21 July 1993 External T.I. 9311055 F - Approved Re

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 Sir\Madam:

RE:  Approved Research Institute

This is in reply to your letter dated April 8, 1993, wherein you requested that we provide a ruling as to whether the XXXXXXXXXX meets the requirements of this Department as an approved organization to receive third party payments for scientific research and experimental development (SR&ED) expenditures (Line 128, Form 661).

As discussed during our telephone conversation of July 9, 1993, (XXXXXXXXXX/Vanasse) the particular circumstances on which you have asked for our views seem to be factual situations involving specific taxpayers. As explained in the enclosed Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Taxpayers seriously contemplating a proposed transaction are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should the situation involve a specific taxpayer and a completed transaction, the taxpayer should submit all relevant facts and documentation to the appropriate district taxation office for their views. We are therefore not in a position to give you a definitive response as to whether the Institute meets the requirements of this Department as an approved organization to receive third party payments for SR&ED expenditures. However, we can offer you the following general comments which may be of some assistance.

In general, a payment made by a taxpayer to a third party may be deductible in computing its taxable income if, among other things, this payment is made to an organization described in subparagraph 37(1)(a)(ii) of the Income Tax Act (the "Act"). These organizations are listed on Schedule A of Form T661 and include a corporation resident in Canada or an "approved research institute".

For purposes of the Act, we are of the opinion that the Institute is a corporation resident in Canada pursuant to section 2 of the Agricultural Research Institute of Ontario Act, 1961-62, which reads as follows:

     "There shall be a research institute to be known as the "Agricultural Research Institute of Ontario" which shall be a body corporate and responsible to the Minister."

Consequently, we are of the view that third party payments made to the Institute in respect of SR&ED expenditures may be included on line 128 of Form T661 by the payor, provided that all other conditions required for its deductibility under the Act are met by the payor.

For 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 corporation resident in Canada.

However, if you wish to become an "approved research institute", 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.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

Enclosure