7 February 1996 External T.I. 9520375 - SR&ED ITC'S AND A WIND-UP

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Reduction of the SR&ED pool by ITC's claimed in the previous year when a wind-up occurs.

Position:

ITC's claimed in the short taxation year prior to the wind-up will reduce the parent's SR&ED pool in the taxation year following the wind-up.

Reasons:

Paragraphs 88(1)(e.2) & 87(2)(l) provide that when a wholly-owned sub is wound-up into its parent, the parent is considered the same company as the sub for purposes of section 37 and therefore for paragraph 12(1)(v).

	           	5-952037
XXXXXXXXXX	Franklyn S. Gillman

Attention: XXXXXXXXXX

February 7, 1996

Dear Sirs:

Re: Scientific Research and Experimental Development ("SR&ED")

This is in reply to your letter dated July 24, 1995, wherein you requested clarification as to the combined application of subsection 37(1) and paragraph 88(1)(e.2) of the Income Tax Act (the "Act").

For the purpose of this opinion, we are assuming that the wind-up was performed pursuant to section 88 of the Act and met all the requirements therein.

Paragraphs 88(1)(e.2) and 87(2)(l) of the Act provide that when a wholly-owned subsidiary is wound up into its parent, the parent company is considered to be the same company as, and a continuation of, the subsidiary company for the purposes of section 37 of the Act and thus for paragraph 12(1)(v) of the Act.

Paragraph 15 of Interpretation Bulletin IT-488R2 indicates that the commencement of a winding-up and the distribution of property on a winding-up will not cause the subsidiary's taxation year to end. The subsidiary will continue to have taxation years ending on the date such years normally end until the corporation ceases to exist, with the last taxation year ending at that time.

The investment tax credits ("ITC") in respect of SR&ED claimed by the subsidiary company in the taxation year prior to the year of the wind-up will reduce the subsidiary's SR&ED pool for its subsequent taxation year.

The ITC's claimed by the subsidiary company in its final short taxation year will reduce the parent's SR&ED pool in the taxation year following the wind-up.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 21 of Information Circular 70-6R2 written opinions are not advance rulings and, accordingly, are not binding on the Department.

We trust these comments will be of assistance.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch