13 February 1992 Income Tax Severed Letter 912268 - [Payments To A University Under Subsection 37(1)]

MEMORANDUM

DATE February 13, 1992

TO- SCIENTIFIC RESEARCH 
          AUDIT SECTION 
          HEAD OFFICE

FROM   RULINGS DIRECTORATE 
                   A. Y. HO  
                   (613) 957-4796

Attention: Jim Millen

SUBJECT: Payments To A University Under Subsection 37(1)

We are writing in reply to your memorandum of August 15, 1991 wherein you requested that we consider your opinion on whether or not the payments of professional income earned in excess of a ceiling by medical doctors who both teach at the university to which the payments are made and operate a practice from an affiliated hospital qualify for a deduction under subparagraph 37(l)(a)(ii) of the Income Tax Act (the "Act"). This question was referred to you by the London District Office.

Our Comments

As mentioned in your memorandum, the payments would be qualified for a deduction under subparagraph 37(1)(a)(ii) provided the following conditions are met:

(1) the payments are made to an approved entity;

(2) the SR&ED is related to the medical doctor's business;

(3) the payments are in respect of scientific research and experimental development ("SR&ED");

(4) the medical doctor is entitled to exploit the results of the SR&ED.

We agree that all universities are considered to be approved under subparagraph 37(7)(a)(ii) of the Act. It is a question of fact whether the SR&ED is related to the business, as opposed to the class of business, of the medical doctor. For example, if the contribution went to fund research in the contributor's specialty, this condition would be satisfied. However, a payment to fund medical research in general, although related to the contributor's class of business (medicine), would not be related to the business of a medical specialist.

It is unlikely that the research done by the university is not qualified for SR&ED, assuming that the administration expenses incurred are less than 10% of the total expenditures.

The determination of whether the medical doctor is entitled to exploit the results of the SR&ED is also a question of fact. The word "entitle" is not defined in the Act. The Webster's dictionary has the following meaning for this word:

"a right to benefits specified especially by law or contract"

If the medical doctors have no right under the contract governing their contribution to benefit from the SR&ED, then they are not entitled to exploit the results of the SR&ED. It is our opinion that where intellectual property is made available to the public at large, the requirement found in paragraph 37(l)(a) of the Act, "… that the taxpayer is entitled to exploit the results…" obtained from the SR&ED would not be fulfilled.

If the payments are not deductible under section 37 of the Act, the medical doctor may deduct the payments under section 118.1 provided that the requirements under that section are met.

We trust the above comments are of assistance. If you require further assistance, please contact the writer.

Yours truly,

for Director Merchandising, Manufacturing, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch