19 November 1990 Ruling 90M12293 F - SR & ED Capital Assets

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.

Please deliver immediately. Proposed changes to R&D answers form TEI questions. Changes were faxed to Ron Gingras in R: Roy's Office at the same time.

TF881 Rev. 90

Q.1 Regarding salaries and wages that would account for most of the accounting cost in your example, the requirement in paragraph 2900(2)(b) that an employee directly support the prosecution of the SR & ED is not met as the employee is not directly involved in the prosecution of the SR & ED. In such a case, the employee indirectly supports the SR & ED activities.

Insert after the words "stated  intention" on page 6 of tax.

Q.3 In order for a taxpayer to substantially his stated intention with respect to a capital expenditure, the taxpayer's actual course of conduct should not contradict to stated intention.

21(1)(b)            21(1)(a)

QUESTION #3

SR & ED Capital Assets

Interpretation Bulletin IT-151R3 indicates that SR & ED capital assets will not qualify for immediate write-off or investment tax credits unless that asset is "used at least 90% of the time throughout the expected useful life of the asset for SR & ED in Canada". This limitation poses significant administrative questions in respect of assets whose useful life is considerably longer than the proposed four year reassessment period. Would Revenue consider the expenditure to qualify based on a review of the taxpayer's intent at the time of acquiring the asset?

RESPONSE

Paragraph 21 of Interpretation Bulletin, IT-151R3 states that the "all or substantially all" test will usually be determined at the time a particular expenditure is made. Thus, the Department recognizes that the taxpayers intent at the time of acquiring the asset is determinative. Since this purpose test that has to be met by the taxpayer is not restricted to any particular taxation year, the apartment considers it necessary to look to the intended use of the asset over its anticipated useful life which may or may not exceed the current three-year statutory period for making a reassessment.

In determining a taxpayer's original intention at the time of making a capital expenditure, the Department expects the taxpayer to provide evidence in support of a stated intention. In order for a taxpayer to substantiate his stated intention with respect to a capital expenditure, the taxpayer's actual course of conduct should not contradict his stated intention in many cases, non-SR & ED use made of an asset, after its initial use for SR & ED purposes, casts doubt on a taxpayer's alleged intention at the time the expenditure was made.