22 February 1993 Income Tax Severed Letter 9236105 - Approved Institute SR & ED

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.

                                             923610
XXXXXXXXXX                                   C. R. Brown
                                             (613) 957-8954
February 22, 1993
Dear Sirs:

Re: Approved Research Institute

This is in reply to your letter dated November 30, 1992 concerning the XXXXXXXXXX You requested that we inform you of the criteria our Minister uses in granting an organization the status of an approved research institute pursuant to clause 37(1)(a)(ii)(B) of the Income Tax Act (the "Act").

Our Comments

In accordance with clauses 37(1)(a)(ii)(A) to (D) of the Act, an entity providing scientific research and experimental development ("SR & ED") funding 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.

Currently, all Canadian universities and affiliated colleges are automatically considered by our Department to be "approved" entities. However, all other entities listed in clauses (A) and (B) above must receive written approval from our Minister in order to be considered "approved". A summary of the requirements to be satisfied by each of the above classes of entities is indicated below.

(A) Approved Association

In order for any association, whether in existence or proposed to be created, to become an "approved" association, the following requirements must be met:

          1.   it must have the facilities and personnel
               capable of carrying out SR & ED;

          2.   it must carry on only activities that are
               unquestionably SR & ED;

          3.   it must satisfy the requirements for non-
               profit status, such as no personal benefit to
               members, no control of other associations,
               satisfactory provisions for distribution of
               assets upon dissolution, etc.; and

          4.   the funding of the association must be
               sufficient to ensure ongoing SR & ED.

Although there is no charge by our Department to "approve" an association, in order to do so we require certain documentation—a list of which can be provided if you are interested in obtaining approval of an association. (B) Approved Research Institute

The requirements to become an "approved" research institute or similar institution are identical to those outlined above for an association. (C) 149(1)(j) Corporation

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:

          1.   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;

          2.   the directors and members, including any
               director or member who also serves 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;

          3.   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;

          4.   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

          5.   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 which can only be determined once the corporation's income tax return for a particular fiscal period is filed and the activities of the corporation reviewed by the District Taxation Office. No prior approval from our Department is required nor can it be obtained.

     While the Rulings Directorate cannot provide any
     specific comments concerning the tax status of an
     existing corporation, we are able to provide an advance
     income tax ruling for which there is a charge
     confirming that a particular corporation which will be
     incorporated, will be "constituted exclusively for the
     purpose of carrying on or promoting SR & ED".  In order
     for us to issue such a ruling we would require certain
     documents—a list of which can be provided if you are
     interested in incorporating a new corporation.
     (D) Corporations Resident in Canada
    No prior approval is required nor can it
          be obtained from our Department for this type of
          entity.  In order for this requirement to be
          satisfied, a corporation must simply be resident
          in Canada.

We trust these comments, especially those appearing under (A) and (B) above will be of assistance. for Director Manufacturing Industries, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch