Income Tax Severed Letters - 2007-02-09

Principal Issues: The income tax treatment of amounts paid from "individual development accounts," which are used by some charities, NPOs and governments to assist needy individuals in acquiring basic needs, such as housing, health care and education, by promoting savings.

Position: Generally, amounts paid in respect of housing and health care would be social assistance payments that, because they are paid as lump-sums, would be excluded from income by virtue of subsection 233(2) of the Regulations. The amounts paid for education would generally be considered scholarships or bursaries and included in income under paragraph 56(1)(n).

Reasons: Based on the facts provided and our previous comments on similar payments.

Principal Issues: 1) Whether the cost of purchasing previously used equipment qualifies as a scientific research and experimental development ("SR&ED") capital expenditure under subparagraph 37(1)(b)(i) of the Act. 2) Whether discarded switches that have no useful life are current or capital expenditures for SR&ED.

Position: 1) Yes. 2) Question of fact.

Reasons: 1) There is no requirement in paragraph 37(1)(b) that the capital expenditure be in relation to new property. 2) See paragraph 9 of IT-151R5.