5-903257
Dear Sirs:
Re: Paragraph 37(1)(d) and subsection 127(11.1) of the Income Tax Act (the Act")
This is in reply to your letter dated November 12, 1990 wherein you requested clarification of the Departments' position as to the application and interpretation of the above mentioned paragraph and subsection.
It is your understanding that in situations where a government grant or other assistance is conditional upon the disbursement of actual expenditures by the taxpayer, the government grant or other assistance will not reduce the amount of qualified research and experimental development expenditures under paragraph 37(1)(d) of the Act, nor will it reduce under subsection 127(11.1) of the Act the quantum of expenditures eligible for investment tax credit purposes until such time as the taxpayer has fulfilled the conditions of the agreement upon which the assistance is based, by incurring the research and development expenditures to which the grant is incumbent upon.
While the interpretation of the phrase "reasonably be expected to receive" will be dependant upon the facts of the specific situation, generally where the scientific research and experimental development expenditures must be incurred prior to the taxpayer receiving entitlement to assistance, it would not be reasonable for the assistance to be included in income by virtue of paragraph 12(1)(v) of the Act, unless the taxpayer had, in fact, incurred the related expenditures eligible for the assistance.
It is anticipated that the time period between the fiscal year end of the taxpayer and the actual filing of its tax return will enable the taxpayer to more accurately ascertain the assistance to which it is entitled for the prior fiscal period, based upon actual completion of the documentation necessary to obtain the assistance. It is expected that the taxpayer will make a reasonable effort at the final stages of preparing the income tax return to determine the amount of assistance the taxpayer can reasonably be expected to receive based on the information available at the time.
The above comments represent our opinion of the law as it applies generally. As indicated in paragraph 21 of Information Circular 706R2 dated September 28, 1990, an opinion is not an advance ruling and accordingly, is not binding on Revenue Canada, Taxation.
We trust that our comments will be of assistance.
Yours truly,
for DirectorSmall Business and General DivisionRulings DirectorateLegislative And Intergovernmental Affairs Branch