Re: Paragraph 37(7)(e)
This is in reply to your letter of March 5, 1991 concerning scientific research and experimental development (research) carried on by a partnership.
You mention that paragraph 37(7)(e) of the Act provides that the prosecution of research shall not be considered to be a business of the taxpayer to which the research relates, except where that taxpayer derives all or substantially all of its revenue from the prosecution of research.
In your view, when the research is carried on in a partnership, the taxpayer referred to in paragraph 37(7)(e) is the partnership and not its partners. This view is reinforced by the provisions of 96(1)(e.1) which provides that section 37 deductions are to be computed by the partnership and by paragraph 96(1)(g) which restricts the deduction of partnership losses from research by a partner in certain circumstances.
We agree with your view that, in the case of a partnership, the reference in paragraph 37(7)(e) to taxpayer is to the partnership. We also agree with your comments concerning the restriction of partnership losses under subsection 96(1).
We trust our comments will be of assistance.
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch