14 September 2000 External T.I. 2000-0006845 - SR&ED Investment Tax Credits

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:

Whether a transfer of SR&ED expenditure under subsection 127(13) requires that the ownership of the results of the SR&ED be transferred to the transferee.

Position:

The determination of ownership of property arising from SR&ED is a question of fact to be determined on the particular terms of specific agreement between the parties regarding such rights. The agreement described in subsection 127(13) does not attribute any such ownership rights to property arising from SR&ED to any particular taxpayer

Reasons:

Ownership rights to property would normally be determined in accordance with the terms of an agreement and the agreement under which the transfer of SR&ED expenditure is made pursuant to subsections 127(13), (14) and (15) does not provide the terms to that effect.

XXXXXXXXXX 							F. B. Fontaine
								2000-000684
Attention:  XXXXXXXXXX 

September 14, 2000

Dear Sirs:

Re: Subsection 127(13) of the Income Tax Act (the "Act")

This is in reply to your facsimile transmission dated February 8, 2000 in which you asked whether expenditures on scientific research and experimental development ("SR&ED") transferred under subsection 127(13) of the Act requires that the ownership of the results of the SR&ED be transferred to the transferee.

Our comments:

1. The purpose of the SR&ED provisions under section 127 of the Act is to permit an investment tax credit ("ITC") to be claimed in respect of an expenditure incurred on SR&ED that is or deemed to be a "qualified expenditure" of a taxpayer, as the term is defined under subsection 127(9) of the Act.

2. Since an amount incurred by a taxpayer in respect of SR&ED performed by a person not dealing at arm's length with the taxpayer would not be a qualified expenditure of the taxpayer, subsection 127(13) provides for the transfer, under an agreement, of an SR&ED expenditure of the performer (the transferor) to a non-arm's length person (the transferee).

3. For the purposes of section 127, subsection 127(14) of the Act provides that the transferred "amount" which should be identified and related to the qualified expenditure of the transferor be deemed to be the qualified expenditure of the transferee.

4. The agreement described under subsections 127(13), (14) and (15) of the Act relates to the transfer of an amount in respect of an SR&ED expenditure for the purpose of a claim for the ITC by the transferee, to the extent permitted. It is our opinion that ownership rights to property arising from any particular SR&ED activity, including property resulting from a qualified expenditure which was transferred as stated above, are not described in the agreement referred to in subsections 127(13) to (15) of the Act as belonging, or being attributable, to any particular taxpayer. It is our view that such ownership rights would depend on a finding of fact to be determined in accordance with the terms of a specific agreement between the parties in respect thereof.

The above opinions are our best interpretations 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 22 of Information Circular 70-6R3, written opinions are not advanced rulings and, accordingly, are not binding on the Canada Customs and Revenue Agency.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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