Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether Canadian subsidiary T/P (CANCO) would qualify as SR&ED within the meaning of the definition of SR&ED in 248(1) if CANCO is performing work in Canada that is directly in support of USCO's activities (described in paragraphs (a), (b), or (c) of the definition of SR&ED in 248(1)) that are conducted outside of Canada.
Position: No - the definition of SR&ED in 248(1) requires that the SR&ED activities described in paragraphs (a), (b), or (c) in the definition of SR&ED in 248(1) be carried on in Canada in order that the linked activities themselves are considered SR&ED.
Reasons: ITA 248(1) SR&ED definition
XXXXXXXXXX 2001-008879
Shaun Harkin, CMA
September 4, 2001
Dear XXXXXXXXXX:
Re: Technical Interpretation Request: Scientific Research and Experimental Development ("SR&ED")
This is in reply to your facsimile of June 14, 2001 wherein you requested our views as to whether the work performed by a Canadian corporation ("CANCO") will be regarded as SR&ED within the meaning of the SR&ED definition in paragraph 248(1) of the Income Tax Act (the "Act") when the following conditions exist:
(1) A U.S.A corporation ("USCO") performs outside of Canada research and development activities as described in paragraph (a), (b) or (c) of the SR&ED definition in subsection 248(1) of the Act (hereinafter collectively referred to as "Primary Research Activities").
(2) USCO enters into a contract with CANCO whereby the latter agrees to perform activities described in paragraph (d) of the SR&ED definition in subsection 248(1) of the Act (hereinafter collectively referred to as "Linked Activities"). The activities performed by CANCO are directly in support of USCO's Primary Research Activities. All of CANCO's activities are conducted inside of Canada.
(3) CANCO retains some rights to exploit the results of its activities as described in paragraph 248(1)(d) of the definition of SRED.
(4) CANCO is dealing with USCO on an arm's length basis.
It is your opinion that since USCO is not performing Primary Research Activities in Canada, the work performed by CANCO, albeit inside of Canada, should not qualify as SR&ED within the meaning of paragraph (d) of the SR&ED definition in subsection 248(1) of the Act.
We agree with your opinion. Paragraph (d) of the SR&ED definition in subsection 248(1) of the Act requires that Primary Research Activities be performed in Canada, in order that the Linked Activities themselves are considered SR&ED.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this disclaimer in all instances in which we provide an opinion.
We trust the above comments are of assistance.
Yours truly,
Steve Tevlin
for Director
Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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