9 July 1985 Income Tax Severed Letter

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.

July 9, 1985

TO        KITCHENER DISTRICT OFFICE

ATTENTION G.C. Sinclair
          Audit Division

FROM      HEAD OFFICE
          Corporate Rulings Division
          E. Mikhail
          (613) 995-1723

RE XXX

Further to our reply to you dated March 12, 1985 and our telephone conversations of April 3 and 4, 1985, we would like to confirm that project entitled XXX qualifies as scientific research as defined in Regulation 2900 for purpose of paragraph 37(7)(b). We note that the taxpayer's submission is silent on the matter of technological or scientific uncertainty of outcome of the work done as well as the technical advance over the present state of the art achieved in the XXXX Both are chief factors in the determination of whether or not a given project qualifies as scientific research. It appears to us that the activities carried out by the taxpayer in the development of XXX as described in project XXX are mainly directed towards the XXX of customerswho supply the taxpayer with specifications to which they must conform. As such, the XXX requirements would probably be predicated on well-known technology already in existance supported by established methods and tools. If that is so, the conditions of technological or scientific uncertainty of outcome and technological advance would not be met and the activities of developing new samples would not qualify as scientific research.

We realize that this is already the second time that you are referring a matter to Head Office without receiving a reply from us that is conclusive for your purposes. However, unless we receive sufficient information on a given research project our hands remain tied. The information we need to provide an opinion on a given project should include the following:

1. A description of each project on which a claim is based (approximately one page in length) which clearly states the aim of the project, the problem to be solved, the parameters explored, the results accomplished during the period under review and any innovation that resulted from the work if applicable.

2. Since the element of technological or scientific uncertainty present in the work is the chief factor used in our assessment, this element should be specifically mentioned in the description.

3. The scientific method followed in attempting to resolve the uncertainty should be illustrated by describing what experiment, analysis or systematic investigations were concluded.

Perhaps when this information is set out, the determination will be self-evident.

Alternatively, you may wish to consider asking the Specialized Audit Section in Head Office for a contract for an "outside expert" to help you resolve the matter. In this regard you can contact Herb Terris at (613) 992-9121 for more details.

We apologize for the long delay in our reply.

Original Signed by Original signé par

R. C. SHULTIS

Chief Scientific Research Section Corporate Rulings Division Legislation Branch

37(7)(b) Regulation 2900

Copy to: H.A. Diguer
         Assistant Deputy Minister
         Policy & Systems Branch