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.
Principal Issues: "Approved" status requested by the XXXXXXXXXX , where the XXXXXXXXXX , a previously approved research institute for scientific research & experimental development (SR&ED), was transferred in whole to XXXXXXXXXX .
Position: Approval denied.
Reasons: From a review of the documents submitted we have noted that XXXXXXXXXX can acquire a subsidiary corporation, does not have a satisfactory provision for the distribution of assets upon dissolution, will carry on activities other than SR&ED such as giving awards and scholarships and has been making honoraria payments to board members. Accordingly, it is our view that XXXXXXXXXX does not meet the requirements for "approved" status under clauses 37(1)(a)(ii)(A) and (B) as set out in Application Policy SR&ED 96-10.
XXXXXXXXXX
2010-037167
Charles Rafuse
613-247-9237
September 27, 2010
Dear XXXXXXXXXX :
Re: Approved Research Institute
This is in response to your letters of June 3 and August 19, 2010 and our telephone conversations (XXXXXXXXXX /Rafuse, XXXXXXXXXX /Rafuse), in which you requested that the XXXXXXXXXX be designated an "approved research institute" for the purposes of clause 37(1)(a)(ii)(B) of the Income Tax Act (the "Act").
You have indicated that the XXXXXXXXXX was an approved research institute for the purposes of scientific research and experimental development (SR&ED) and was transferred in whole to XXXXXXXXXX . Accordingly, you have requested that the approved status of XXXXXXXXXX be transferred to XXXXXXXXXX and submitted the following documents for review:
- A copy of the XXXXXXXXXX which shows how XXXXXXXXXX was established.
- A copy of the Ministerial Transfer Order XXXXXXXXXX .
- A copy of XXXXXXXXXX financial statements for the year ended XXXXXXXXXX .
- A copy of XXXXXXXXXX interim Bylaws.
To become "approved", an organization must (i) meet the criteria of a non-profit organization and (ii) be able to demonstrate that it is able to carry out SR&ED in Canada on an ongoing basis. More specifically, the organization must also meet all the following requirements:
(a) The organization must have the facilities, equipment 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) The general public must be a beneficiary of the results of any successful research.
(d) The funding of the organization must be sufficient to ensure ongoing SR&ED.
(e) In order to satisfy the requirements for non-profit status, there must be (i) no personal benefit to members, (ii) no control of other organizations, and (iii) satisfactory provisions for the distribution of assets upon dissolution of the organization.
The above requirements are set out in Application Policy SR&ED 96-10, Third Party Payments - Approval Process, which is available on the CRA website at www.cra-arc.gc.ca.
After reviewing the documents you submitted we have noted the following:
- At paragraph XXXXXXXXXX in the XXXXXXXXXX to the XXXXXXXXXX it is indicated that a corporation shall not acquire shares unless the shares are acquired in the incorporation or acquisition of a subsidiary corporation. This appears to be in conflict with requirement (e) above which indicates that the corporation must not acquire control of any other organization.
- At Paragraph XXXXXXXXXX of the XXXXXXXXXX it is indicated that the Lieutenant Governor in Council may by order dissolve or liquidate any of the corporations including setting out the manner is which it is carried out. This appears to be in conflict with requirement (e) above regarding satisfactory provision for the distribution of assets upon dissolution.
- At Paragraph XXXXXXXXXX of XXXXXXXXXX of the Ministerial Order XXXXXXXXXX it is indicated that XXXXXXXXXX will assume duties including XXXXXXXXXX . This indicates that XXXXXXXXXX will be carrying on activities other than SR&ED and you confirmed that XXXXXXXXXX will be giving out scholarships and awards but this will be gradually phased out. This appears to be in conflict with requirement (b) above.
- XXXXXXXXXX of the XXXXXXXXXX financial statement for year ended XXXXXXXXXX shows payments of $XXXXXXXXXX to the Chair and $XXXXXXXXXX to Board Members. As you indicated that these were honoraria payments, this is in conflict with requirement (e) above which indicates that there must be no personal benefit to members.
- There is no indication in the documents submitted that the general public would be the beneficiary of the results of any successful research.
As also confirmed by you, the information noted above indicates that your organization conducts activities other than SR&ED, does not satisfy the requirements for non-profit status and does not show that the general public is a beneficiary of the results of any successful research. Accordingly, since all the above requirements are not met we are unable to grant your request for approved status for the purpose of clause 37(1)(a)(ii)(B) of the Act.
If you require additional information or wish to pursue discussions regarding steps that could be taken to achieve approved status, please contact Charles Rafuse at (613) 247-9237.
Yours sincerely,
S. Parnanzone
Manager
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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