9 October 1990 Income Tax Severed Letter

By services, 22 July, 2022
Language
English
Document number
Severed letter type
Miscellaneous
d7 import status
Drupal 7 entity type
Node
Drupal 7 entity ID
658188
Extra import data
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"menu:://Federal Income Tax [CCH Tax ]/Tax Window Files/Tax Window Files/Tax Window Files/1990s/1990 [5-902365 - ACC9700]/OC90_254 — Manufacturing and Processing Profits Deduction"
],
"field_proprietary_citation": [],
"field_release_date_new": "1990-10-09 08:00:00",
"field_tags": []
}
Main text
Scarborough District Office                  Head Office
Large File Audit                             Rulings Directorate
1
98-1-3                                      A.Y. Ho
R.L. Coker                                   (613) 957-2094
                                             901655

SUBJECT: Manufacturing and Processing (M & P) Profits Deduction

This is in reply to your memorandum of July 20, 1990 wherein you requested our opinion as to whether or not foreign based scientific research and experimental development (SR & ED) costs, chargeable to Canadian operations, can or should be included in "cost of labour" as set out in (b)(ii) of Regulation 5202 viz. "scientific research as defined in section 2900".

Your concern is that the exclusion of the foreign based engineering design of products and production facilities, a major cost in each of the large automotive manufacturers in Canada, from the denominator of the formula can have a significant effect on the M&P tax credits.

Our Comments

Provided that the foreign based SR & ED charges meet the requirements under Regulation 2900, then it is our opinion that the labour costs related to these charges should be included as part of the cost of labour as defined in Regulation 5202. In addition, paragraph (c) of the definition of "qualified activities" in Regulation 5202 also includes "scientific research as defined in section 2900". Therefore, the labour costs related to these charges should also be included as part of the cost of M&P labour if they meet the requirements under Regulation 2900.

We trust that our comments will be of assistance.

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch