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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Clause 37(1)(a)(ii)(B) and paragraph 149(1)(j) of the Income Tax Act (the "Act")
This is in reply to your letter dated October 28, 1993, requesting information to help you determine if the XXXXXXXXXX should seek approval as a research institute (an approved research institute under clause 37(1)(a)(ii)(B) of the Act) or whether it should continue to be considered as a non-profit corporation for scientific research and experimental development under paragraph 149(1)(j) of the Act (a "149(1)(j) corporation").
We would like first to indicate that, for the income tax purposes, the deductibility of payments made by a taxpayer are subject to the same rules whether the payments are made to an approved research institute or to a 149(1)(j) corporation. Therefore, for your clients, there is no difference whether the XXXXXXXXXX is an approved research institute or a 149(1)(j) corporation.
The Act specifies that a 149(1)(j) corporation, for a given period is
"a corporation that was constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development, no part of whose income was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof, that has not acquired control of any other corporation and that, during the period,
(i) did not carry on any business, and
(ii) expended amounts in Canada each of which is
(A) an expenditure on scientific research and experimental development (within the meaning that would be assigned by subsection 37(7) if that subsection were read without reference to paragraph (f) thereof) directly undertaken by or on behalf of the corporation, or
(B) clause 37(1)(a)(ii)(A) or
(C) to be used for scientific research and experimental development, and the aggregate of which is not less than 90% of the corporation's income for the period"
If all the conditions required by paragraph 149(1)(j) of the Act are met, the XXXXXXXXXX is automatically a 149(1)(j) corporation; you do not have to apply for any approval to be a 149(1)(j) corporation.
In your letter, you state that the XXXXXXXXXX has been and always will be a 149(1)(j) corporation. We are of the opinion that the XXXXXXXXXX does not have to seek approval as a scientific research institute under clause 37(1)(a)(ii)(B) of the Act since it is already a 149(1)(j) corporation.
However, if you wish to become an approved research institute under clause 37(1)(a)(ii)(B) of the Act, you must meet and submit the following criteria and documentation:
1. you must have the facilities and personnel capable of carrying out SR&ED;
2. you must carry on only such activities that are unquestionably SR&ED;
3. you must meet the 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.;
4. the general public should benefit from the results of successful research; and
5. the funding of the organization should be sufficient to ensure ongoing research.
6. you must provide us with the organization's charter, by-laws and/or trust articles;
7. you must submit the enabling legislation or statutes, where applicable;
8. you must submit financial statements, if any;
9. you must submit organizational brochures or any literature describing its objectives and activities; and
10. you must submit details of the research activities to be carried out by the organization.
Please note that a corporation may be simultaneously a 149(1)(j) corporation and an approved research institute under 37(1)(a)(ii)(B) of the Act.
We apologize for the delay in responding to your letter.
Yours truly,
for Acting Director
Manufacturing Industries, Partnerships
and Trusts Division Rulings DirectorateLegislative and Intergovernmental Affairs Branch
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