APPLICATION POLICY

Issue

This application policy specifies the deductibility of the amount paid by a business to fund an NSERC Industrial Research Chair as a Scientific Research and Experimental Development (SR&ED) expenditure under the Income Tax Act (ITA).

Background

NSERC Industrial Research Chairs, by design, fund research at universities in natural sciences and engineering. To receive NSERC funding, the research done by the chair must present unique industrial opportunities, respond to industrial need, and be related to the business; the industrial sponsor must demonstrate the ability to preferentially exploit the proposed research results. Since the scientific merit of the research proposal is judged by a visiting NSERC expert-committee, the originality and quality of the research and its benefits to industry are affirmed before the chair is funded.

NSERC normally matches only the industrial cash contribution to the chair. The NSERC Industrial Research Chair's non-research duties are reduced as a condition of the NSERC grant. In addition, NSERC reviews the chairs regularly to ensure that the financial and research commitments are being met. Therefore, the amount that has been paid by a business to fund an NSERC Industrial Research Chair meets the 'to be used for SR&ED' test.

This application policy only applies to NSERC Industrial Research Chairs, not to other NSERC programs or to other research chairs. Their eligibility as SR&ED must be determined separately on a case-by-case basis.

In contrast to NSERC Industrial Research Chairs, other research chairs are not usually eligible because they fail the 'to be used for SR&ED' test as outlined in Application Policy SR&ED 96-04.

Policy

The industrial contribution to the NSERC Industrial Research Chair that is matched by the NSERC grant to the university for the chair is an eligible expenditure as a third party payment to fund SR&ED in accordance with section 37(1) of the ITA after the payment has been made.

References

Application Policy SR&ED 96-04, Payments to third parties for SR&ED, July 12, 1996.

Director
Specialized Compliance Enhancement Division

Issued by: Scientific Research Section and Tax Incentive Audit Section