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.
5-911490 24(1)
19(1)
Dear Sirs:
Re: Nova Scotia Research and Development (R&D) Tax Credit - Ontario R&D Super Allowance
We are writing in reply to your letter of June 3, 1991 in which you requested a technical interpretation as to why the Nova Scotia R&D Tax Credit is considered to be government assistance for the purpose of paragraph 12(1)(x) of the Income Tax Act (the "Act") while the Ontario R&D Super Allowance is not. You also query whether the Ontario R&D Super Allowance is treated differently than the Nova Scotia R&D Tax Credit with respect to the Investment Tax Credit, including subsection 127(11.1) of the Act, and Scientific Research and Experimental Development ("SR & ED"), including paragraph 37(1)(d) of the Act.
The Ontario Budget of April 20, 1988 introduced the R&D Super Allowance for current and capital expenditures made on R&D in Ontario. The Super Allowance is a deduction in calculating taxable income, set at 35% for small businesses and 25% for other corporations. The Super Allowance also contains an additional deduction for incremental R&D expenditures which exceed the average over the three preceding years. The Super Allowance is provided in addition to the 100% provincial deduction for qualifying R&D expenditures.
The applicable words in paragraph 12(1)(x) are "any amount... received by the taxpayer in the year...(iv) as a reimbursement, contribution, allowance or a assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of the cost of property or in respect of an expense..." In our view, a tax credit claimed in the year such as the Nova Scotia R&D Tax Credit is an "amount...received...as a deduction from tax..."
However, in our view, a deduction in calculating taxable income such as the Ontario R&D Super Allowance, does not fall within the purview of subparagraph 12(1)(x)(iv). Nor would any related provincial tax savings which may result from the deduction.
The definition of government assistance in subsection 127(9) of the Act is applicable for the purposes of subsection 127(11.1) and paragraph 37(1)(d) of the Act. From subsection 127(9) of the Act, "government assistance" means assistance from a government, municipality or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than as a deduction under subsection (5) or (6)". In our view, an expenditure made which would be eligible for a tax credit such as the Nova Scotia R&D Tax Credit would qualify as government assistance which a taxpayer "is entitled to receive or can reasonably be expected to receive" for purposes of subsection 127(11.1) and paragraph 37(1)(d) of the Act. However, in our view, neither a deduction in calculating income such as the Ontario R&D Super Allowance nor the related provincial tax savings would fall within the purview of the definition of "government assistance".
We trust that these comments will be of assistance.
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch
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