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.
APFF - 1995
Question 6
Scientific Research and Experimental Development (SR&ED)
A taxable Canadian corporation (“Holdco”) resident in Canada realized a significant capital gain during the current year. Holdco has a wholly owned subsidiary (“Subco”) which has a substantial balance of unused SR&ED expenses. Subco would like to cease operations and Holdco does not carry on any other business by itself.
Would it be possible fold Subco into Holdco and apply the balance of Subco’s unused SR&ED expenses against the capital gain realized by Holdco, given that eligible SR&ED expenses are limited by subsection 37(1) of the Act, which provides, among other things, that “where a taxpayer carried on a business in Canada in a taxation year ... there may be deducted in computing the taxpayer’s income from the business for the year ...an expenditure of a current nature made ... on scientific research and experimental development carried on in Canada, directly undertaken by or on behalf of the taxpayer...”?
Answer by the Department of Revenue
The rules governing the winding-up of a taxable Canadian corporation are set out in subsection 88(1) of the Act. Paragraph 88(1)(e.2) stipulates, among other things, that the various rules applicable to an amalgamation also apply to a winding-up, including paragraph 87(2)(l), which states that for the purposes of section 37, the “parent corporation” shall be deemed to be the same corporation as, and a continuation of, each “subsidiary”. However, under this paragraph the parent corporation is not deemed to continue the operation of the subsidiary's business after the winding-up.
Therefore, Holdco may not deduct any amount under subsection 37(1) of the Act because it is not operating any business after the winding-up.