18 May 1983 Income Tax Severed Letter 3-3610 - [Advance Ruling Request]

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.

XXXX T. Harris (613) 995-1723

May 18, 1983

Dear Sirs:

Re: Advance Ruling Request XXXXXXXX

This is in response to your letters dated January 4 and February 7, 1983 wherein you requested an advance income tax ruling with respect to the proposed development of the XXXX (the 'System') to the undertaken by on behalf of XXXX

During your telephone conversation of May 16, 1983 with Mr. Ted Harris of this Department, you advised that the development of the System was already underway and was nearing completion. Consequently, pursuant to paragraph 6 of Information Circular 70-6R, we are unable to further consider your request for an advance income tax ruling, since the transaction in question is not a proposed transaction. The determination of whether or not XXXX payments to XXXX with respect to the development of the system are deductible in computing XXXX income under subparagraph 37(1) (a) (i) of the Income Tax Act , as expenditures of a current nature on scientific research which is related to XXXX business and is directly undertaken by or on behalf of XXXX is now the responsibility of the District Taxation Office in which XXXX files his income tax return. Therefore, any future correspondence on this issue should be forwarded to the relevant District Office for consideration.

Since we have already received advice from another government department that the activities relating to the development of the System do not constitute scientific research as defined in section 2900 of the Income Tax Regulations, a summary of their comments follows: Our advisors' opinion was based on the following factors:

a) XXXX proposes to use currently available software packages with some customizing to meet specific application requirements;

b) the hardware related activity as described consists of packaging existing equipment, with an end product equivalent to many existing microcomputer systems; and

c) the preparation of training courses and manuals is identified as a market related activity with no indication of the application of new technology.

The above factors indicate that the development activity is not scientific research in accordance with paragraph 8 of Interpretation Bulletin IT-439 which states that "where a taxpayer merely duplicates another person's product or process, the scientific research (i.e. systematic investigation) carried out will probably be minimal and will be considered routine testing which is an excluded activity by virtue of 2900(e)".

Since we are unable to provide you with the rulings requested, the deposit of $250 submitted with your letter of February 7, 1983 will be refunded under separate cover.

Yours truly,

Original signed by Original signé par

R.E. THOMPSON

for Director General Corporate Rulings Directorate Legislation Branch