29 November 1991 Internal T.I. 912299 F - Ontario R & D Superallowance and the Quebec R & D Tax Credit

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.

Dear Sirs:

Re:  Ontario R & D Superallowance and the Quebec R & D Tax Credit

This is in reply to your letter of August 13, 1991 concerning certain government allowances and credits provided by Ontario and Quebec.

You request a clarification of the tax treatment of the tax savings provided to taxpayers under the Ontario Research and Development Superallowance provisions ("the Superallowance") and the Ontario Current Cost Adjustment (the "OCCA"). In addition, you wish to confirm the tax treatment of the tax reduction resulting the Quebec Research and Development Tax Credit given in respect of wages for scientific research and experimental development performers.

You have noted that the tax savings from the Ontario Superallowance and the OCCA appear to be treated differently for tax purposes than the Quebec Research and Development Tax Credit.

It is your understanding that any Ontario income tax savings resulting from "grossed up amounts" or "phantom deductions" provided by the Ontario Superallowance and OCCA are treated as follows for federal income tax purposes:

-        will not be regarded as an inducement that must be included in income pursuant to paragraph 12(1)(x) of the Act;

-         will not require a taxpayer to reduce its capital cost of depreciable property pursuant to subsection 13(7.1) of the Act;

-         will not be regarded as government assistance and therefore will not reduce the amount that may be deducted under paragraph 37(1)(d) in respect of expenditures on scientific research and experimental development; and

We confirm this understanding.

Furthermore, it is your understanding that any payment of tax that is deemed to be made to Quebec as a result of the Quebec Research and Development Tax Credit provisions will receive one or more of the following treatments for federal income tax purposes:

-         will be regarded as an inducement that must be included in computing the taxpayer's income pursuant to paragraph 12(1)(x) of the Act;

-         will require a taxpayer to reduce its capital cost of depreciable property pursuant to subsection 13(7.1) of the Act;

-         will be regarded as government assistance and therefore will reduce the amount that may be deducted under paragraph 37(1)(d) of the Act in respect of expenditures on scientific research and experimental development; and

-         will reduce the amount of the capital cost to, or the qualified expenditure incurred by, a taxpayer for the purpose of computing the taxpayer's investment tax credit pursuant to subsection 127(11.1) of the Act.

We also confirm these views.

We note your comment concerning the difference in tax treatment of these programs.  While conceptually all these programs provide government incentives, it was concluded on the basis of the current wording of the above-mentioned provisions of the Act that the deductions provided by Ontario in computing provincial income tax did not constitute "government assistance".

We understand the Province of Quebec now has a program which provides enhanced deductions for research activities.

We trust these comments will be of assistance.

for DirectorManufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch