MDA Systems – Court of Quebec finds payments made by the federal government under a contract where it mostly had the risks and benefits were SR&ED “contract payments”

MDA contracted with the Government of Canada to provide computer systems engineering work on a satellite system to perform radar imaging from space. The ARQ denied tax credits for the wages cost of work performed on the contracts by MDA on the basis that the consideration received by MDA from the Government was “contract payments” – whose definition (similarly to the federal definition in ITA s. 127(9)) relevantly referred to “an amount in respect of an expenditure of a current nature … of a taxpayer … payable by the Government of Canada … or other public authority … for scientific research and experimental development to be performed for the authority.”

Before agreeing with the ARQ position, Bourgeois JCQ found that:

  • “the SR&ED work was carried out because of the requirements in the contracts between the Government of Canada and MDA”
  • “the Government of Canada bore the major risks of the … Program”
  • “the intellectual property developed by MDA in the space component of this project was transferred from MDA to the Government of Canada”
  • it was a contract for services rather than for the sale of goods (although Bourgeois JCQ agreed with a CRA Policy Statement that “a contract for the sale of a good does not necessarily mean that the SR&ED work was not being performed on behalf of the payer”)

More generally, “[a]lthough the contracts were not drafted specifically for doing SR&ED work, analysis of the contract terms tends to show that ultimately the SR&ED work was undertaken on behalf of the Government of Canada.”

Neal Armstrong. Summary of MDA Systems Ltd. v. Agence du revenu du Québec, 2020 QCCQ 4190 under s. 127(9) - contract payment - para. (b).