28 June 1991 External T.I. 910750 F - Non-profit Corporation for SR&ED

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.

19(1)

Dear Sirs:

We are writing in reply to the letter of March 14, 1991 from the   24(1)        and further to our telephone conversation    19(1)      Bowen) of June 14, wherein you requested that we indicate the requirements to be met in order for an organization 1) to become an "approved association" referred to in clause 37(1)(a)(ii)(A) of the Income Tax Act (the "Act") and 2) to obtain an advance income tax ruling for a non-profit corporation for scientific research and experimental development ("SR & ED") under paragraph 149(1)(j) of the Act.

Approved Association

In order for any organization, whether in existence or proposed to be created, to become an "approved association", it must meet the criteria of a non-profit organization and be able to demonstrate that it is able to carry out SR & ED on an ongoing basis. More specifically, the requirements are as follows:

1.     it must have the facilities and personnel capable of carrying out SR & ED as defined in the Act;

2.     it must carry on only activities that are unquestionably SR & ED;

3.     it must satisfy the requirements for non-profit status, such as no personal benefit to members, no control of other associations, satisfactory provisions for distribution of assets upon dissolution, etc.;

4.     the general public must be a beneficiary of the results of successful research; and

5.     the funding of the association must be sufficient to ensure ongoing SR & ED.

     Although there is no charge by our Department to approve an association, in order to do so we require copies of the following documentation relating to the organization and its activities:

a)     identification of the legislation under which the association was or is to be created;

b)     copies of the organization's charter, code of ethics and by-laws which should indicate that it will satisfy all requirements in clause 37(1)(a)(ii)(A) of the Act and its post-amble, as well as how its property will be distributed in the event of wind-up;

(c)       a description of the association's arrangements for obtaining funds;

(d)       a description of the association's arrangements for disbursing funds;

(e)       financial statements for prior years if the association already exists; and

(f)       details of the research activities to be carried out by the association in the future and evidence that it has the staff and facilities to carry out such activities.

Non-Profit corporation for SR & ED

The determination of whether a corporation will qualify under paragraph 149(1)(j) of the Act is a question of fact which can only be made following the review of the activities of the corporation for the fiscal period for which it is seeking tax exemption status and is dependant upon the corporation satisfying all the conditions contained in that paragraph.  The responsibility for such determination belongs to the District Taxation Office.

While Rulings Directorate can not provide any specific comments concerning the tax status of an existing corporation, we can provide an advance income tax ruling confirming that a particular corporation to be incorporated will be "constituted exclusively for the purpose of carrying on or promoting SR & ED". In order to do so, we require the following information:

1.     the information and deposit described in paragraphs 15(a) to 15(g) of Information Circular 70-6R2 dated September 21, 1990;

2.     a copy of the proposed articles of incorporation and by-laws, which should include the following information:

     a)   the corporation will be carried on without the purpose of gain for its members and any profits or other accretions shall be used in promoting its objects and no part of the income may be payable to or otherwise available for the personal benefit of any member thereof;

     b)   the directors and members and those directors and members who also serve as officers shall serve as directors, members and officers without remuneration and no director, member or officer shall directly or indirectly receive any profit from his/her position as director, member or officer provided that a director or officer may be paid for reasonable expenses incurred by him/her in the performance of his/her duties;

     c)   the corporation will not acquire control of any other corporation nor will it carry on any business as that term is defined in the Act;

     d)   the objects of the corporation are to exclusively carry on or promote SR & ED; and

     e)   the amounts to be expended in Canada on SR & ED will not be less than 90% of the corporation's income for the period.

3.     a detailed description of the corporation's arrangements for obtaining funds;

4.     a detailed description of the corporation's arrangements for disbursing the funds received and the screening process to determine that the funds are to be spent on expenditures which qualify as SR & ED;

5.     a description of the follow-up procedure, if any, to be undertaken to ensure that the payments made to organizations listed in clause 149(1)(j)(ii)(B) of the Act are used for SR & ED purposes;

6.     a description of the corporation's SR & ED activities currently planned to be undertaken or funded;

7.     the name and address of the entity which is planning to incorporate the corporation and any proposed interaction between the two entities; and

8.     the arrangements to be entered into in order to ensure that the contributors of funds to the corporation will be entitled to exploit the results of the SR & ED.

In view of the fact the request to have    24(1)      approved as an "approved association" has been withdrawn, we are returning the documents submitted by      24(1)    in their letter of March 14.

We trust these comments will be of assistance.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

Encl.