The research institute, at the time it was granted "approved" status" under subsection 37(7) of the Act, had submitted that the potential receipt of royalties from patents, etc. would be minimal. However, based on commercial agreements entered into by it for the sale or license of certain rights, the institute will realize a greater amount of fees and royalties than previously anticipated.
The institute had also received status as a registered charity under paragraph 149(1)(f)..
The institute is concerned whether its non-research activities may be a "business", as defined under subsection 248(1) of the Act which it contends is not a requirement under the Act for the purpose of granting "approved status" to an entity, and whether the receipt of revenue from such activities could jeopardize its status as an "approved" research institute and also its status as a registered charity.
The conditions for granting "approved" status require that the entity be a non-profit organization and that its activities are unquestionably SR&ED. In accordance with the definition of "business" which includes "an undertaking of any kind whatever", any other non-SR&ED activity would technically be a business. Carrying out such other activity produces the risk that the institute's non-profit activities, for a particular period, becoming incidental to its revenue-earning activities which would result in the loss of its non-profit status and "approved" status.
Generally, a non-profit organization may earn income from income-generating activities and maintain its exempt status provided that the income-generating activity is not the principal activity and any resulting income therefrom is used to achieve the institute's declared exempt objectives.
Determination that a particular activity is an entity's principal activity and that it complies with the charitable purpose of a charitable organization are questions of fact which can only be determined retrospectively by the TSO and the Charities Division, respectively.