January 23, 1990
FROM - Head Office Specialty Rulings Roberta Albert 957-2098
TO - Claude Lamarche A/Chief Scientific Research Audit Applications Section Audit Programs Directorate R.P. Laramy
SUBJECT: Priority Referral
T661(E) Rev. 89We are writing in reply to your memorandum of January 4, 1990 wherein you requested our comments on suggested changes to be incorporated into T661(E) Rev. 88 so that T661(E) Rev. 89 may be drafted.
Our comments are as follows:
Page 1 - Under the heading of `Filing Instructions', the words "scientific research and experimental development" are abbreviated to "R & D". We would suggest using the abbreviation "SR & ED" here and throughout the form.
Page 1 - In the paragraph commencing with "The required information...", the abbreviation of "SR & ED" should be added to the discussion on Part (I) so that it reads "...the total costs for all SR & ED projects..." and, in the discussion on Part (III), the word "project" should be replaced with the word "product".
Page 1 - Under the heading of `Partnerships', a closing bracket is required.
Page 1 - In the `Certification' block, the word "a" should replace the third appearance of the word "the" so that the signature requirement reads "...or a general partner" as a partnership may have more than one general partner.
Page 2 - In the sentence under the heading to Part I, the words "on pages 3 and 4" should be added so that the sentence reads "Please refer to Explanation of Details of Total Costs on pages 3 and 4 for Assistance in Completing this Part".
Page 2 - Line 124, entitled Total Current Expenditures for the Year, represents the total of paragraph 37(1)(a) expenditures. Subparagraph 37(7)(c)(ii) as well as subparagraphs 37(7)(f)(ii) and 37(7)(f)(iii) are to be used to determine the current expenditures to be included under paragraph 37(1)(a). The current format of the bracketed information appears as though current expenditures for the year include those in paragraph 37(1)(a) and those in subparagraph 37(7)(c)(ii). We would suggest deleting the current brackets and adding the following to reflect that subparagraphs 37(7)(c)(ii),,37(7)(f)(ii), and 37(7)(f)(iii) should be used to determine the amounts to be included in total current expenditures in paragraph 37(1)(a): "(paragraph 37(1) (a); refer to subparagraphs 37(7)(c)(ii), 37(7)(f)(ii), and 37(7) (f) (iii))".
Page 2 - Line 131, under the title of Capital Expenditures for R & D carried on inside Canada, refers to `Buildings'. We suggest using the phrase `Prescribed Special-Purpose Buildings' instead with the following bracketed information "(refer to clause 37(7)(c)(ii)(A) and subparagraph 37(7)(f)(i))".
Page 2 - Line 132, beside the word `Equipment' we would suggest adding the following bracketed information "(refer to paragraph 37(7)(c)(ii))".
Page 2 - Line 133, we suggest amending this Line so that it reads: "Total Capital Expenditures for the Year" which is similar to that for Current Expenditures on Line 124.
Page 2 - Line 142, deals with Refundable Tax in Respect of Scientific Research and Experimental Development Tax Credits. No amounts may be designated in respect of this program after 1985 and late designations could only be made up to and including 1988. We question whether Line 142 is necessary for the 1989 Form. Similarly, we question whether Line 164 is necessary. The removal of these Lines will require Line renumbering.
Page 2 - Line 143, we suggest amending this Line so that it reads "ITC claimed (including carry-backs to a preceding year) in the previous year in respect of SR & ED expenditures". This more accurately describes the adjustments to be made re: ITCs. We also suggest removing the words "For the 1988 and subsequent taxation years" from the Note.
Page 2 - After line 143, we suggest including another "Adjustment" under the "Less" heading to reflect the adjustments required under paragraph 37(1)(h) as follows: "Reduction in pool due to change in control (paragraph 37(1)(h))." This new Line should be numbered 144 and the current Lines 144 and 145 should be renumbered 145 and 146, respectively. As a result of this new Line, the bracketed comments to Line 154 referring to paragraph 37(1)(h) should be removed. This more accurately reflects the adjustment required under paragraph 37(1)(h).
Page 2 - Current Line 144, the following should be included in brackets at the end of the line: "(paragraph 37(1)(c))".
Page 2 - Heading above Line 185, should be amended to read "Investment Tax Credit for the Current Year". This should highlight that the ITC here should be different then that recorded on Line 143.
Page 2 - Lines 185 and 190, both Lines require a double line where the amount is to be recorded. It appears as though the wording for Line 185 needs a line drawn under it to separate it from the wording for Line 190. To be consistent with the format for other Lines, we question whether the "-" is required at the beginning of the words for Lines 185 and 190.
If the intent of Line 185 is to record the ITC claimed in the year as well as that carried back to previous years then the wording of Line 185 could be amended as follows: "Total ITC claimed (including carry-backs to a preceding year) in respect of SR & ED expenditures (see Form T2038). We would also suggest adding a Note to Line 185 which says: "To be recorded on Line 143 of the subsequent year T661".
Page 3 - First paragraph, last sentence, we suggest replacing the first three words of the sentence with the following: "Any proceeds from sales of..."
Page 3 - Second paragraph, we suggest reorganizing the last three sentences to make partnership reporting the general rule as follows: "Please note that Regulation 229 to the Act requires the partnership's T661 and the accompanying information to be filed with the Partnership Information Return and only a T5013 Supplementary is required to be filed with a partner's return of income for that year. Where Regulation 229 is not applicable, each partner must file the partnership's T661, project descriptions and financial statements. In addition, the calculation...".
Page 3 - Third paragraph, the following sentence should be added at the end of this paragraph to provide information to taxpayers concerning the Granting Councils: "The Granting Councils referred to in Category (F) are the Natural Sciences and Engineering Research Council, the Medical Research Council, and the Social Sciences and Humanities Research Council."
Page 3 - Sixth paragraph, discussion of the qualification of repayments of government assistance for investment tax credit has been removed. There has been no change in our position on this and we would suggest leaving these comments in.
Page 4 - E,F and G, all payments referred to in these paragraphs must now be related to the business of the taxpayer and the taxpayer must be entitled to exploit the results thereof.
Only the discussion in G on clause 37(1)(a)(ii)(D) currently makes reference to either of these requirements. We would suggest amending the information requirements in each of these paragraphs to include an explanation as to how the SR & ED is related to the business of the taxpayer and an explanation as to how the taxpayer is entitled to exploit the results thereof.
Page 4 - Capital Expenditures, the discussion of capital expenditures should include reference to subparagraph 37(7)(f)(i) and the fact that expenditures on SR & ED shall not include any capital expenditure in respect of a building other than a prescribed special-purpose building, including a leasehold interest therein.
Page 5 - Section A, within the brackets to the heading, reference is made to section 9.4 and 9.4.1 of Information Circular 86-4R. In the current version of Information Circular 86-4R, section 9.4 has been replaced by section 8.4 and section 9.4.1. has been eliminated. We would suggest substituting the current bracketed reference with the following: "(Refer to section 8.4 of the current version of Information Circular 86-4R)".
Page 5 - Section A, each of (i)(a), (i)(b), and (ii) contain reference to `IC 86-4R'. We suggest replacing this reference with "the current version of 86-4R".
Page 6 - In the paragraph under the heading "Product Groups and Technology Fields" we would suggest inserting the following sentence: "Companies are under no obligation to complete this Part of the form."
We trust that these comments will be of assistance.
B.W. Dath Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch