7 October 1991 Income Tax Severed Letter - Exemption - Non-profit Corporation for Scientific Research and Experimental Development

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: XXX paragraph 149(1)(j)

This is in reply to your letter of July 12, 1991 requesting an advance income tax ruling on behalf of XXX

You have requested that we confirm that XXX is an exempt corporation under the provisions of paragraph 149(1)(j) of the Income Tax Act (the "Act"). As explained in our telephone conversation with XXX of your firm, we are not prepared to provide an advance income tax ruling on this issue since XXX has been created and is carrying on its intended function. Consequently, there is no proposed transaction to be considered. We also noted that the determination of whether a corporation is exempt under paragraph 149(1)(j) is made on an on-going basis through a review of the activities of the corporation each year. Such a determination is primarily one of fact and consequently, not a matter upon which rulings are provided (paragraph 14(j) of Information Circular 70-6R2).

XXX We have, however, assumed for the purposes of our reply XXX is a corporation within the meaning of paragraph 149(1)(j).

Where the corporation is carrying on operations it is normally the responsibility of the local District Office to make a determination as to its tax status. While we cannot provide specific comments concerning the tax status of an existing corporation, we can provide comments concerning the interpretation of the requirement in paragraph 149(1)(j) of the Act that a corporation be "... constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development ...". We will also outline potential problem areas that were noted on review of the documentation provided.

In order to meet the requirement that the corporation be constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development it is necessary that the objects of the corporation are solely to carry on or promote scientific research and experimental development. XXX

It is also necessary that no business be carried on by the corporation, no remuneration or benefits be available to members and that the corporation not acquire control of any other corporation. XXX However, a royalty interest that constitutes a passive investment is usually acceptable. The ownership of the shares of a corporation and involvement in that corporation's project XXX could also lead to a finding that a business was carried on or a benefit was conferred.

Finally, there is a yearly requirement that 90% of the corporation's income for the year be paid out for qualifying scientific research and experimental development. We note that XXX administrative costs appear to be approximately XXX This may also present a problem.

We trust these comments will be of assistance. Should you have specific concerns with respect to XXX these matters could be discussed with officials of the Vancouver District Office.

The funds submitted with your request will be returned under separate cover.