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 … .