29 January 1996 GST/HST Ruling 11910-8 - Tax Status of Supplies Made Under a Research and Development Contract

Dear XXXXX

I refer to your letter of October 31, 1995 wherein you requested a GST advance ruling with respect to the transaction between XXXXX and XXXXX. Please note that we are unable to provide you with an advance ruling as the requirements established in GST Memorandum 1.4 (enclosed) have not been met. The following is a GST application ruling regarding the aforementioned transaction.

Facts

1. XXXXX is a registered charity for purposes of the Income Tax Act and is registered for purposes of the GST XXXXX[.]

2. XXXXX has entered into a scientific research and development contract with XXXXX[.]

3. Article 1.1 - XXXXX hereby confers upon the University the mandate to perform certain scientific research and experimental development for the purpose of producing certain software systems which are destined to be manufactured in series and marketed by XXXXX (herein after the "Deliverables")

4. Article 1.3 - The Parties acknowledge that the University shall perform the scientific research and experimental development and produce the Deliverables, attached hereto as Schedule B, on a best efforts basis, without guarantee.

5. Article 6.1 - Subject to third party rights, all intellectual property rights resulting from the scientific research and experimental development, as well as the Deliverables, including any and all software systems, source and binary codes, manuals, reports, studies, technologies, discovery, invention (patentable or not), method, process, apparatus, plan, design, drawing, trade secrets, ideas and/or know-how shall as between the Parties be the exclusive property of XXXXX[.]

6. Article 6.4 - XXXXX shall have the exclusive and irrevocable non-limited world-wide rights to market, exploit, modify, improve, directly or indirectly, without limitation, any and all of the intellectual property rights relating to the scientific research and experimental development performed, as well as the Deliverables produced pursuant to this Agreement, including all software systems, source and binary codes, manuals, reports, studies, technologies, discover, invention (patentable or not), method, process, apparatus, plan, design, drawing, trade secrets, ideas and/or know-how.

7. Article 6.5 - XXXXX shall be furnished with copies of any and all proposed publications or disclosures relating to the scientific research and experimental development performed, as well as the Deliverables produced pursuant to this Agreement at least thirty (30) days in advance of presentation or publication. If XXXXX does not object in writing to such disclosure within fifteen (15) days of receipt, University shall be free to proceed. In the event written objection is made by XXXXX the Parties shall negotiate an acceptable version of the proposed disclosure, including the release date, within the original thirty (30) day notice period.

8. Schedule A - Preamble: The proposed research and development project undertaken jointly with XXXXX aims to advance scientific knowledge in the area of parallel computing with specific practical applications in mind. The applications lie primarily in the area of spatial data processing, XXXXX and, in the future, in medical computing. Most of the proposed work will be applied research with some experimental development. Mathematical analysis and computer programming will be carried out to directly support the work.

9. The deliverables as outlined in Schedule B of the Agreement are:

•   yearly reports describing the activities of the research team,

•   technical reports and/or publications in the area and copies of Master/Ph.D. theses

•   relevant material keeping XXXXX abreast of developments in the area e.g., by providing an overview of relevant literature

•   results of investigating new parallel algorithms in the area (written in pseudo-code)

•   prototype experimental implementations of relevant algorithms on the XXXXX computer

•   results of investigation comparisons of parallel algorithms to existing sequential algorithms (e.g., measuring of speed-up) with documentation judged appropriate by the Committee.

Request

You request a ruling confirming that the supplies made by XXXXX to XXXXX under the Research and Development contract are exempt supplies pursuant to section 2 of Part VI of Schedule V to the Excise Tax Act (the ETA).

Ruling

Based on the information presented, we rule that the supply made by XXXXX to XXXXX under the Research and Development contract is a service of scientific research and technical development and is exempt pursuant to section 2 of Part VI of Schedule V.

The ruling is subject to the general limitations and qualifications set forth in GST Memoranda Series Section 1.4. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that there are no relevant changes in the future to the Excise Tax Act, and that you have fully described all necessary facts and transactions for which you requested a ruling.

If you have any questions or comments, please do not hesitate to contact Joanne Houlahan, Manager, Public Service Bodies at 954-7945 or Dwayne Moore, Tax Policy Officer, at 954-4206.

J.A. Venne
Director
Special Sectors
GST Rulings & Interpretations

c.c.:      D. Moore