9 June 2006 External T.I. 2006-0168111E5 - Approved Organization

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: Whether the XXXXXXXXXX can be designated as an "approved organization" pursuant to clause 37(1)(a)(ii)(E) of the Income Tax Act.

Position: No.

Reasons: Approval under this clause is intended to be restricted to the three granting councils which were specifically mentioned in the February 26, 1986 Budget Papers, i.e. the Natural Sciences and Engineering Research Council, the Medical Research Council, and the Social Sciences and Humanities Research Council.

							2006-016811
XXXXXXXXXX 						Charles Rafuse
							613-957-8967
June 9, 2006

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter of May 12, 2006 and our telephone conversation (XXXXXXXXXX/Rafuse) regarding your request that the XXXXXXXXXX be designated as an "approved organization" pursuant to clause 37(1)(a)(ii)(E) of the Income Tax Act (the "Act").

XXXXXXXXXX is a registered charitable organization that raises and distributes funds for basic and applied research to researchers XXXXXXXXXX raises funds by soliciting contributions from individuals, corporations and foundations as well as generating fees and sales through knowledge transfer workshops and handbooks aimed at educating selected segments of the general public.

We regret that we are unable to comply with your request that the XXXXXXXXXX be recognized as an approved organization described in clause 37(1)(a)(ii)(E) of the Act. Approval under this clause is intended to be restricted to the three granting councils which were specifically mentioned in the February 26, 1986 Budget Papers, i.e., the Natural Sciences and Engineering Research Council, the Medical Research Council, and the Social Sciences and Humanities Research Council, as these three councils are directly funded by the federal government. The Canada Revenue Agency considers that any organization approved under this clause should be funded in a similar manner.

Payments made to an organization that does not conduct its own research or that has research conducted on its behalf may be eligible for the scientific research and experimental development ("SR&ED") deduction, if, among other things, the organization qualifies under clause 37(1)(a)(ii)(C) of the Act as a corporation resident in Canada which is a non-profit corporation for scientific research and experimental development within the meaning of paragraph 149(1)(j) of the Act. In general terms, paragraph 149(1)(j) of the Act exempts from tax a corporation that was constituted exclusively for the purpose of carrying on or promoting SR&ED provided it meets certain specified conditions, including all of the following:

1. The corporation's activities must be carried on without the purpose of gain for its members and any profits or other accretions shall be used in promoting its objects.

2. No part of the income may be payable to or otherwise available for the personal benefit of any member thereof.

3. The directors and members including any director or member who also serves as an officer, shall serve in that capacity without remuneration. No director, member or officer shall directly or indirectly receive any profit from his/her position as director, member or officer. However, a director or officer may be reimbursed for reasonable expenses incurred by him/her in the performance of his/her duties.

4. The corporation must not acquire control of any other corporation nor will it carry on any business as that term is used in the Act.

5. The objects of the corporation must be to exclusively carry on and/or promote SR&ED. The SR&ED activity may be directly undertaken by or on behalf of the corporation or by an approved association, university, college, or research institute or other similar institution as described in clause 37(1)(a)(ii)(A) or (B) of the Act.

6. The amounts to be expended in Canada on SR&ED must not be less than 90% of the amount equal to the corporation's gross revenue for the period minus any penalties and interest payable for failing to file an information return as required by subsection 149(7.1) of the Act.

There is no requirement that a paragraph 149(1)(j) corporation be approved, in advance, by the Canada Revenue Agency. The determination of whether a corporation will qualify under paragraph 149(1)(j) of the Act is a question of fact which can only be made once the corporation's income tax return for a particular fiscal period is filed and the activities of the corporation for that particular year are reviewed by the tax services office.

We trust this information is helpful.

Yours truly,

S. Parnanzone
Manager
Business Incentives and Capital Transactions Section
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch