Section 127

Table of Contents

Subsection 127(1) - Logging tax deduction

Qualified Small Business Property


Kowdrysh v. The Queen, 2001 DTC 5221, 2001 FCA 34

acquired on agreement date

Létourneau J.A. found that in the context of the temporary program for qualified small-business property, the proper interpretation of the word "acquired" refers to the time when farming equipment was purchased by means of a binding and enforceable contract, rather than the later time at which beneficial ownership passed to the purchaser.

Words and Phrases

Subsection 127(3) - Contributions to registered parties and candidates


Doyle v. The Queen, 89 DTC 5030 (FCTD)

Receipts in respect of 1976 contributions by the taxpayer were filed in error with the 1976 return of a corporation of which she was a director. When, as a result of reassessment of her 1976 year, there was federal tax payable against which the credit under s. 127(3) could be deducted, she was entitled to do so. "I see nothing in the wording of Subsection 127(3) that requires a taxpayer to file the receipt with his return. It can be done at any time, presumably, before the Minister assesses ... . Here, the receipts were technically filed with the Minister, albeit attached to another taxpayer's return." [C.R.: 85(1)]

Stasiuk v. The Queen, [1986] 2 CTC 346 (FCTD)

Amounts paid by the taxpayer for the publicizing of her political ideas and political claims, where no amount was paid to a registered party, did not qualify.

Administrative Policy

28 October 1991 Memorandum (Tax Window, No. 12, p. 24, ¶1556)

No tax credit is available for a contribution made to a candidate in a civic or municipal election.

Subsection 127(4.1) - Monetary contributions — form and content

Administrative Policy


Credit cards may be used to make contributions to registered political parties or candidates.

Subsection 127(5) - Investment tax credit


AEL Microtel Ltd. v. The Queen, 84 DTC 6374, [1984] CTC 387 (FCTD), rev'd 86 DTC 6348, [1986] 2CTC 108 (FCA)

"[A] taxpayer may claim the investment tax credit in any of the five succeeding years to the year in which the expenditure was made but at the rate applicable for the year in which the expenditure was made." Thus, there was no impediment to the taxpayer claiming investment tax credits for expenditures made in its 1975 taxation year in its return for its 1976 taxation.

Administrative Policy

93 C.R. - Q. 5

RC has not adopted any practice of issuing reassessments to allow taxpayers SR&ED incentives that are beyond the normal three or four-year reassessment period. However, subject to the taxpayer being able to establish entitlement to the SR&ED investment tax credits and the restrictions on ITC carry forwards, the Department will allow a taxpayer to carry-forward SR&ED tax credits in respect of the taxation years that are statute-barred to offset federal taxes payable in open taxation years."

86 C.R. - Q. 73

RC applies tax credits in the manner most beneficial to the taxpayer.


Hiltz, "Income Earned or Realized: Some Reflections", 1991 Conference Report, c. 15.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) 0

Subsection 127(8) - Investment tax credit of partnership


Canadian Solifuels Inc. v. The Queen, 2001 DTC 5565, 2001 FCA 280

A Canadian-controlled private corporation that was a member of a partnership was not entitled to the enhanced credit under s. 127(10.1). Malone J.A. stated (at p. 5568):

"If Parliament had intended the enhanced investment tax credit in subsection 127(10.1) to be available to members of partnerships, paragraph (e) of the definition of 'investment tax credit' would have been included in the list found in subsection 127(8)."

Allcolour Paint Ltd. v. The Queen, 97 DTC 5266 (FCA)

In light of the failure of s. 127(8) to refer to the right established under paragraph (e) of the definition of investment tax credit to claim investment tax credits at the enhanced rate of 35%, taxpayers who carried on business in partnership were not entitled to that deduction.


Peter Lee, "Flow-Through of Partnership R & D Tax Credits to Partners", Business Vehicles, Vol. III, No. 4, 1997, p. 150.

Subsection 127(8.1) - Investment tax credit of limited partner

Administrative Policy

86 C.R. Q. 2

The ITC restriction applies to farming partnerships.

Subsection 127(8.3)

Administrative Policy

6 July 2011 Internal T.I. 2010-0357461I7 F - CII RS&DE

proportionate ITCs allocated to specified member in proportion to capital can then be reallocated under s. 127(8.3) to non-specified member

A partnership, which has made $1,000,000 in eligible SR & ED expenditures, consists of two associated partners: the first is a partner other than a specified member which is a CCPC and which contributes $1,000 to the partnership; and the second is a specified member which is a non-CCPC corporation which contributes $999,000. They share the profits in proportion to their contributions; and their aggregate taxable income exceeds the business limit of the partner who is not a specified member.

After noting that “the CRA generally considers that an ITC allocation is reasonable if it corresponds to the proportions in which the partners have agreed to share the partnership's profits,” CRA stated:

Thus, subsection 127(8) first allocates $200 of ITCs to the partner who is not a specified member, whereas the amount of $199,800, which would accrue to the specified member, cannot be allocated under paragraph 127(8)(b).

Current legislation allows a partner, who is not a specified member for the purposes of subsection 127(8), to add under subsection 127(8.3) and (8.31) to the previously determined $200 ITC, all ITCs that were previously unallocated under subsection 127(8), or $199,800 for a total ITC of $200,000. That result is explained by the fact that in determining the amount of ITCs that it is reasonable to allocate it is only necessary to consider the investment of partners who are not specified members. Since in this example there is only one, it can be assigned all of the unallocated ITCs.

[S]ince the total of the taxable income of the partner who is not a specified member and the taxable income of the specified member exceeds the business limit of the partner who is not a specified member, the partner who is not a specified member is not a qualifying corporation … . That partner would therefore not be entitled to the refundable ITCs provided for in section 127.1 … .

Subsection 127(9) - Idem [Definitions]

Apprenticeship Expenditure

Administrative Policy

19 August 2008 Internal T.I. 2008-0280681I7 F - Création d'emplois d'apprentis

no pro-ration for short taxation years

CRA confirmed that a taxpayer can receive the maximum amount of the apprenticeship job creation tax credit notwithstanding a taxation year that is less than 53 weeks long.

Certified Property


Fibre Co. Pulp Inc. v. The Queen, 94 DTC 6325 (FCTD)

A bleached chemi-thermo-mechanical pulp mill constituted a "facility" for purposes of paragraph (b) of the definition of certified property, with the result that the taxpayer was successful in its claim for an investment tax credit. In particular, the activities of the mill did not come within the definition of a "resource-based industry" in the RDIA Regulations (namely, "an industry that uses as a principal material a material ... that is in or close to its natural state") because the woodchips which it processed were far removed from a natural state.

See Also

Sudbrack v. The Queen, 2000 DTC 2521, Docket: 98-2386-IT-G (TCC)

Kitchen equipment that was used in a guest house for preparing meals for guests qualified as equipment used for the purpose of processing goods for sale.

Administrative Policy

22 March 1990 T.I. (August 1990 Access Letter, ¶1382)

A pulp mill does not qualify as a "facility" for purposes of the RDIA.

Child Care Space Amount

Administrative Policy

16 May 2014 External T.I. 2014-0526161E5 F - CII des places en garderie

owner of child-care facility entitled to ITCs even though development work and operations conducted by its part-owned agent

A corporation (ABC) incurs all the costs of installing child care spaces in a facility owned by it and for the use of its employees and the surrounding community, but engages XYZ (as mandatory), whose shares are held as to 25% by it, to develop the spaces on its behalf, as well as operate the facility. CRA provided a general paraphrase of the child care space amount rules and indicated that this shareholding would not affect the eligibility for ITCs of ABC's expenditures.

Contract Payment

See Also

MDA Systems Ltd. v. Agence du revenu du Québec, 2020 QCCQ 4190

payments made by the federal government under a contract where it mostly had the risks and benefits were SR&ED “contract payments”

The taxpayer (“MDA”), which carried on computer systems engineering, entered into several contracts with the Canadian Space Agency (“CSA”), through Public Works and Government Services Canada (“PWGSC”) for a five-phase program (“RCM Program”) including Phase B (preliminary plans for three satellites), Phase C (critical designs) and Phase D (manufacture and delivery). MDA was paid $280.7 million for Phases B and C, and $741.3 million for Phase D. At some point during the Phase C negotiations, MDA agreed to a Government of Canada request to transfer the ownership of the IP to it in return for a sole, worldwide, perpetual, fully paid, royalty-free, and irrevocable licence.

The ARQ determined that the amounts paid by the Government of Canada to MDA were “contract payments” (defined in s.1029.8.17 (c) (ii) of the Quebec Taxation Act to include “an amount in respect of an expenditure of a current nature … of a taxpayer … payable by the Government of Canada … or other public authority … for scientific research and experimental development to be performed for the authority) for SR&ED work for the RCM Program, so that the bulk of the work did not qualify for the Quebec tax credit for salaries and wages.

After referring (at para. 110) to the CRA’s “Assistance and Contract Payments Policy” as providing a “useful list of factors” (namely, contractor performance requirements, pricing versus risks assumed, ownership of intellectual property and whether there is a contract for services rather than the sale of goods), Bourgeois JCQ proceeded to apply these criteria in finding that “[a]lthough the contracts were not drafted specifically for doing SR&ED work, the evidence shows that SR&ED was required to be carried out under the RCM Program, on behalf of the Government of Canada,” so that MDA’s appeal was dismissed.

Regarding the first test, he concluded (at para. 142) that “the SR&ED work was carried out because of the requirements in the contracts between the Government of Canada and MDA.”

Regarding the second test, he found that:

  • “Canada assumed both the risks related to the additional costs of the RCM Program and those related to the possibility that the technology developed for the purpose of the project would not perform as expected” (para. 147) and “would lose its investment if the satellites exploded” (para. 148)
  • “Had there been insufficient funds … MDA would have been paid for the work undertaken up to the end of the contract for Phases B/C” (para. 151) and “ MDA would have been paid had the Government of Canada terminated the contract for Phase D” (para. 153).

In concluding on this test he found that “the Government of Canada bore the major risks of the RCM Program” (para. 158).

Regarding the third test, “the intellectual property developed by MDA in the space component of this project was transferred from MDA to the Government of Canada” (para. 173).

Regarding the fourth test, Bourgeois JCQ emphasized the CRA Policy statement that “a contract for the sale of a good does not necessarily mean that the SR&ED work was not being performed on behalf of the payer,” but found (at para. 184) that, here, “it was a contract for services for the delivery of the RCM Program.”

Comdev Ltd. v. The Queen, 99 DTC 775 (TCC)

The taxpayer was selected by Spar Aerospace Ltd. to perform subcontract work in relation to a contract Spar had been awarded to design and manufacture a satellite. It was found that the taxpayer did not have any direct contractual relationship with the federal government, with the result that amounts it expended on qualified expenditures made by it did not represent contract payments (notwithstanding a clause in the subcontract that all technical information would become property of the federal government).

Eligible Apprentice

Administrative Policy

7 June 2016 External T.I. 2014-0532451E5 F - Crédit pour la création d’emplois pour apprentis

apprenticeship contracts include collective agreements/24-month period runs from issuance of apprentice competency certificate

When does the period of the "first twenty-four months of the individual’s apprenticeship contract" under the definition of "eligible apprentice" in subsection 127(9) commence where an individual holds an exemption from holding a certificate of competence issued by the Commission de la construction du Québec? CRA responded (TaxInterpretations translation):

[I]n the Quebec construction industry, especially since the issuance of an apprentice competency certificate binds the apprentice to the collective agreement, we are of the view that it is an apprenticeship contract within the meaning of the definition of "eligible apprentice." …

Furthermore, during the period of time a worker in the Quebec construction industry holds an exemption issued by the Commission…the individual is not an "eligible apprentice"… .

[T]he beginning of the period of the first twenty-four months of the apprenticeship contract is the date of issue of the first apprentice competency certificate. Thus, when the Commission issues an apprentice competency certificate to an individual who has already held an exemption, the time when the period of the "first twenty-four months of the individual’s apprenticeship contract" commences is the date of issue of the apprentice competency certificate.

26 September 2008 Internal T.I. 2008-0281111I7 F - Salaires admissibles - CICEA

wages of apprentice carpenter ineligible to the extent related to renovation rather than new construction

An apprentice carpenter-joiner works both in the new residential construction sector and in the home renovation sector. The wages that the apprentice earns while working in the home renovation sector are not required to be reported to the Commission de la construction du Québec ("CCQ"), while the wages earned in the new residential construction sector are required to be reported to the CCQ. Are the wages earned by the employee for the employee’s work in home renovation constitute an apprenticeship expenditure? CRA responded:

[T[here is no apprenticeship system in the home renovation sector for apprentices working in the carpenter-joiner trade since this is a field that is not subject to the Act respecting Labour Relations, Vocational Training and Workforce Management in the Construction Industry. In this regard, we are of the view that the wages earned by an apprentice carpenter-joiner in the home renovation sector do not constitute an apprenticeship expense .... .

1 May 2008 External T.I. 2007-0250141E5 F - Crédit pour la création d'emplois d'apprentis

issuance of 1st apprenticeship competency certificate is an indicator of the beginning of an apprenticeship

In the context of the Quebec construction industry, how should the start of the apprenticeship contract be determined for the purposes of the definition of eligible apprentice? CRA responded:

[A]n apprenticeship contract is a contract that sets out the terms and conditions of the individual's work. …

[S]ince an apprentice must hold an apprenticeship competency certificate to work in the construction industry in Quebec, we believe that the issuance of the first apprenticeship competency certificate is an indicator of the beginning of an apprentice's apprenticeship. In addition, from the time of issuance, the Commission de la construction du Québec ("CCQ") must perform supervisory work such as managing the apprenticeship system and logbook, collecting hours worked, tracking apprentices' progress and qualifying them. Those elements may be relevant to a full analysis.

30 April 2008 External T.I. 2007-0257041E5 F - Crédit pour la création d'emplois d'apprentis

industry concept of 2000 hours per apprenticeship “year” was inapplicable

After noting that under the then-current definition, the term "eligible apprentice" referred to an individual who is employed in a prescribed trade in Canada during the first two years of the individual's apprenticeship contract, which is registered inter alia with a province under an apprenticeship program designed to certify or license individuals in the trade, CRA stated:

In light of subsection 37(1) of the Interpretation Act, which defines the concept of year, it is our view that the term year in the phrase "first two years" must be interpreted in light of the concept of year in the Interpretation Act and extends to any 12-month period. Consequently, an industry-specific number of hours does not constitute a year for the purposes of the definition of eligible apprentice in subsection 127(9) such that the period of time an individual is an eligible apprentice cannot exceed the first two 12-month periods of their apprenticeship contract.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 37 - Subsection 37(1) “year” refers to any 12-month period 133

9 April 2008 Internal T.I. 2008-0268881I7 F - Crédit d'impôt pour apprentis

$2,000 limit not required to be allocated to one employer where unrelated employers

Before finding that where an apprentice works for two or more unrelated employers in the Quebec construction industry in Quebec in a taxation year, the $2,000 limit was not required to be allocated to a single employer, CRA noted that there was “no rule analogous to subsection 127(11.4) that would apply the $2,000 limit in the definition of "apprenticeship expenditure" in subsection 127(9) to a single employer.”

18 February 2008 External T.I. 2007-0228491E5 F - Heures travaillées hors décret de la CCQ

hours worked outside the scope of the CCQ (Commission de la construction du Québec) decree are ineligible

Are wages paid for hours worked outside the scope of the CCQ (Commission de la construction du Québec) decree eligible when determining the credit? CRA responded:

In Quebec, the apprentice must obtain an apprenticeship competency certificate (ACC) from the CCQ. Their standards are based on the establishment of a training plan and are calculated in terms of hours of vocational training, upgrading and hours of work in the trade. Those hours are recorded in an apprenticeship booklet. It is our understanding that hours worked outside the CCQ decree are not included in the apprentice's professional training hours. Thus, those hours have no bearing on obtaining a certificate or licence. It is therefore our view that the wages paid for those hours do not qualify as apprenticeship expenses.

First Term Shared-Use Equipment

Administrative Policy

9 February 2010 External T.I. 2009-0316561E5 F - Biens en immobilisations-RS&DE

expected use throughout expected useful life is considered

In a general response to a question as to qualification as first term shared-use-equipment and second term shared-use-equipment (collectively, "SUE"), CRA stated:

When determining at the time of acquisition whether a particular property is a PDP, the intended use of the property in the year in which the expenditure is made and throughout its expected useful life should be taken into account. The subsequent use of a property may provide an indication of the corporation's intention at the time the expenditure was made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 2900 - Subsection 2900(11) requirement during establishment phase to be used primarily during useful life for SR&ED 63

Flow-Through Mining Expenditure


Emmanuel Sala, "Flow-Through Share Financing: Recent Developments, Traps and Tips", 2015 CTF Annual Conference paper

Equivalent provincial credits (pp. 10:6-7)

An individual who is resident in another province of Canada can generally obtain a provincial tax credit that is similar to the federal tax credit, such as the British Colombia non-refundable mining flow-through share tax credit [f.n. 36: Income Tax Act, R.S.B.C. 1993, c. 215, s.4.721(3)] (20 percent), the Ontario focused flowthrough share tax credit (5 percent) [f.n. 37: Income Tax Act, R.S.O. 1990, c. I.2, s. 8.4.3(1).], the Manitoba mineral exploration tax credit [f.n. 38: The Income Tax Act, C.C.S.M., c. I10, s. 11.7.(2)(a)(iii)] (30 percent), and the Saskatchewan mineral exploration tax credit [f.n. 39: The Mineral Resources Act, 1985, S.S. 1985, S.S. 1984-85-86, c. M-16.1, s.10.1(2)] (10 percent)... .

Additional 10% Quebec deduction (p. 10:7)

An individual residing in the Province of Quebec can obtain the additional 10 percent deduction [f.n. 44: Section 726.4.9 QTA.] in respect of his "exploration base relating to certain Quebec exploration expenses" [f.n. 45: Section 726.4.10 QTA] , which essentially consists of 66.1 (6)(f) eligible mining CEE, if the following conditions are met:

  1. The 66.1(6)(f) eligible mining CEE is incurred in the province of Quebec [f.n. 46: Subparagraph (i) of paragraph (a) of section 726.4.10 QTA];
  2. The activities of the mining corporation are limited primarily to oil, gas or mineral exploration or the development of a mineral resource or oil or gas well [f.n. 47: Paragraph (b) of section 726.4.15 QTA];
  3. At the time the expenditures are incurred and throughout the preceding period of 12 months, the mining corporation [f.n. 48: Paragraph (b) of section 726.4.12...Information Bulletin 2013-2014, Changes to Various Measures of a Fiscal Nature, December 20, 2013. ]
    (a) did not operate any mineral resource or any oil or gas well; and
    (b) was not a member of an associated group any companies of which operated such resources.

Supplemental 10 percent Quebec deduction (pp. 10:7-8)

In addition..., an individual residing in the province of Quebec can obtain the supplemental 10 percent deduction (QC) [f.n. 51: Section 726.4.17.1] in respect of his "exploration base relating to certain Quebec surface mining or oil and gas exploration expenses" if:

  1. all of the applicable conditions for obtaining the additional 10 percent deduction (QC) in respect of those expenses are met; and
  2. the "exploration base relating to certain Quebec surface mining or oil and gas exploration expenses" consists of 66.1 (6)(f) eligible mining CEE, except for any of those expenses that:
    (a) are related to removing overburden and stripping, where such work is more than is needed to obtain indicators of mineralization or for the preliminary sampling thereof
    (b) are related to drilling and trenching or digging test pits, where such work constitutes underground exploration work.

Government Assistance


Immunovaccine Technologies Inc. v. Canada, 2014 DTC 5119 [at 7309], 2014 FCA 196, aff'g 2013 DTC 1101 [at 531], 2013 TCC 103

"government assistance" generally encompasses amounts advanced on non-commercial terms

The taxpayer received $3,786,474 over four years for a vaccine development project under a federal regional assistance program, administered by the Atlantic Canada Opportunities Agency ("ACOA"). Commencing four years after the first advance, the taxpayer was obligated to repay the advances, without interest, out of 2% of gross revenues, increasing to 10% if gross revenues in the prior fiscal year exceeded $5,000,000.

The taxpayer claimed scientific research and experimental development credits, which the Minister reduced pursuant to s. 127(11.1) on the basis that the ACOA payments were "government assistance" under s. 127(9).

Nadon JA affirmed the Minister's assessments. In determining whether an amount is assistance, the "key question" arising from CCLC Technologies is whether "the public authority in question is acting in a business rather than a governance capacity" (FCA para. 10).

At trial, Lamarre J correctly found that "ACOA was not acting in its own business interests" as it "could not receive any net profit on the money invested" (TCC para. 51), and instead ACOA "place[d] significant emphasis on the appellant's incurring the expenses and performing the work in Atlantic Canada, which is what provides the public benefit" (TCC para. 52).

The taxpayer had argued at trial that the definition of "government assistance" excluded any advance of funds in consideration of a promise to repay, and on appeal further argued that the ejusdem generis principle meant that s. 127(9) limited the scope of "assistance." However, the words "any other form of assistance" were incompatible with such a narrow interpretation (FCA para. 15).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) government loans made in a non-commercial capacity are "government assistance" 100
Tax Topics - Statutory Interpretation - Ejusdem Generis definition ending in "any other form of assistance" precluded a narrow reading 82

The Queen v. CCLC Technologies Inc., 96 DTC 6527 (FCA)

An agreement between a predecessor of the taxpayer ("Contar") and the Province of Alberta in which the Province contributed towards the cost of developing a dual process for converting coal and heavy oil minerals into light crude oil, and under which the Province was to hold a 50% undivided interest in the project technology if commercialization was not achieved, and was to be repaid its investment plus an interest return out of gross revenues produced if commercialization of the technology was achieved, was characterized as "other assistance" by the province. "A business which invested money in ventures on the basis that it could not receive any net profit if the venture succeeded, and would gain an equity interest only if the venture proved uncommercial, would not long survive" (p. 6529).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) governmnt receipt in non-commercial arrangement was assistance etc. 145

See Also

Agence du revenu du Québec v. PCI Géomatics Entreprises Inc., 2020 QCCA 1342

a loan that was not repayable if the borrower’s revenues consistently declined was a forgivable loan

The taxpayer (“PCI”), which was a company involved in R&D activities for the development of software for satellites, received a non-interest-bearing loan from the federal government under its Strategic Aerospace Defence Initiative (SADI) program. The loan was repayable over 15 years in equal annual instalments if PCI’s consolidated revenues were stable. However, if its revenues increased, it was required to increase the instalments by a factor of up to 1.65 times. Conversely, if its revenues for a year had decreased, it had no repayment obligation for that year. In summarizing this arrangement, Hogue, J.C.A. stated (at para. 42, TaxInterpretations translation):

… [T]he agreed formula means that PCI must repay the advances received over 15 years if its revenues are stable. It may have to repay up to 1.65 times the advances received if its revenues increase sufficiently during the 15-year repayment period, but there may be nothing to repay if its revenues decreases throughout the 15-year repayment period.

S. 1029.8.18 of the Taxation Act reduced PCI’s total qualified expenditures available for the Quebec wages-based R&D tax credit for a particular taxation year by any “government assistance” attributable to such expenditures, whose definition included a “forgivable loan.”

After having characterized the loan repayment terms as quoted above and in finding that the loan was a forgivable loan (contrary to the finding of the Court of Quebec below), Hogue, J.C.A. rejected PCI’s reliance on McLarty, stating (at paras. 55-56) that here, by way of contrast:

[T]he Agreement does not have the effect of [merely] limiting the remedies available to the government in the event of a PCI default. Rather, it provides that PCI’s obligation to repay will only arise if its revenue is maintained or increases, which is a future and uncertain event. This condition goes to the very nature of the debt.

The situation would be different if the agreement exempted PCI from making annual repayments in the event of a decrease in revenue, but nevertheless imposed on it the obligation to repay the unpaid portion of the advances at the end of the repayment period, the obligation to repay being only deferred. However, that is not the case, since nothing in the Agreement imposes such an obligation on PCI.

PCI Géomatics Entreprises Inc. v. Agence du revenu du Québec, 2019 QCCQ 2688, rev'd 2020 QCCA 1342

McLarty applied to find that a loan which was repayable only out of increasing revenues was not a forgivable loan

In order to encourage the SR&ED activities of the plaintiff (“PCI”) in the field of geomatic solutions, the Federal Minister of Industry made a $6.6M non-interest-bearing loan to PCI through the Strategic Aerospace Defence Initiative (SADI) program. Upon signing the loan agreement (the “SADI Agreement”), PCI chose the second of the following two options:

a) A fixed repayment schedule equal to 1.5X the total loan amount; or

b) A variable repayment schedule equal to 1.65X the total loan amount based on annual growth of business revenues.

Accordingly, PCI was required each year to repay an amount equal to 1/15 of the $7.6M amount advanced multiplied by an adjustment factor which was: 0 if annual growth in revenues was negative; 1 if such growth was positive but not exceeding 3%; and ranged up to 1.5 for higher growth rates.

S. 1029.8.18 of the Taxation Act reduced PCI’s total qualified expenditures available for the Quebec SR&ED tax credit for a particular taxation year by any “government assistance” attributable to such expenditures, whose definition included a “forgivable loan.”

Before concluding that the loan was a repayable loan rather than a forgivable loan, Dortélus JCQ noted that repayments were established as a function of the growth in revenues, PCI was required to provide security for the loan and was subject to various restrictive covenants under the loan. He then stated (at paras. 125-128, TaxInterpretations translation):

The situation was more one of a sort of “joint venture” than of government assistance. The fact that there existed a certain uncertainty as to the frequency of repayment of the loan which, under the terms agreed to by the parties, depended on fluctuations in the PCI revenues does not suffice to qualify the amounts advanced as government aid.

No clause for extinguishing the debt after 15 years appeared in the agreement. The submissions of the ARQ on this point are pure speculation. …

PCI justifiably submitted that the position adopted by the ARQ, that the SADI Agreement was a forgivable loan given that the required repayments were a function of the growth in future revenues (so that the obligation to repay depended on the occurrence of an uncertain and future event), was a position which was relied upon in the dissent and rejected by the majority in McLarty.

Applying the position of the majority in McLarty, and for the reasons previously expressed, the ARQ position has not been sustained.

Words and Phrases
forgivable loan

Administrative Policy

21 June 2013 Internal T.I. 2012-0459731I7 - Government Assistance

Citing Immunovaccine as well as several of its own rulings documents, CRA stated that contributions distributed under Canada's Strategic Aerospace and Defence Initiative ("SADI") represent "government assistance" because the contributions do not appear to have ordinary commercial terms.

The differences between the facts in issue and the authorities cited included that "all the [Industrial Technologies Office] Contributions are required to be repaid" and "the repayment amount provides ITO with a 'return on its investment' since for every $1 dollar received an additional $XXX must be repaid." CRA's conclusions may have been based in part on the interest rates, which were redacted, being too low for the risk involved.

28 June 2010 External T.I. 2009-0350241E5 F - Crédit d'impôt pour investissement du Québec

Quebec investment tax credit is government assistance

CRA noted:

Since the Quebec investment tax credit is government assistance ... relating to the acquisition of a property ... it should reduce the capital cost of the property for ITC purposes where the rules set out in paragraph 127(11.1)(b) are satisfied.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) - Subparagraph 12(1)(x)(vi) Quebec investment tax credit is deducted under s. 13(7.1) rather than included under s. 12(1)(x) 90
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.1) - Paragraph 13(7.1)(f) Quebec investment tax credit reduces capital cost at end of year for which it is claimed, excepting any carryforward portion 213

Investment Tax Credit

See Also

Easy Way Cattle Oilers Ltd. v. The Queen, 2015 TCC 211

strict requirement under para. (m) to file prescribed form (Schedule 31)

D'Arcy J found that Form T2SCH31 ("Schedule 31") was a prescribed form, as it was "authorized by the Minister" as contemplated under s. 244(16). Consequently, the taxpayer's failure to file this form within the paragraph (m) deadline meant that, under paragraph (m), the taxpayer was barred from claiming SR&ED credits for the year in issue. It was therefore irrelevant that the information needed to calculate the taxpayer's SR&ED credits was otherwise available in its return and on Form 661, both of which it had filed on a timely basis.

Papiers Cascades Cabano Inc. c. La Reine, 2006 DTC 2305, 2005 TCC 396

After the 1995 taxation year the taxpayer became statute-barred, the Minister determined that the taxpayer had claimed an excessive investment tax credit entitlement in respect of its 1995 year. Accordingly, the Minister took the position that the opening ITC balance of the taxpayer for its 1996 taxation year was negative $206,364 on the basis that paragraph (c) should reflect the amounts which the taxpayer should have claimed, and paragraph (f) should reflect the amounts actually deducted by the taxpayer in the preceding years. Lamarre Proulx J. indicated that this approach of the Minister amounted "to asserting that a taxpayer may have to pay back in a subsequent year an ITC that he or she claimed as a deduction from tax payable for a year and that was considered in the assessment for that year" and that, accordingly, this approach was not permitted.

Datacalc Research Corp. v. The Queen, 2002 DTC 1479 (TCC)

The taxpayer was precluded from making an ITC claim in April 1999 with respect to expenditures incurred by its 1986 taxation year notwithstanding that the deadline for making such claims was not imposed until after 1986.

Administrative Policy

2 October 1992 Memorandum 921938 (September 1993 Access Letter, p. 421, ¶C117-204)

An amount erroneously deducted as an ITC in a statute-barred year would be regarded as deducted for purposes of the definition, in light of the decision in Dominion of Canada General Insurance Co. v. The Queen, 86 DTC 6154 (FCA).

Paragraph (a.1)

Administrative Policy

3 November 2008 External T.I. 2008-0278431E5 F - Déménagement hors Canada du siège soc. de société

ITC potentially available to a non-resident corporation carrying on business in Canada

In the context of a general discussion of consequences of a Canadian corporation with a start-up Canadian manufacturing operation in Canada, as well as research and development performed there, becoming a non-resident of Canada pursuant to s. 250(5), CRA stated:

[A] non-resident corporation's Part I tax could be reduced by an investment tax credit for research and development expenses incurred in Canada if the corporation carries on business in Canada, the research is related to that business and the corporation satisfies the conditions provided in the Act for claiming such a credit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(ii) OECD Commentary informs allocation of sales through non-resident office to Cdn manufacturing operation 172
Tax Topics - Income Tax Act - Section 250 - Subsection 250(5) central management and control test overridden 122
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(b) s. 4(1)(b) requires allocation between Canada and another country on basis of relative profit contribution 172

Qualified Construction Equipment

Administrative Policy

5 September 1991 Memorandum (Tax Window, No. 10, p. 17, ¶1474)

A truck equipped with a crane or steam shovel normally would be considered to be automotive equipment, and only the crane or steam shovel will itself be qualified construction equipment.

Qualified Expenditure


Alcatel Canada Inc. v. The Queen, 2005 DTC 387, 2005 TCC 149

S.7 employment benefits under an employee stock option program realized by employees engaged in qualifying scientific research activities constituted qualified expenditures of the taxpayer and expenditures made in respect of expenses incurred for salary or wages for purposes of s. 37(8)(a)(ii)(B)(iv), given that the word "expenditure" did not require that there be a disbursement of cash as opposed to a disbursement of other assets, and that "a very real expenditure is accomplished when shares having an established market value are sold for less than [their] value in the context of a scheme for the compensation of the employees who buy them". Furthermore, given that the primary purpose of the stock option program was to compensate employees for their services and to encourage future effort, and the taxpayer did not engage in the stock option program to increase or otherwise alter its capital structure, these expenditures were of a current nature.

Words and Phrases

See Also

Tigney Technology Inc. v. M.N.R., 97 DTC 414 (TCC)

The taxpayer, which was performing cancer research in Canada for a Swedish firm, incurred costs in respect of a temporary facility in Kentucky. The facility was required because in order to extract pharmaceuticals that the Swedish firm wanted, it was necessary that tobacco plants be harvested and processed within two hours. In finding that these expenditures were qualified expenditures, Bell TCJ. found that the portion of the research that physically took place in Kentucky was an isolated and relatively small part of the systematic investigation which was ongoing in Canada, and that the experiments conducted in Kentucky were not a separate and distinct systematic investigation but were part of the continuous scientific research on tobacco being carried on in Canada.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 37 - Subsection 37(1) 122

Cultures LaFlamme (1984) Inc. v. MNR, 93 DTC 603 (TCC)

The Minister was unsuccessful in a submission that the qualified expenditures of the taxpayer should be reduced by the amount of income derived by it from the sale of experimental production. Lamarre Proulx J. noted that none of the authority cited established that amounts from the sale of products must be deducted in the calculation of "expenditures".

Words and Phrases

G.A. Borstad Associates Ltd. v. MNR, 92 DTC 1743 (TCC)

After finding that the Act made reference to expenditures (or expenses) made in contradistinction to expenditures (or expenses) incurred, Garon J. found that salaries which were accrued in one year but were not paid until the subsequent taxation year did not constitute "qualified expenditures" in the year of accrual.

Administrative Policy

7 October 2005 APFF Roundtable Q. 24, 2005-0141141C6 - Stock option benefits and SR&ED tax credit

Description of circumstances in which a corporation may claim an ITC for the value of a taxable benefit included in the income of employees under s. 7.

Application Policy SR & ED 96-03 "Claimants' Entitlements and Responsibilities".

Paragraph (a)

See Also

Andre Lamy Medicine Professional Corporation v. The Queen, 2020 TCC 61

a surgeon carried out his cardiac SR&ED on behalf of his professional corporation

Dr. Lamy, a cardiac surgeon and researcher, who was the director, officer and shareholder of the taxpayer, was found by D’Arcy J to have performed all of his work as a surgeon, and all of his cardiac research, as an employee of the taxpayer. Consequently, the taxpayer’s appeal from reassessments disallowing its SR&ED claims on the basis that the SR&ED had been carried out by Dr. Lamy as researcher in his personal capacity, was allowed.

D’Arcy J stated (at paras 40, 43 and 53

… [T]he Respondent accepts that the Appellant carried on a business in Canada and that this business included research related to improvements in cardiac surgical methodology.

Since Dr. Lamy is the only employee of the Appellant, clearly he is the only one conducting the business of the Appellant, namely performing surgery, providing care to patients and conducting medical research.. …

Dr. Lamy’s testimony is supported by the billings made for his medical services. He bills the Government of Ontario for such services in his own name. The Respondent does not challenge the Appellant’s position that any monies received in respect of such services are received by Dr. Lamy for and on behalf of the person providing the service, i.e., his employer, the Appellant. The result is the same with respect to the research activities: Dr. Lamy signed his own name on the contracts, but he provided the services as an employee of the Appellant.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency required individual billing to OHIP does not preclude earning of medical practice income by professional corporation 150
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) surgeon carried out his research qua employee of his professional corporation 179

Qualified Property


Burger King Restaurants of Canada Inc. v. Canada, 2000 DTC 6061 (FCA)

Although Burger King restaurant were used for "processing" (given that the ordinary meaning of that word did not exclude the preparation of food), the taxpayer was unable to adduce sufficient evidence of qualitative factors that would detract from a conclusion that the buildings of the taxpayer's fast food chain were not used "primarily" for processing given that approximately 46.5% of the space was used for processing.

Words and Phrases

Labrador Offshore Shipping Co. Ltd. v. The Queen, 90 DTC 6096 (FCTD)

use of leased property was by lessee rather than lessor

The taxpayer, which was resident in Nova Scotia, leased a diving support vessel to Petro-Canada, which used the vessel outside Nova Scotia in its exploration and drilling operations. The taxpayer argued that the act of leasing the vessel to Petro-Canada, which lease was executed in Nova Scotia, constituted that plaintiff's "use" of the vessel in Nova Scotia. Martin J. held that by the act of leasing the taxpayer had parted with the use or the right to use the property, and that it was not the lessor who was using the vessel, but the lessee who was using it for its own purposes outside Nova Scotia. Therefore, the property was not "used in" Nova Scotia for purposes of former s. 127(9)(a.1).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 255 43

Mother's Pizza Parlour (London) Ltd. v. The Queen, 88 DTC 6397, [1988] 2 CTC 197 (FCA)

A Mother's Pizza restaurant, which devoted 25% of its floor area and 30% of its payroll to its kitchen, and the balance to the dining rooms and ancillary activities, could not be said to be using the restaurant building "primarily" for the purpose of processing goods (i.e., food) for sale. "When, as in the present case, different parts of a same building are permanently used for what is considered to be two different purposes, the most important factor in determining the purpose for which the building is primarily used is the amount of space in the building that is used for each one of these two purposes."

Lor-Wes Contracting Ltd. v. The Queen, 85 DTC 5310, [1985] 2 CTC 79 (FCA)

"[T]he words 'primarily for the purpose of logging' are not followed by the words 'by him' or otherwise qualified so as to limit the benefit of the section to cases wherein the corporation taxpayer itself has the timber or cutting rights". The taxpayer corporation, which was in the business of building logging roads and performing related site services, purchased equipment to carry out an integral part of logging.

Mother's Pizza Parlour Ltd. v. The Queen, 85 DTC 5271, [1985] 1 CTC 361 (FCTD), aff'd supra.

Mother's Pizza Parlour buildings were not used for "processing". The investment tax credit was intended to provide an incentive for investment in Canada's traditional primary and secondary industries rather than for restaurant operations, and the word "processing" "does not include the preparation of meals for immediate sale as a finished product to the public."

O'Neill v. The Queen, 85 DTC 5026, [1985] 1 CTC 682 (FCTD)

The taxpayer, who was in the business of purchasing fish at dockside for re-sale to fish processing plants, used an air unloader to pneumatically remove fish from the boats and deposit them on trucks. Although the air unloader removed scales from some of the fish that it moved, this was "incidental to the main purpose of [the taxpayer's] work, namely buying and selling fish." The machine accordingly was not used primarily for the purpose of processing fish.

Bunge of Canada Ltd. v. The Queen, 84 DTC 6276, [1984] CTC 284 (FCA)

Facilities that were used for discharging grain from grain elevators into outgoing ships and which stood over 200 feet from the grain elevators were held to have been acquired "primarily for the purpose of ... the storing of grain," because "the discharge of grain from a silo...[is] a necessary and integral part of the storing of grain".

See Also

Pêcheries Yvon Savage Inc. v. The Queen, 2012 DTC 1059 [at 2781], 2011 TCC 477

Favreau J. denied the taxpayer's investment tax credits in respect of a substantial renovation on a shrimp fishing boat, because the boat had been used before the renovation and was therefore not qualified property. While the renovations were extensive (taking three years and $722,505), they were not so extensive that the restored vessel could be considered a new asset (a similar vessel would have cost $2 million new).

Ateliers Ferroviaires de Mont-Joli Inc. v. The Queen, 2011 DTC 1358 [at 2006], 2011 TCC 352

The taxpayer's parent company ("Séma") was in the business of providing consulting and maintenance services to the Canadian National Railway Company. Séma incorporated the taxpayer for the purpose of cutting, and supplying Séma with, railway-grade steel pieces. Jorré J. found that the taxpayer's tools were being used "primarily for the purpose of manufacturing or processing goods for sale or lease." It was irrelevant that the steel pieces were made predominantly for Séma's maintenance business because the taxpayer and Séma were distinct legal entities - the taxpayer had no direct involvement in Séma's maintenance contracts (para. 54). The taxpayer being separate from Séma also distinguished the facts from Albert, where the high value of the taxpayer's labour compared to his material costs in his dentistry practice led to a finding that he was not selling goods (paras. 62-63).

It was also immaterial that the goods were custom-made to meet Séma's specific purposes, and therefore presumably of limited use to other potential customers. Jorré J. stated (at para. 57):

The "high end" in manufacturing is the manufacturer who can quickly fill an order for goods intended to satisfy a client's specific needs. It would be surprising to discover that such a manufacturer that makes unique goods to order to meet a client's needs does not sell those goods to that client.

(He stated in a footnote, however, that this comment was confined to situations where the manufacturer obtains the necessary parts and materials itself, and that the conclusion might be different where the client provides some or all of the parts and materials.)

Albert v. The Queen, 2009 DTC 1114 [at 603], 2009 TCC 16 (Informal Procedure)

Instruments that a dentist used to prepare ceramic restorations did not qualify as equipment used by him for processing goods "for sale" given that the value of the labour provided to him to his patients was always higher than that of the materials, so that it must be concluded that he had a contract for services with them rather than a contract for sale.

H.B. Barton Trucking Ltd. v. The Queen, 2009 TCC 376

In finding that a subcontractor, whose business involved chipping logs and hauling the wood chips directly to a pulp and paper mill for processing was engaging in a qualifying "logging" activity and was not under the prohibition in s. 127(11)(b) engaged in the shipping of "finished goods", V. Miller J. stated her opinion "the definition of 'logging' must evolve with the industry and include the transporting of wood chips (at para. 25) that "a purposive, contextual interpretation of the legislation in issue requires the definition of 'logging' include the transportation of wood chips from the harvest site to the pulp and paper mill".

Stevenson v. The Queen, 2001 DTC 1019 (TCC)

An organization set up by the Saskatchewan government to assist the agricultural industry tested a combine for approximately 115 hours (roughly 0.5% of its expected useful life) while title remained with the manufacturer and prior to its delivery to the purchasing taxpayer (a farmer). Bowman A.C.J. found that the combine had not been used for any purpose whatever at the time of its acquisition by the taxpayer, and stated (at p. 1020):

"Testing new equipment by or at the behest of the manufacturer is an essential part of the manufacturing process."

Capilano International Inc. v. The Queen, 95 DTC 915 (TCC)

initial 2-year contract ouside Canada did not detract from primary purpose test

The taxpayer, which at the time was engaged exclusively in seismic exploration in western Canada, bought telemetry equipment for the first time following its entering into a contract with a guaranteed term of approximately two years requiring the taxpayer to use telemetry equipment and providing seismic exploration services in Jordan. It was found that the taxpayer nonetheless had acquired the telemetry equipment primarily for use in Canada given that it had a bona fide reasonable expectation of using that equipment in Canada for at least eight years after the expiration of the two-year contract in Jordan. It was not relevant that in fact the equipment was used back in Canada for only ten months before it was traded in for more advanced equipment.

Produits L.B. (1987) Ltée v. The Queen, 93 DTC 1541 (TCC)

After accepting that packaging, although not itself a manufacturing or processing activity, constitutes such an activity when it comes at the end of the goods production line, Lamarre Proulx TCJ. went on to find that an operation of loading bags of food into pallets that were of an appropriate size for shipping constituted an element of the shipping rather than of the manufacturing process.

A packaging machine purchased in the year by the taxpayer was eligible for the investment tax credit notwithstanding that the vendor's engineers were unable to make it functional, and the machine was returned for a refund. The relevant test was whether the equipment was acquired for the purposes of use in manufacturing and processing activities, rather than whether the equipment actually was so used.

Laurent Goulet & Fils Inc. v. MNR, 92 DTC 1611 (TCC)

At the time the taxpayer contacted the lessor ("Hewitt") of equipment to it that it wished to exercise the purchase option, Hewitt suggested another institution ("Lafleur") as a source of financing the purchase. Accordingly, the taxpayer entered into a lease with Lafleur.

In finding that the taxpayer did not acquire the equipment pursuant to the lease with Lafleur (and therefore, was not eligible for an investment tax credit under s. 127(5)), Tremblay TCJ. noted that one clause of the lease provided that "ownership of all vehicles leased shall remain with the lessor, and said vehicles should be registered in the lessor's name"; that another clause provided that at the expiry of the contract the lessor (Lafleur) was required to attempt to arrange the sale of the vehicle, with any shortfall to be paid by the taxpayer, and any excess to be refunded by Lafleur; and that a transfer of ownership took place between Hewitt and Lafleur.

The taxpayer also was not eligible for the investment tax credit because of the prior lease of the equipment from Hewitt.

Re PPG Industries Canada Ltd. (1984), 10 DLR (4th) 476 (Ont HC)

Storage bins were held to form an integral part of the appellant's overall process for manufacturing plate glass, and thereby constituted "machinery and equipment used for manufacturing ... purposes" within the meaning of s. 3(17) of the Assessment Act (Ontario).

Coca Cola Ltd. v. Dep. MNR, 84 DTC 6081, [1984] CTC 75 (FCA)

Machinery or apparatus for use in "the manufacture or production of goods" can include machinery that is used after the moment when a usable and saleable article is in existence. "[M]eans for removal of the product from the production equipment is as essential as any other part of the machinery or apparatus used in the manufacture or production of the product." (Excise Tax Act)

Re Nabisco Brands Ltd. (1984), 45 OR (2d) 602 (SCO), aff'd 53 OR (2d) 736 (Ont. D.C.)

Silos used in a milling operation to store, mix and decontaminate wheat constituted "machinery and equipment used for manufacturing", notwithstanding the absence of moving parts. (Assessment Act (Ontario), s. 3, para. 17)

Commr. of N.W.T. v. Pine Point Mines Ltd., [1981] 5 WWR 420 (N.W.T.S.C.)

A mining dragline constituted "machinery" and "equipment" for purposes of the Taxation Ordinance (N.W.T.).

Newaygo Forest Products Ltd. v. Min. of Rev. of Ontario, [1981] C.T.C 118 (SCO)

Lumber sorting and stacking equipment was found to form part of the taxpayer's production line for the manufacture of lumber from logs, and thus fell within an exemption in the Retail Sales Tax Act (Ontario) for equipment purchased for manufacturing.

Administrative Policy

28 April 2015 External T.I. 2015-0576511E5 - Fishing vessels and Atlantic Investment Tax Credit

qualification of fishing vessels used within 200-mile limit

New fishing vessels that otherwise meet all the requirements set out in the definition of qualified property are eligible for the Atlantic ITC if they are primarily used in Canada including the "prescribed offshore region" described in Reg. 4609.

29 May 2014 External T.I. 2014-0517371E5 - Manitoba Investment Tax Credit

use of gross revenue test

In a redacted response to an inquiry on the Manitoba manufacturing investment tax credit rules, which incorporated by reference the federal qualified property definition, CRA stated:

In establishing whether or not a particular machine or piece of equipment is to be used "primarily" (more than 50%) in the manufacturing or processing of goods for sale or lease, generally speaking, the determining factor would be the proportion of time that it is used in these activities.

However, as mentioned in paragraph 13 of IT-147R3…it may be difficult in some cases to [apply this test]. …In such circumstances… an analysis of gross revenue from each operation may be helpful in determining the primary use of that equipment.

11 July 2013 Internal T.I. 2013-0490091I7 - Qualified Property

Cancelled IT–331R provided that:

Where used equipment is renovated by a vendor and those renovations are so significant that the equipment, when acquired by a taxpayer can be said to be new, it will also constitute a creditable investment if the other eligibility conditions are met.

In light of the Pêcheries Yvon Savage decision and the inherent administrative difficulty in applying this position, CRA will no longer apply it.

(This reverses CRA's position in 22 August 2011 T.I. 2011-0415821E5.)

6 October 2011 External T.I. 2011-0417811E5 - Investment Tax Credit and 16.1(1)

Where a lessor acquires a depreciable property that has never been used or leased by any person before the time it is leased to a lessee, and they have made an election for that property under s. 16.1(1), the fact that s. 16(1)(b) deems the lessee to have acquired the property at fair market value does not necessarily mean that the property had previously been "used, or acquired for use or lease" for the purposes of s. 127(9).

4 February 1994 Internal T.I. 9333597 - TRUCKS HAULING WOOD CHIPS - QUALIFIED PROPERTY?

Trucks and trailers used by independent contractors to haul woodchips from a woodchipper, or from a saw mill operation, to a mill are considered to be utilized in transportation occurring after the cessation of "logging" and not to be engaged in "manufacturing or processing". Accordingly, such assets would not qualify under subparagraphs (c), (i) or (ix) of the definition. Depending upon the facts, such transportation might also be the "shipping ... of finished goods" for purposes of s. 127(11)(b).

9 May 1991 T.I. (Tax Window, No. 3, p. 29, ¶1254)

The Ontario superallowance for scientific research and development, and the Ontario current cost adjustment, are not "government assistance", and as a result ss.12(1)(x), 13(7.1), 37(1)(d) and 53(2)(k) will not apply.

31 May 1990 T.I. (October 1990 Access Letter, ¶1477)

Discussion of criteria respecting when rebuilt machinery will qualify as new machinery.

28 May 1990 T.I. (October 1990 Access Letter, ¶1476)

Discussion whether a pulp mill qualifies as a facility under the RDIA; and whether equipment used by an oil well service company, and oil and gas in situ plants, qualify as certified properties.

28 February 1990 T.I. (July 1990 Access Letter, ¶1333)

Discussion of the allocation of investment tax credits to the corporate members of a partnership.

12 January 1990 T.I. (June 1990 Access Letter, ¶1275)

Machinery held by a consignee had not been "acquired" by it and therefore was not qualified property of the consignee.

12 September 89 T.I. (February 1990 Access Letter, ¶1124)

Vessels which were used within Canada's 200 mile fishing limit but outside the 12 mile territorial waters of Canada were not used in Canada for purposes of s. 127(9).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 255 28

Paragraph (c)


Stark International Inc. v. The Queen, 2019 TCC 248

a use test could be applied by looking beyond the property’s immediate intended use

In order to be Class 43 depreciable property, oil processing equipment of the taxpayer had to qualify as property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale - and a similar test applied in determining whether the equipment was “qualified property” for investment tax credit purposes. In the case of some of the equipment, its initially contemplated use (which in fact occurred) was to purify oil for 10 months at the Bruce nuclear power station. This did not qualify as processing “for sale” because the oil in question at all times was oil of the customer rather than being sold to it. Nonetheless, the use test of processing for “sale” was satisfied because the taxpayer’s intention on completion of this contract was to use the equipment for purifying (i.e., processing) dirty oil that it acquired for the purpose of sale in its purified form.

The ITC “qualified property” test (which was easier to work with, because it had an explicit purpose test) was also satisfied.

In finding that safety equipment did not qualify, Sommerfeldt J stated (at para. 50):

While safety is a commendable and essential objective of any oil processing business, safety equipment is used for the purpose of promoting and ensuring safety, rather than for the purpose of processing oil for sale.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29 oil-processing equipment was for sale even though initial use was to process customer's oil 673

Administrative Policy

20 May 2014 External T.I. 2014-0517331E5 F - CII - exploitation agricole

test is of intention on acquisition to use over 50%, during months of likely use during the equipment’s lifetime, on farm in the region

Two taxpayers, dealing at arm's length and carrying on an unincorporated farming business, purchased farm equipment in a qualifying region for use on a farm there. However, in the same year, the equipment was also used for a number of months on other farmland owned by them in a non-qualifying region – and the equipment was not used at all in the winter months.

Does the use of the farm equipment in the other region disqualify it, and can each of them claim part of the ITC on the same equipment? CRA responded:

[A]n analysis of the facts must be made … to ascertain the governing intention when the property was acquired. … Thus, the taxpayer must be able to establish the taxpayer’s intention, i.e., to have acquired the new farm equipment primarily for use throughout its lifetime on farm land situated in XXXXXXXXXX.

The term "primarily"… mean[s] more than 50%. The … "operating time" generally refers to the time the equipment usually runs or functions during the taxation year. …

Where there are two co-owners, we agree that it is possible for them to divide the total of qualified property eligible for the ITC between themselves… .

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 127 - Subsection 127(27) no ITC reversal if unanticipated transfer of equipment to a farm outside the region 163
Tax Topics - General Concepts - Ownership co-owners entitled to pro rata ITCs 60

Subparagraph (c)(i)

See Also

Environnement Sanivac Inc. v. ARQ, 2016 QCCQ 9461

transporting trucks with decanting tanks used in M&P

Some of the trucks in the fleet of trucks of the taxpayer (“Sanivac”) were non-customized trucks used to pump out used oil from customers’ facilities, and drive back to the Sanivac facilities, where they would be stationary for about 12 hours, during which time the oils were allowed to settle in the trucks’ tanks – after which they were transferred to other tanks at the facility for further processing. Sanivac thereafter sold the recovered and purified oils.

In finding that these trucks were qualified properties for purposes of the Quebec investment tax credit under s. 1029. of the Taxation Act (an approximate equivalent of ITA s. 127(9) – qualified property – (c)(i)), Guimond JCQ stated (at paras. 43-45, 50):

[I]t has been demonstrated the combination of the processes were necessary inter alia in order to ensure the traceability of PCBs when identified.

In recognizing that the combination of the steps was necessary, the Court concludes that the time devoted to the transformation was much more important that that devoted simply to transportation so that the criterion of 50% plus 1 is amply satisfied.

Furthermore, it has been demonstrated that the modifications made to the equipment were necessary in order to obtain oil of a better quality for business use and in order to lend itself to sale at a higher price. …

One fact remains, which is that the equipment was purchased and modified for the specific purpose of acquiring contaminated, diluted and snarled materials for their purification and resale as a finished product.

He then quoted Démolition A.M. with approval.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29 trucks used both for transporting and decanting dirty oil were M&P equipment 124

Qualified Transportation Equipment


Canada v. McMynn, 97 DTC 5325 (FCA)

The individual taxpayers, who purchased buses in order to lease them for use in the business of their companies, did not qualify for the credit because it was their company rather than the taxpayer who were engaged in passenger transport.

Words and Phrases

Specified Percentage

Administrative Policy

19 December 2012 External T.I. 2011-0425581E5 F - CII - régions admissibles-Montérégie-Rive-Sud

description of qualifying ITC regions (which exclude Montérégie South Shore)

Is the Montérégie South Shore region eligible for investment tax credit ("ITC") purposes? After noting that this region is not in Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, the Gaspé Peninsula or a prescribed offshore area and (under Reg. 4607) was not a designated region on December 31, 1984, under the Regional Development Incentives Designated Region Order, 1974, CRA stated:

Consequently, there is no ITC for qualified property acquired since 1988 and used primarily in Canada, (including Montérégie Rive-Sud region), other than in Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, the Gaspé Peninsula and in the prescribed offshore region.

Subsection 127(10.1) - Additions to investment tax credit

Administrative Policy

25 July 1989 Memorandum (Dec. 89 Access Letter, ¶1056)

The calculation in s. 127(10.1) includes only those scientific research and experimental development expenditures made directly by the taxpayer and not those made by a partnership in which the taxpayer is a member.

Subsection 127(10.2) - Expenditure limit determined

Administrative Policy

5 June 2012 External T.I. 2011-0417971E5 F - Sociétés associées - CII

computation of expenditure limit where one CCPC acquires another

Corporation A (a Canadian-controlled private corporation with a January 31 year end) acquires control of Corporation B (a private corporation which otherwise would have a June 30 year end) on December 30, 2010, thereby causing Corporation B's taxation year to end immediately before December 30, 2010.

Where the taxable capital employed in Canada of each corporation is less than $10 million, the expenditure limit of Corporation A for the (January 31, 2011) taxation year in which it acquired control of Corporation B is the greater of $500,000 and the total taxable income of all associated corporations for their last taxation years ending in calendar year 2010. For Corporation A, taxable income for the taxation year starting on February 1, 2009 and ending on January 31, 2010, is used in this calculation. For Corporation B, taxable income for its taxation year commencing on July 1, 2010 and ending immediately before December 30, 2010, is used in this calculation. The same taxation years are used to compute the taxable capital employed in Canada for purpose of B in the formula.

S. 127(10.6) does not apply on these facts.

15 November 2011 External T.I. 2011-0423671E5 - Expenditure Limit

The taxable income of foreign subsidiaries must be taken into account in determining the expenditure limit.

Subsection 127(10.22)

Administrative Policy

15 January 2010 External T.I. 2009-0343841E5 F - Application du paragraphe 127(10.22)

interposition of Holdco broke a condition for application of s. 127(10.22)

The voting and participating shares of Opco 1 are held by Investco 1 (30%), Investco 2 (30%) and its two founding shareholders (20% each). The voting and participating shares of Opco 2 are wholly owned by Holdco. Holdco is a CCPC whose shareholders are Investco 1 (30%), Investco 2 (30%) and the three founding shareholders of Opco 2 (13.33% each). None of such shareholders or Opco 1 or Holdco are related or associated with each other or has de facto control of Opco 1 or Opco 2.

CRA found that s. 127(10.22) was not applicable since, although Opco 1 issued shares directly to Investco 1 and Investco 2, they did not hold shares of Opco 2.

Subsection 127(11) - Interpretation

Paragraph 127(11)(b)

Administrative Policy

28 May 1991 Memorandum (Tax Window, No. 3, p. 14, ¶1265)

Products of the extractive industries are not "finished goods".

Subsection 127(11.1) - Investment tax credit

See Also

Gaston Cellard Inc. v. The Queen, 2005 DTC 699, 2002 DTC 1890 (TCC)

The capital cost for investment tax credit purposes of a new sawmill that the taxpayer purchased out of expropriation proceeds was the actual cost of the facility, rather than the deemed lower cost under s. 44(1)(f), given that there was ambiguity as to whether the definition in s. 44(1)(f) extended to the remaining provisions of the Act (other provisions stated explicitly that they applied for purposes of the Act) and given that a reduction for expropriation proceeds would thwart the apparent intention of Parliament in encouraging taxpayers such as the taxpayer to invest.

Paragraph 127(11.1)(c)

See Also

Tyoxide Canada Inc. v. The Queen, 93 DTC 1499 (TCC)

A Quebec tax credit equal to 10% of the wages of Quebec employees of the taxpayer engaged in research reduced the amount of the taxpayer's qualified expenditures (in addition to constituting income under s. 12(1)(x)).

Administrative Policy

25 August 1994 External T.I. 9417185 - SR&ED

"Where, under a contractual arrangement, a non-resident taxpayer does not carry on any business in Canada and reimburses a taxpayer in respect of SR&ED expenditures incurred by the taxpayer in Canada and the taxpayer includes the amount of the reimbursement in computing the taxpayer's income from a business carried on in Canada pursuant to subsection 9(1) of the Act, it is our position that the reimbursement would not be considered to be a non-government assistance or a contract payment for the purposes of paragraph 127(11.1)(c) of the Act. Accordingly, the reimbursement would not reduce a qualified expenditure incurred by the taxpayer ... ."

19 March 1993 T.I. (Tax Window, No. 29, p. 1 ¶2442)

Where under a contractual arrangement the S.R.& E.D. expenditures of a Canadian corporation are reimbursed by a related non-resident corporation and the Canadian corporation includes the reimbursements in its income, the reimbursements will not be considered to be non-governmental assistance or a contract payment for purposes of s. 127(11.1)(c).

Subsection 127(11.2) - Time of expenditure and acquisition

Administrative Policy

9 September 1992 T.I. (Tax Window, No. 24, p. 17, ¶2210)

Where a property acquired by the original owner is not "available for use" under the capital cost allowance rules, the subsequent owner of the property following a disposition by the original owner will be entitled to an investment tax credit, provided that all other conditions are satisfied.

Subsection 127(11.4) - Special rule for eligible salary and wages — apprentices

Administrative Policy

Application Policy SR & ED 96-01 "Reclassification of SR & ED Expenditures per Subsection 127(11.4)".

Subsection 127(17) - Assessment

Administrative Policy

88 C.R. - Q.45

The "tax otherwise payable" is reduced by foreign tax credits.

Subsection 127(18) - Reduction of qualified expenditures

Administrative Policy

18 July 2001 External T.I. 2001-006967 -

"Where, under a contractual arrangement, a non-resident does not carry on any business in Canada and reimburses a Canadian taxpayer in respect of SR & ED expenditures incurred in Canada and the Canadian taxpayer includes the amount of the reimbursement in computing the taxpayer's income from a business carried on in Canada pursuant to subsection 9(1) of the Act, it is our position that the reimbursement would not be considered to be non-government assistance or a contract payment for the purposes of paragraph 127(18) of the Act. Accordingly, the reimbursement would not reduce a qualified expenditure incurred by the taxpayer for ITC purposes pursuant to paragraph 127(18) of the Act. Also, by virtue that the reimbursement would not be deductible by the non-resident person in computing Part I tax, the amount would not be a prescribed expenditure for the purposes of subparagraph 2902(e)(ii) of the Regulations."

30 June 1998 External T.I. 9809735 - SR&ED

A government grant received by a taxpayer which is to assist in the construction of a building in which SR&ED will be carried out and in which qualified expenditures will be incurred will be considered to reduce the taxpayer's qualified expenditures.

24 September 1997 Internal T.I. 9718257 - INTERPRETATION OF SUBSECTION 127(18) OF THE ACT

The policy intent is that s. 127(18) applies on a project-by-project basis, and the French version will be amended to reflect this policy.

Subsection 127(19) - Reduction of qualified expenditures

See Also

PSC Elstow Research Farm Inc v. The Queen, 2009 DTC 168, 2008 TCC 694

Research grants received by the parent of the taxpayer that had nothing to do with its research facility did not reduce the taxpayer's qualified expenditures (whereas it was accepted that research grants received by the parent that were then received from the parent by the taxpayer so reduced its qualified expenditures).

Administrative Policy

Guidance: How the Canada emergency wage subsidy affects SR&ED claims 19 February 2021 CRA Webpage

Example showing application of CEWS in computing ITCs under the traditional and proxy methods

Example of the Canada emergency wage subsidy applied to an SR&ED claim

  • The corporation’s lead engineer (Sarah) spends all of her time for a 12-week period directly engaged in an SR&ED project and does non-SR&ED work for the rest of the year. The only relevant overhead expense is the salary of her administrative assistant (Jamaal), who spends 30% of his time during the same period tracking the SR&ED project costs and its progress. His salary can be claimed as overhead and other expenditures under the traditional (not the proxy) method only.
  • Under the traditional method, the corporation’s qualified expenditures are calculated as the salary paid to Sarah during the 12-week period plus 30% of Jamaal’s salary for that period minus all and 30%, respectively, of the CEWS received by the corporation in relation to their respective salaries for that period.
  • Under the proxy method, its qualified expenditures include only Sarah’s salary for the period, but are grossed-up by the 55% prescribed proxy amount, and that total is reduced by all and 30%, respectively, of the CEWS received by the corporation in relation to their respective salaries for that period.


Subsection 127(27)

Administrative Policy

20 May 2014 External T.I. 2014-0517331E5 F - CII - exploitation agricole

no ITC reversal if unanticipated transfer of equipment to a farm outside the region

Two taxpayers, dealing at arm's length and carrying on an unincorporated farming business, purchased farm equipment in a qualifying region for use on a farm there. However, in the same year, the equipment was also used for a number of months on other farmland owned by them in a non-qualifying region – and the equipment was not used at all in the winter months.

If that farm is sold and the equipment moved to their farm in a non-qualifying area, must any ITC received be refunded? CRA responded:

[T]he taxpayer may access the ITC if the taxpayer’s actual intention was to use the equipment primarily on farm land located at XXXXXXXXXX. If this is the case, the credit would not have to be refunded if, in a subsequent year, the farm equipment was relocated without being disposed of by the taxpayer to farm land in another region and was not converted to commercial use.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Property - Paragraph (c) test is of intention on acquisition to use over 50%, during months of likely use during the equipment’s lifetime, on farm in the region 207
Tax Topics - General Concepts - Ownership co-owners entitled to pro rata ITCs 60