8 October 1998 External T.I. 9723875 - THIRD PARTY PAYMENTS-37(1)(A)(II)

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.

XXXXXXXXXX 5-972387
M. Lambert
Attention: XXXXXXXXXX

October 8, 1998

Dear Sir/Madam:

Re: Third Party Payment for SR&ED Under Subparagraph 37(1)(a)(ii)

This is in reply to your letter dated August 10, 1997, wherein you requested whether payments made by an individual ophthalmologist qualify as third party payments. We apologize for the delay in responding to your request.

As explained in Information Circular 70-6R3 (copy enclosed), it is not the Department's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Taxpayers seriously contemplating a proposed transaction are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. We are therefore not in a position to give you a definitive response to your questions. However, we can offer you the following general comments which may be of assistance.

As discussed during a telephone conversation in June with XXXXXXXXXX, payments to be used for SR&ED that are made to universities in Canada may be included in the calculation of the expenditure pool under subsection 37(1) of the Income Tax Act. Payments to these universities will qualify only if they are to be used for SR&ED carried on in Canada related to a business of the taxpayer and if the taxpayer making the payments is entitled to exploit the results of the SR&ED. The determination of whether the SR&ED is related to the business of the taxpayer is a question of fact. Similarly, the determination of whether a taxpayer is entitled to exploit the results of the SR&ED is also a question of fact.

Under clause 37(8)(d)(iii)(E) of the Act, a payment made by a taxpayer to a university does not constitute an expenditure on SR&ED to the extent that the amount of the payment may reasonably be considered to have been made to enable the recipient to acquire a building, or a leasehold interest in a building in which the taxpayer has, or may reasonably be expected to acquire, an interest.

Technical guidelines that reflect the Department's interpretation of SR&ED tax incentives are discussed in Interpretation Bulletin IT-151R4, a copy of which we enclose herewith. Paragraph 10 of the bulletin deals with payments made to approved entities. The Department considers that all Canadian universities are approved universities for the purposes of SR&ED tax incentives.

These comments represent our opinion of the law as it applies generally. As mentioned in paragraph 22 of Information Circular 70-6R3, the above constitutes an expression of opinion only and is therefore not binding on this Department.

We trust that the above comments will be of assistance to you.

Yours truly,

Marc Vanasse, CA
Resources, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate

Encl.

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