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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether a Canadian corporation ("Canco") will be considered to have incurred SR&ED expenditures by providing services described in paragraph (d) of the SR&ED definition in subsection 248(1) of the Act.
Position: Those services described in paragraph (d) of the SR&ED definition in subsection 248(1) of the Act performed by Canco would be considered as SR&ED only to the extent that they directly support activities described in paragraphs (a), (b) or (c) of the SR&ED definition in subsection 248(1) of the Act undertaken in Canada by or on behalf of Canco.
Reasons: Wording of the Act.
XXXXXXXXXX 2003-003752
Shaun Harkin, CMA
November 21, 2003
Re: Technical Interpretation Request: SR&ED
This is in reply to your letter of September 2, 2003 wherein you requested our views as to whether a Canadian corporation ("Canco") will be considered to have incurred scientific research and experimental development ("SR&ED") expenditures, where Canco provides:
? services described under paragraph (d) of the definition of SR&ED in subsection 248(1) of the Income Tax Act (the "Act") (hereafter collectively referred to as "Linked Activities") to a non-resident corporation ("Foreignco"), in support of activities described in paragraphs (a), (b) or (c) of the definition (hereafter collectively referred to as "Primary Research Activities") carried on outside Canada by Foreignco, and
? minimal Primary Research Activities to Foreignco.
Written confirmation of the tax consequences inherent in a particular transaction or series of transactions are given by this Directorate only where the transaction(s) are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5. Notwithstanding the foregoing, we are prepared to provide the following comments.
With respect to the Linked Activities described above, by virtue of the words in paragraph (d) of the definition of SR&ED in subsection 248(1) of the Act which read "....where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b) or (c) that is undertaken in Canada by or on behalf of the taxpayer", those Linked Activities performed by Canco would be considered as SR&ED only to the extent that they directly support the Primary Research Activities undertaken by Canco in Canada. The underlining is for emphasis.
The SR&ED definition does not exclude Primary Research Activities performed for a non-resident. Accordingly, the minimal Primary Research Activities described above, performed by Canco, would be considered as SR&ED. However, those Primary Research Activities performed by Canco would probably not be deductible under subsection 37(1) of the Act as it appears that Canco would not satisfy the "related to a business of the taxpayer" requirement in subparagraph 37(1)(a)(i) of the Act.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this disclaimer in all instances in which we provide an opinion.
We trust our comments will be of assistance to you.
Yours truly,
Daryl Boychuk, LL.B
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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