF - 2005 Conference question, which requested CRA's clarification regarding repayable grants in determining qualifying SR&ED expenditures.
We trust that these comments will be of assistance.
Yours truly,
Roberta Albert, CA
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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