5 May 1995 External T.I. 9421985 - NON-PROFIT CORPORATION FOR SR&DE

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 note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether to seek for an approved research institute or a non-profit corporation for scientific research and experimental development under paragraph 149(1)(j) of the Act.

Position TAKEN:

Criteria are outlined

Reasons FOR POSITION TAKEN:

CCM # 5-933217, 3-932628 and 5-920441

XXXXXXXXXX 5-942198

Attention: XXXXXXXXXX

May 5, 1995

Dear Sirs:

Re: XXXXXXXXXX

Further to our telephone conversation (Desparois/XXXXXXXXXX) of May 1, 1995, we are providing information to outline the tax differences between an approved research institute under clause 37(1)(a)(ii)(B) of the Income Tax Act (the "Act") and a non-profit corporation for scientific research and experimental development under paragraph 149(1)(j) of the Act (a "149(1)(j) corporation").

OUR COMMENTS

Paragraph 149(1)(j) of the Act states:

"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 37(8)(d)) directly undertaken by or on behalf of the corporation, or

(B)a payment to an association, university, college or research institute or other similar institution, described in clause 37(1)(a)(ii)(A) or (B) 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"

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 once the corporation's income tax return for a particular fiscal period is filed and the activities of the corporation are reviewed by the tax services office. There is no requirement that a 149(1)(j) corporation be approved by this Department. As a result, if all the requirements of paragraph 149(1)(j) of the Act are met, the Centre will thus qualify as a 149(1)(j) corporation for a given period.

This Directorate does not provide any specific comments concerning the tax status of an existing corporation however, we can provide an advance income tax ruling, for which there is a charge, confirming that a particular corporation to be incorporated will be "constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development" for purposes of the preamble to paragraph 149(1)(j) of the Act. In order to do so, we require the following:

1.a $481.50 deposit and the information described in paragraph 15 of Information Circular 70-6R2 dated September 21, 1990 as amended by the Special Release dated September 30, 1992;

2.a copy of the proposed articles of incorporation and by-laws, which should indicate that:

(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 scientific research and experimental development; and

(e)the amounts to be expended in Canada on scientific research and experimental development 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 funds to be received and the screening process to determine how these funds are to be spent on expenditures which qualify as scientific research and experimental development;

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 scientific research and experimental development purposes;

6.a description of the corporation's scientific research and experimental development 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 scientific research and experimental development.

However, if the Centre wishes to become an approved research institute under clause 37(1)(a)(ii)(B) of the Act, the Centre must meet the criteria listed in our letter to you dated December 4, 1994. There is no charge by this Department to "approve" an association as an approved research institute under 37(1)(a)(ii)(B) of the Act.

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.

Paragraph 37(1)(a) provides, inter alia, that a taxpayer may deduct (subject to certain conditions and requirements) an amount, which is an expenditure of a current nature, paid to either an approved research institute or a 149(1)(j) corporation.

Since you have not decided whether the Centre should seek approval for a research institute under clause 37(1)(a)(ii)(B) of the Act or incorporate to qualify as a 149(1)(j) corporation, we are closing our file number 5-942198 concerning your request. As we discussed, we would be pleased to open a new file once you choose a definitive course of action in this matter.

Should you require additional information on any of the foregoing comments, please contact Johanne Desparois or the undersigned. We trust these comments will be of assistance.

Yours truly,

Marc Vanasse
Acting Section Chief
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislative Branch