24 November 2004 External T.I. 2004-0082021E5 - Research Expenses

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.

Principal Issues: Are certain expenses deductible as research expenses if a temporary base is established overseas?

Position: If a temporary base has been established overseas amounts paid for meals and lodging in that place are considered personal expenses and are not deductible as research expenses.

Reasons: IT-75R4 and meaning of sojourning.

XXXXXXXXXX 2004-008202
Shaun Harkin, CMA
November 24, 2004

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Research Expenses

We are writing in reply to your email of June 18, 2004 wherein you ask whether certain expenses would be considered research expenses.

You explain that you have received a research grant from the XXXXXXXXXX to do research on XXXXXXXXXX. The research requires you to travel to New Zealand for eight weeks this year and another eight weeks next year to conduct your research. The research grant is meant to cover your travel costs, living expenses, and honoraria for research interviewees. Specifically you ask whether the following expenses incurred in New Zealand would be considered research expenses:

? Rental of a room in a home for 5-6 weeks (You note that you will maintain your home in XXXXXXXXXX and all your furnishings will remain there during this time.)
? Food
? Rental of a car
? Fuel for the car
? Honoraria for research interviewees

Our Comments

Research grants are required to be included in income under paragraph 56(1)(o) of the Income Tax Act (the "Act"), to the extent that the grant exceeds the total of the allowable expenses incurred by the taxpayer in the year for the purpose of carrying out the research. In this context, allowable research expenses do not include personal and living expenses of the taxpayer, other than travelling expenses incurred by the taxpayer while away from home in the course of carrying on the work, including amounts spent for meals and lodging.

It is our view that if you establish a temporary base in a place other than your home, then you may be considered to be temporarily residing in that place (sojourning) rather than travelling. In this case, amounts paid for meals and lodging in that place would be considered to be personal or living expenses rather than travelling expenses and would thus not be deductible as research expenses. Whether you are travelling or sojourning is a factual determination which can only be made after considering factors such as the type of accommodation, the length of stay, the existence of a permanent home elsewhere and the location of the taxpayer's family.

In our view, the amounts paid for the rental of a room in a home and the food at that location would likely not be deductible as research expenses because the home would probably be considered your temporary residence. On the other hand, it is likely that the travelling expenses, including amounts paid for the rental of a car, fuel for the car and food, that were incurred in the course of travelling from your temporary residence to points where your fact finding occurred, would be deductible as research expenses. In addition, the honoraria for research interviewees would also be deductible as research expenses.

While paragraph 56(1)(o) provides that, in order for research expenses to be deductible from the grant, the research expenses must be incurred in the same year in which the research grant is received, in some cases expenses incurred in the immediately preceding or following year may also be deductible against the grant. While those expenses cannot be deducted in the year in which they are incurred, they are considered to be deductible in the year in which the grant is received. Research expenses incurred more than one year before, or more than one year after, the year in which the grant is received are not deductible from that grant.

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 Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

We trust our comments will be of some assistance.

Yours truly,

Wayne Antle, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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