14 September 1995 External T.I. 9520465 - SR&ED 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.

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.

XXXXXXXXXX 952046

Attention: XXXXXXXXXX

September 14, 1995

Dear Sirs:

Re: Application for Approved Research Organization

This is in reply to your letter addressed to our Charlottetown Tax Services Office concerning whether any contribution made by a corporation to
XXXXXXXXXX

would be eligible for scientific research and development ("SR&ED") tax incentives. You forwarded letters patent, by-laws and certain other information which state, among other things, that the objects and purposes of XXXXXXXXXX are to administer funds and implement programs that promote short-term research among universities and the public and private sectors, etc.

Our Comments

Pursuant to clauses 37(1)(a)(ii)(A) to (D) of the Income Tax Act ("the Act"), a taxpayer can qualify for the SR&ED tax incentives by making a payment to any one of the following entities which carry on SR&ED activities in Canada:

(A)an approved association;

(B)an approved university, college, research institute or other similar institution;

(C)a corporation resident in Canada and exempt from tax under paragraph 149(1)(j) of the Act; or

(D)a corporation resident in Canada.

All entities listed in clauses (A) and (B) above, other than Canadian universities and affiliated colleges, must receive written approval from our Minister, through this Department, in order to be considered "approved" for the purposes of subsection 37(7) of the Act.

The requirements to be satisfied by each of the above classes of entities are as indicated below.

1.Approved Association or Approved Research Institute

To be considered "approved", an association or research institute ("association") must meet all the following requirements:

(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)in order to satisfy the requirements for non-profit status; there must be no personal benefit to members, no control of other associations, satisfactory provisions for the 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.

In order that an association be granted "approved status", normally, we would require, in addition to the information submitted, copies of the following documentation relating to the association and its activities:

(i)copies of the association's charter, code of ethics, letters patent or by-laws indicating that the association does satisfy all requirements in clauses 37(1)(a)(ii)(A) and (B) of the Act and the post-amble thereto, as well as how its property will be distributed in the event of a wind-up;

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

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

(iv)financial statements for prior years (if any); and

(v)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.

2.Paragraph 149(1)(j) Corporation

For the purpose of paragraph 149(1)(j) of the Act, the following criteria must be met by a corporation so that it may be considered a non-profit corporation for SR&ED in a particular fiscal period:

(a)the corporation's activities must be carried on without the purpose of gain for its members and any profits or other accretions shall be used in promoting its objects. 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 including any director or member who also serve as an officer, shall serve in that capacity without remuneration. No director, member or officer shall directly or indirectly receive any profit from his/her position as director, member or officer; however it is permitted that a director or officer may be reimbursed for reasonable expenses incurred by him/her in the performance of his/her duties;

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

(d)the objects of the corporation must be to exclusively carry on and/or promote SR&ED. The SR&ED activity may be directly undertaken by or on behalf of the corporation or by an entity described in clause 37(1)(a)(ii)(A) or (B) of the Act; and

(e)the amounts to be expended in Canada on SR&ED must not be 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 and can only be made by the District Tax Services Office once the corporation's income tax return for a particular fiscal period is filed and the activities of the corporation are reviewed.

3.Corporations Resident in Canada

No prior approval is required from our Department for this type of entity. In order for this requirement to be satisfied, a corporation must simply be resident in Canada. However, the corporation must be able to carry on SR&ED on an ongoing basis.

In all cases, it must be established that the SR&ED carried on must be related to the business of the taxpayer making the payment and the taxpayer must also be entitled to exploit the results of the SR&ED.

Based on the above comments and the information supplied to us, it is our view that XXXXXXXXXX would not meet the requirements described in clauses 37(1)(a)(ii)(A) to (D) of the Act for the following reasons; accordingly, any funding made by a taxpayer to XXXXXXXXXX would not be eligible for the SR&ED tax incentives.

XXXXXXXXXX

As you will appreciate, for the purpose of considering whether XXXXXXXXXX would qualify as an "approved association", it must meet the requirements described in paragraph 1 above and, in addition, certain sections of the by-laws, as indicated in (I) above, would need to be amended.

We would be pleased to provide any further information that you may require.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch