28 January 1992 Income Tax Severed Letter 9202355 - 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. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: XXX Section(s): 37(1)(A)(II)(A), 37(1)(A)(II)(B), 149(1)(J)]

XXX

920235
C.R. Bowen
(613) 957-8585

Attention: XXX

January 28, 1992

Dear Sirs:

We are writing in reply to your letter of January 3, 1992 and further to our telephone conversation (XXX/Bowen) of January 23, wherein you requested that we release information concerning the XXX in order that they may determine their eligibility for scientific research and experimental development ("SR&ED") tax incentives available under the Income Tax Act (the "Act").

Unfortunately, we are unable to comply with your request until we have been provided with the following:

• 1. the name and the legal status (i.e. corporation, research institute, etc.) of the entity that is performing the SR&ED ("SR&ED Entity");
• 2. confirmation as to whether the payments from XXX will be made directly to the SR&D Entity or to another organization (such as XXX which will then forward the funds to the SR&ED Entity; and
• 3. a letter of authorization to release the information to XXX written on the letterhead of the SR&ED Entity and signed by an authorized person for that entity.

Upon receipt of the above information, we will then be able to advise XXX of the status of your SR&ED Entity. For your information, we are providing you with the following general comments on entities performing SR&ED that you may find useful.

Our Comments

In accordance with clauses 37(1)(a)(ii)(A) to (D) of the Act, an entity providing SR&ED funding can qualify for the SR&ED tax incentives by making a payment to any of one the following entities which carry on SR&ED 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". This approval is not dependent upon and is separate from that obtained by a charitable organization or foundation. 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.;
• 4. the general public must be a beneficiary of the results of successful research; and
• 5. 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

In order for a corporation to be considered a non-profit corporation for SR&ED for a particular fiscal period, the following criteria must be satisfied:

• 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 and 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 and those directors and members who also serve as officers shall serve as directors, members and officers without remuneration and no director, member or officer shall directly or indirectly receive any profit from his/her position as director, member or officer provided that a director or officer may be paid 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 defined in the Act;
• 4. the objects of the corporation must be to exclusively carry on or promote SR&ED. The SR&ED can be directly undertaken by or on behalf of the corporation or by an entity described in clause 37(1)(1)(a)(ii)(A) or (B) of the Act above; 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 made 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 can provide an advance income tax ruling, for which there is a charge, confirming that a particular corporation to be incorporated will be "constituted exclusively for the purpose of carrying on or promoting SR&ED". In order to do so, 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.

Should you require additional information on any of the foregoing comments, please contact Catherine Bowen. We trust these comments will be of assistance.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch