18 October 1990 Ministerial Correspondence 901354 F - SR&ED Approved Entity

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.

October 18, 1990

Dear Sirs:

We are writing in response to your letter of June 19, 1990 in which you requested information regarding the documentation required, and the criteria which must be satisfied, in order to become an approved association or other approved organization as referred to in subparagraph 37(1)(a)(ii) of the Income Tax Act (the "Act").

Our Comments

Subparagraph 37(1)(a)(ii) provides for three types of entities to be approved by the Minister of National Revenue, Taxation: under clause A, associations that undertake scientific research and experimental development ("SR&ED"); under clause B, universities, colleges, research institutes and other similar institutions; and under clause E, organizations that make payments to associations, institutions or corporations referred to in clauses A to C of the subparagraph.

At the time clause E was added to the Act, it was noted that this provision was intended to apply to three specific councils, namely the Natural Sciences and Engineering Research Council, the Medical Research Council and the Social Sciences and Humanities Research Council. It is not anticipated that other organizations will be approved under clause E.

In order to be approved under either clause A or B of subparagraph 37(1)(a)(ii), an entity must meet the criteria of a non-profit organization and be able to demonstrate that it is able to carry out SR&ED. Those criteria are as follows:

i)     it will have the facilities and personnel capable of carrying out SR&ED;

ii)     the funding of the organization will be sufficient to ensure continued SR&ED;

iii)     it will carry on only activities that are unquestionably SR&ED;

iv)     the general public will be a beneficiary of the results of successful SR&ED; and

v)     it will satisfy the typical requirements for non-profit status, such as no personal benefit to members, no control of other associations, satisfactory provisions for distribution of assets on dissolution, etc.

A letter of application by the entity to obtain approved status should contain the following information:

(a)     identification of the legislation under which the entity is to be created;

(b)     a description of the objects of the organization and the principal provisions of the organization's articles and by-laws. The description should contain statements which clearly demonstrate that the organization will satisfy all requirements of the relevant provisions of the Act (such as those stated in the post-amble of subparagraph 37(1)(a)(ii), which are requirements which funders must meet in order for their payments to be considered as SR&ED expenditures) and should describe how property will be distributed in the event of windup;

(c)     a description of the entity's arrangements for funding;

(d)     a description of the entity's arrangements for disbursing moneys; and

(e)     a description of the entity's staffing and planned activities.

Supporting documents such as the organization's articles and by-laws should be submitted.

We trust that these comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch