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.
XXX
With respect to the revenue test in paragraph 37(7)(e), and similar tests in Regulation 2901 and 2902, you have asked whether we would consider royalties earned through licensing the results of R&D to be revenues earned from the sale of rights arising out of scientific research. Given that the use of licencing arrangements is the usual way for an R&D performer to sell rights to R&D, it is clearly our policy that such royalties should satisfy the requirements of these provisions ... revenue arising from a licence to use computer software should not be considered revenue from the prosecution of scientific research and experimental development since the commercial reality of such a transaction is the sale of a finished product, not the results of R&D which are then utilized by the licencee in the course of its business.
Our Comments
XXX we now confirm that we accept the interpretation that royalties earned by a taxpayer whose business consists of carrying out SR & ED on its own behalf and then licensing the results on an exclusive or non-exclusive basis to one or more parties to commercially exploit the results should be considered revenue derived from the prosecution of SR & ED for the purpose of the revenue test in paragraph 2902(a) of the Regulations and paragraph 37(7)(e) of the Act. We also agree that revenue arising from a licence to use a commercial computer software program, e.g. WordPerfect, would not normally be considered revenue derived from the prosecution of SR & ED since the licensor of such software, which is in fact a finished product, would have undertaken activities with respect to the software prior to licensing its use which would not qualify as SR & ED activities, such as the commercial production, marketing and distribution of the software.
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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