October 07, 2011

CCLC Technologies Inc. (Plaintiff) v. Her Majesty the Queen (Defendant)

95 DTC 5685
Federal Court-Trial Division
November 10, 1995

(Court File No. T-3457-90.)

Refundable investment tax credit — Corporate taxpayer incurring scientific research and experimental development expenditures on a technological project under a Coal Research Agreement with the province of Alberta — Whether payments received by taxpayer from Alberta under such Agreement constituting “assistance from a government”, thereby disentitling taxpayer to refundable investment tax credit claimed by it — Income Tax Act, R.S.C. 1985, Chapter 1, (5th Supp.), ss. 12(1)(x), 37(1)(a), 37(1)(b), 127(5), 127(9) and 127(11.1).

The corporate taxpayer was in the business of scientific research and experimental development. On April 1, 1986 it entered into a Coal Research Agreement with the province of Alberta (“the Agreement”), the purpose of which was to finalize the process technology in respect of a certain technological process involving coal and heavy oil. During its 1987 taxation year the taxpayer incurred expenses on scientific research and experimental development (“SRED”) on the project, and received some $725,000 from Alberta pursuant to the terms of the Agreement. At the end of that taxation year it was entitled to a further sum approximating $1.5 million from Alberta. In its 1987 Return, the taxpayer deducted substantial amounts in respect of the said SRED expenditures under paragraphs 37(1)(a) and (b) of the Act. By way of Reassessment, however, the Minister disallowed the refundable investment tax credit which the taxpayer had claimed in respect of its 1987 taxation year. The taxpayer appealed to the Tax Court of Canada.

Held: The taxpayer’s appeal was allowed. The question to be answered was whether or not the amounts received by the taxpayer from Alberta constituted “assistance from a government” within the meaning of subsection 127(9) of the Act. On the evidence the Agreement was essentially a technology development arrangement in which the province was an active business participant. Indeed Alberta was entitled to have a representative on the Project Management Committee, and it took a hands-on approach as to how the project was to be conducted. It also had a business and commercial interest in the project and this was the underlying reason for the payments made by it to the taxpayer. Such amounts, therefore, did not constitute some form of government assistance. Thus the taxpayer was entitled to the refundable investment tax credit which it had claimed. The Minister was ordered to reassess accordingly.