Principal Questions: Whether the entity may obtain the status of « other similar institution » as per clause 37(1)a)(ii)(B) ?
Position Taken: No
Reasons: One of the criteria stated in the "Third-Party Payments Policy" requires that the entity must carry on only activities that are unquestionably SR&ED activities. This requirement is not met.
XXXXXXXXXX 2013-051577
N. Deslandes, CPA, CGA, D.Fisc.
(819) 953-1643
January 5, 2016
Dear,
Subject: Request for approval under clause 37(1)(a)(ii)(B)
This is in response to your letter of December 13, 2013 in which you requested that we approve XXXXXXXXXX as an "approved similar institution" for purposes of clause 37(1)(a)(ii)(B) of the Income Tax Act. (Footnote 1) In our review, we have taken into account all the additional information that you provided to us in our correspondence and our telephone conversations (XXXXXXXXXX/Deslandes).
For the purposes of clauses 37(1)(a)(ii)(A) and (B) of the Act, the Canada Revenue Agency (the "CRA") has a practice to recognize an organization as "approved similar institution" only if it meets the requirements of its Third-Party Payment Policy (footnote 2), which reads as follows:
- the entity must have the facilities, equipment, and personnel capable of carrying out SR&ED as defined in the Act;
- the entity must carry on only activities that are unquestionably SR&ED;
- to satisfy the requirements for non-profit status, there must be no personal benefits to members, no control of other associations, and satisfactory provisions for distributing assets upon dissolution;
- the general public must be a beneficiary of the results of any successful research; and
- the funding of the association or research institute must be enough to ensure ongoing SR&ED.
As we mentioned during our telephone conversation (XXXXXXXXXX/Deslandes/Lambert) of October 3, 2015, the information we obtained does not allow us to conclude that XXXXXXXXXX meets the second requirement that the activity must be unquestionably SR & ED.
In this regard, the term "SR&ED" is defined in subsection 248(1) of the Act. This definition lists, inter alia, in paragraphs (e) to (k), a series of activities that do not constitute SR&ED activities, namely:
e) market research or sales promotion;
f) quality control or routine testing of materials, devices, products or processes;
g) research in the social sciences or the humanities;
h) prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas;
i) the commercial production of a new or improved material, device or product or the commercial use of new or improved process;
j) style changes; or
k) routine data collection.
We concluded that some XXXXXXXXXX activities are specifically excluded from the definition of "SR&ED" such as XXXXXXXXXX as well as activities that do not constitute SR&ED as they do not relate to or support SR&ED activities.
Therefore, we regret to inform you that we cannot recognize XXXXXXXXXX as an "approved similar institution" for purposes of clause 37(1)(a)(ii)(B) of the Act. We have kept the documents you have sent us and we remain available to answer your questions.
Please accept, Madam/Sir, the assurances of our highest regards.
Michel Lambert, CPA, CA, M. Fisc.
Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to the requirements of our systems, page footnotes contained in the original document are reproduced below:
1 R.S.C. 1985 (5th Supplement), c.1, as amended (hereinafter the "Act").
2 See http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/thrdprty-eng.html#s11_3