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:
1. Where the Canadian taxpayer directly undertakes the SR&ED will payments to a non-taxable supplier for SR&ED expenditures come under the exclusion in par. 127(9)(g) of the definition "qualified expenditures".
Position: 1.No.
Reasons:
1.Exception to the exclusion is only in respect of materials that are acquired from the non taxable supplier for SR&ED undertaken directly by taxpayer. Exception does not include labour or other expenses such as travel costs of non-resident.
1999-001143
XXXXXXXXXX S. Tevlin
(613) 957-2093
Attention: XXXXXXXXXX
October 13, 2000
Dear Sirs:
Re: Scientific Research and Experimental Development ("SR&ED")
We are writing in response to your letter dated September 13, 1999 wherein you requested our opinion with respect to the following.
A taxable Canadian resident corporation undertakes SR&ED activities in Canada.
The corporation enters into a contract with an individual resident in the United States whereby the individual provides technical assistance to the corporation in resolving issues relating to the SR&ED. The activities of the non-resident consist of research and specific routine engineering tasks necessary to support the SR&ED carried out in Canada.
(i) In the first situation the activities are carried out by the US resident and are performed in Canada.
(ii) The second situation, same as (i), except that the activities of the US resident are carried out exclusively in the US.
The US resident is not a taxable supplier as defined in subsection 127(9) of the Income Tax Act (the "Act").
Issues:
1. Would fees paid in (i) and (ii) to the US resident meet the exception in paragraph (g) of the definition of "qualified expenditure" in subsection 127(9) of the Act "...other than an expenditure in respect of scientific research and experimental development directly undertaken by the taxpayer...", such that the payments to the US resident non-taxable supplier would be qualified expenditures?
2. Would the travel costs to the US resident also be qualified expenditures?
The definition of "qualified expenditure" was amended in 1998 and applicable for years after 1995. The technical notes for those amendments state "the definition is further amended by moving the exception to the exclusion from "qualified expenditure" contained in paragraph (g) to the end of the paragraph, to clarify that an expenditure described in the first part of that paragraph, which is an expenditure on SR&ED directly undertaken by the taxpayer, is not excluded as a qualified expenditure."
Generally, paragraph (g) will apply to arm's length SR&ED contract situations. If the SR&ED contract expenditure is paid for the benefit of a non-taxable supplier then it will not qualify for ITC purposes.
Therefore, expenditures, for example, in respect of labour supplied by a person who is not a taxable supplier or for other expenses of the non resident such as travel costs would not be qualified expenditures. However, for purposes of the exception to the exclusion from "qualified expenditure" in paragraph 127(9)(g) of the Act, expenditures paid or payable by the taxpayer to or for the benefit of a person or partnership that is not a taxable supplier will include expenditures in respect of materials acquired for SR&ED directly undertaken by the taxpayer in Canada.
The forgoing comments are given in accordance with the practice referred to in paragraph 21 of IC-70-6R3, and are not binding on the Canada Customs and Revenue Agency.
We trust our comments will be of assistance to you.
Yours truly,
Marc Vanasse
for Director
Resources, Partnerships and Trusts Division
Income tax Rulings Directorate
Policy and Legislation Branch
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