19 January 1994 External T.I. 9315595 F - Approved Status

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Application to become an Approved Association

This is in reply to your letter of May 18, 1993 in which you requested approval of the XXXXXXXXXX as an approved third party funding association for the purpose of the scientific research and experimental development ("SR&ED") tax incentives. We apologize for the delay in responding.

Based on the information submitted and our telephone conversation (Fontaine/XXXXXXXXXX) of January 13, 1994, it is our understanding that the Commission's business activities include

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Approved Association

An association, in order to be considered "approved" for the purposes of section 37 of the Income Tax Act (the "Act"), must receive written approval from our Minister.

In order for an organization 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, all the following requirements must be met:

(a)     it must have the facilities and personnel capable of carrying out SR&ED as defined in the Act;

(b)     it must carry on only activities that are unquestionably SR&ED;

(c)     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.;

(d)     the general public must be a beneficiary of the results of any successful research; and

(e)     the funding of the association must be sufficient to ensure ongoing SR&ED.

There is no charge by our Department to approve an association.

However, in order to do so, we would require copies of the following documentation relating to the organization and its activities:

(i)     identification of the legislation under which the association was created;

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

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

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

(v)     financial statements for prior years; and

(vi)     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.

Based on the Commission's overall activities and the extent of the amount spent on research compared with the Commission's total expenditure, it is our view that the Commission would not, at this time, meet the requirements for "approved association" status under clause 37(1)(a)(ii)(A) of the Act and the post-amble thereto by virtue of the information required under (a), (b), (ii) and (vi) above. This clause requires that an approved association must "undertake SR&ED".

Also, additional information would be required under (i), (iii) and (iv) above.

As indicated in your letter, a separate legal entity formed to perform SR&ED is an alternative. Such an entity could be a non-profit corporation that qualifies under paragraph 149(1)(j) of the Act. We would be pleased to provide further information in respect thereof, should you so desire.

Again, we regret that our reply could not be more favourable at this time.

Yours truly,

for Acting DirectorManufacturing Industries, Partnerships and Trusts Division Rulings DirectorateLegislative and Intergovernmental Affairs Branch