13 August 1997 GST/HST Interpretation HQR0000149 - Payments Received by Under the Pursuant to the Agreement Dated March 28, 1994 Between and Her Majesty in Right of Canada (Her Majesty)

Dear XXXXX

Thank you for your facsimile letter dated October 4, 1995 to Mr. Duncan Jones of this Office, in which you enquired about the Goods and Services Tax (GST) status of payments received by XXXXX under the XXXXX

Our understanding of the facts is as follows:

Statement of Facts

1. XXXXX administers the XXXXX , the objective of which is to develop and maintain XXXXX across Canada capable of competing successfully, over the long term, in domestic and export markets.

2.Under the XXXXX entered into a research and development agreement ("Agreement") dated XXXXX , 19 xx with XXXXX whereby XXXXX agreed to provide a financial contribution into the project entitled XXXXX

3. XXXXX purpose for contributing into the XXXXX project is described in subsection 16(1) of the Agreement as follows: "in exchange for the substantial potential to the Canadian economy resulting from the project, especially in terms of high quality employment, increased export sales and enhanced defence and aerospace development and manufacturing capability, the XXXXX on behalf of the Government of Canada, accepts to share the risk associated with this project and expects to recoup the Government investment through the mechanism of repayment directly related to the outcome of the project".

4. Pursuant to section xx of the Agreement, Her Majesty will pay XXXXX of the "allowable costs" reasonably and properly incurred by the recipient in the performance of the work without profit or fee. The allowable costs are those approved by the XXXXX and are calculated in accordance with the Schedule XXXXX to the Agreement.

5. Under section x of the Agreement, the cost payable by Her Majesty to the XXXXX under the Agreement shall not exceed the total sum of XXXXX of the Agreement, payments into the project will be made provided that XXXXX submits monthly progress claims on form XXXXX along with all the signed applicable certificates and copies of invoices to the satisfaction of the Minister and the appropriate authorities.

7. Under subsection XXXXX of the Agreement XXXXX agrees to repay Her Majesty's contribution based on a royalty of XXXXX on all sales of products resulting from this Agreement including variants and derivatives thereof up to the value of the XXXXX contribution.

8. Pursuant to section x of the Agreement, XXXXX shall

(a) perform the research and development activities detailed in schedule XXXXX

(b) prepare and submit periodic monitoring, engineering, technical and other reports as the Minister may require at such a time and such a number of copies as the Minister may direct in writing; and;

(c) complete the work on or before the date specified herein

9. Section XXXXX of Schedule XXXXX to the Agreement provides that, the Crown's access to technical information is strictly for XXXXX purposes and for non-commercial non-competitive use.

10. Pursuant to section xx of Schedule XXXXX to the Agreement, title to the following (hereinafter called "the technical information") shall vest in XXXXX

(a) all design, technical reports, photographs, drawings, plans, specifications, models, patterns, samples, materials, data conceived or developed in the performance of the work;

(b) all other property produced or acquired by the recipient in any manner for the performance of the work.

(c) all technical information , inventions, methods, processes conceived or developed in the performance of the work.

11. Section XXXXX of Schedule XXXXX to the Agreement further clarifies that XXXXX shall not sell, assign, or give to any person outside Canada or to any other government any rights to any technical information conceived or developed in the performance of the work...etc., without the prior written consent of XXXXX who may require that the net proceeds resulting from any of the above actions approved by the Minister be shared between the Minister and XXXXX

Ruling Requested

Are funds contributed to XXXXX pursuant the agreement dated XXXXX , 19 xx subject to GST?

Ruling Given

Based upon the facts set out above, we rule that the payments made to XXXXX under the XXXXX pursuant to the agreement dated XXXXX , 19 xx are a grant as set out in TIB-076 and are not consideration for a supply. Therefore, these payments are not subject to GST.

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

Should you have any questions in this regards, please contact the undersigned at (613) 952-9215.

Sincerely,

Fernand Koutsimouka
Government Unit
Public Service Bodies and Government
GST/HST Rulings and Interpretations

HQR149