Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

PART VIIIRefundable Tax on Corporations in Respect of Scientific Research and Experimental Development Tax Credit

Marginal note:Corporation to pay tax

• 194 (1) Every corporation shall pay a tax under this Part for a taxation year equal to 50% of the total of all amounts each of which is an amount designated under subsection 194(4) in respect of a share or debt obligation issued by it in the year or a right granted by it in the year.

• Definition of Part VIII refund

  (2) In this Part, the Part VIII refund of a corporation for a taxation year means an amount equal to the lesser of

  • (a) the total of

    • (i) the amount, if any, by which the scientific research and experimental development tax credit of the corporation for the year exceeds the amount, if any, deducted by it under subsection 127.3(1) from its tax otherwise payable under Part I for the year, and

    • (ii) such amount as the corporation may claim, not exceeding 50% of the amount, if any, by which

      • (A) the total of all expenditures made by it after April 19, 1983 and in the year or the immediately preceding taxation year each of which is an expenditure (other than an expenditure prescribed for the purposes of the definition qualified expenditure in subsection 127(9)) claimed under paragraph 37(1)(a) or 37(1)(b) to the extent that the expenditure is specified by the corporation in its return of income under Part I for the year

      exceeds the total of

      • (B) the total of all expenditures each of which is an expenditure made by it in the immediately preceding taxation year, to the extent that the expenditure was included in determining the total under clause 194(2)(a)(ii)(A) and resulted in

        • (I) a refund to it under this Part for the immediately preceding taxation year,

        • (II) a deduction by it under subsection 37(1) for the immediately preceding taxation year, or

        • (III) a deduction by it under subsection 127(5) for any taxation year, and

      • (C) twice the portion of the total of amounts each of which is an amount deducted by it in computing its income for the year or the immediately preceding taxation year under section 37.1 that can reasonably be considered to relate to expenditures that were included in determining the total under clause 194(2)(a)(ii)(A), and

  • (b) the refundable Part VIII tax on hand of the corporation at the end of the year.

• Marginal note:Definitions

  (3) In this Part,

  debt obligation

  debt obligation has the meaning assigned by paragraph (d) of the description of A in the formula found in the definition scientific research and experimental development tax credit in subsection 127.3(2); (créance)

  refundable Part VIII tax on hand

  refundable Part VIII tax on hand of a corporation at the end of a taxation year means the amount, if any, by which

  • (a) the total of the taxes payable by it under this Part for the year and all preceding taxation years

  exceeds

  • (b) the total of its Part VIII refunds for all preceding taxation years. (impôt de la partie VIII en main remboursable)

• Marginal note:Corporation may designate amount

  (4) Every taxable Canadian corporation may, by filing a prescribed form with the Minister at any time on or before the last day of the month immediately following a month in which it issued a share or debt obligation or granted a right under a scientific research and experimental development financing contract (other than a share or debt obligation issued or a right granted before October, 1983, or a share in respect of which the corporation has, on or before that day, designated an amount under subsection 192(4)) designate, for the purposes of this Part and Part I, an amount in respect of that share, debt obligation or right not exceeding the amount by which

  • (a) the amount of the consideration for which it was issued or granted, as the case may be,

  exceeds

  • (b) in the case of a share, the amount of any assistance (other than an amount included in computing the scientific research and experimental development tax credit of a taxpayer in respect of that share) provided, or to be provided by a government, municipality or any other public authority in respect of, or for the acquisition of, that share.

• Marginal note:Computing paid-up capital after designation

  (4.1) Where a corporation has designated an amount under subsection 194(4) in respect of shares issued at any time after May 23, 1985, in computing, at any particular time after that time, the paid-up capital in respect of the class of shares of the capital stock of the corporation that includes those shares

  • (a) there shall be deducted the amount, if any, by which

    • (i) the increase as a result of the issue of those shares in the paid-up capital in respect of all shares of that class, determined without reference to this subsection as it applies to those shares,

    exceeds

    • (ii) the amount, if any, by which the total amount of consideration for which those shares were issued exceeds 50% of the amount designated by the corporation under subsection 194(4) in respect of those shares; and

  • (b) there shall be added an amount equal to the lesser of

    • (i) the amount, if any, by which

      • (A) the total of all amounts each of which is an amount deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of that class paid by the corporation after May 23, 1985 and before the particular time

      exceeds

      • (B) the total that would be determined under clause 194(4.1)(b)(i)(A) if this Act were read without reference to paragraph 194(4.1)(a), and

    • (ii) the total of all amounts each of which is an amount required by paragraph 194(4.1)(a) to be deducted in computing the paid-up capital in respect of that class of shares after May 23, 1985 and before the particular time.

• Marginal note:Where amount may not be designated

  (4.2) Notwithstanding subsection 194(4), no amount may be designated by a corporation in respect of

  • (a) a share issued by the corporation after October 10, 1984, other than

    • (i) a qualifying share issued before May 23, 1985, or

    • (ii) a qualifying share issued after May 22, 1985 and before 1986

      • (A) under the terms of an agreement in writing entered into by the corporation before May 23, 1985, other than pursuant to an option to acquire the share if the option was not exercised before May 23, 1985, or

      • (B) as part of a lawful distribution to the public in accordance with a prospectus, preliminary prospectus or registration statement filed before May 24, 1985 with a public authority in Canada pursuant to and in accordance with the securities legislation of Canada or of any province and, where required by law, accepted for filing by that public authority;

  • (b) a share or debt obligation issued or a right granted by the corporation after October 10, 1984, other than a share or debt obligation issued or a right granted before 1986

    • (i) under the terms of an agreement in writing entered into by the corporation before October 11, 1984, other than pursuant to an option to acquire the share, debt obligation or right if the option was not exercised before October 11, 1984, or

    • (ii) where arrangements, evidenced in writing, for the issue of the share or debt obligation or the granting of the right were substantially advanced before October 10, 1984; or

  • (c) a share or debt obligation issued, or a right granted, at any time after June 15, 1984, by a corporation that was an excluded corporation (within the meaning assigned by subsection 127.1(2)) at that time.

• Marginal note:Presumption

  (5) For the purposes of this Act, the Part VIII refund of a corporation for a taxation year shall be deemed to be an amount paid on account of its tax under this Part for the year on the last day of the second month following the end of the year.

• Definition of scientific research and experimental development financing contract

  (6) In this Part, scientific research and experimental development financing contract means a contract in writing pursuant to which an amount is paid by a person to a corporation as consideration for the granting by the corporation to that person of any right, either absolute or contingent, to receive income, other than interest or dividends.

• Marginal note:Late designation

  (7) Where a taxable Canadian corporation that issued a share or debt obligation or granted a right under a scientific research and experimental development financing contract does not designate an amount under subsection 194(4) in respect of the share, debt obligation or right on or before the day on or before which the designation was required by that subsection, the corporation shall be deemed to have made the designation on that day if

  • (a) the corporation has filed with the Minister a prescribed information return relating to the scientific research and experimental development tax credit in respect of the share, debt obligation or right within the time that it would have been so required to file the return had the designation been filed on that day, and

  • (b) within 3 years after that day, the corporation has

    • (i) designated an amount in respect of the share, debt obligation or right by filing a prescribed form with the Minister, and

    • (ii) paid to the Receiver General, at the time the prescribed form referred to in subparagraph 194(7)(b)(i) is filed, an amount that is a reasonable estimate of the penalty payable by the corporation for the late designation in respect of the share, debt obligation or right,

  except that, where the Minister has mailed a notice to the corporation that a designation has not been made in respect of the share, debt obligation or right under subsection 194(4), the designation and payment described in paragraph 194(7)(b) must be made by the corporation on or before the day that is 90 days after the day of the mailing.

• Marginal note:Penalty for late designation

  (8) Where, pursuant to subsection 194(7), a corporation made a late designation in respect of a share or debt obligation issued, or a right granted, in a month, the corporation shall pay, for each month or part of a month that elapsed during the period beginning on the last day on or before which an amount could have been designated by the corporation under subsection 194(4) in respect of the share, debt obligation or right and ending on the day that the late designation is made, a penalty for the late designation in respect of the share, debt obligation or right in an amount equal to 1% of the amount designated in respect of the share, debt obligation or right, except that the maximum penalty payable under this subsection by the corporation for a month shall not exceed $500.

• Marginal note:Restriction

  (9) Where at any time a corporation has designated an amount under subsection 194(4) in respect of a share, debt obligation or right, no amount may be designated by the corporation at any subsequent time in respect of that share, debt obligation or right.

Marginal note:Corporation to file return

• 195 (1) Every corporation that is liable to pay tax under this Part for a taxation year shall, on or before the day on or before which it is required to file its return of income under Part I for the year, file with the Minister a return for the year under this Part in prescribed form.

• Marginal note:Corporation to make payment on account of tax

  (2) Where, in a particular month in a taxation year, a corporation issues a share or debt obligation, or grants a right, in respect of which it designates an amount under section 194, the corporation shall, on or before the last day of the month following the particular month, pay to the Receiver General on account of its tax payable under this Part for the year an amount equal to 50% of the total of all amounts so designated.

• Marginal note:Interest

  (3) Where a corporation is liable to pay tax under this Part and has failed to pay all or any part or instalment thereof on or before the day on or before which the tax or instalment, as the case may be, was required to be paid, it shall pay to the Receiver General interest at the prescribed rate on the amount that it failed to pay computed from the day on or before which the amount was required to be paid to the day of payment.

• Marginal note:Idem

  (4) For the purposes of computing interest payable by a corporation under subsection 195(3) for any month or months in the period commencing on the first day of a taxation year and ending two months after the last day of the year in which period the corporation has designated an amount under section 194 in respect of a share or debt obligation issued, or right granted, by it in a particular month in the year, the corporation shall be deemed to have been liable to pay, on or before the last day of the month immediately following the particular month, a part or an instalment of tax for the year equal to that proportion of the amount, if any, by which its tax payable under this Part for the year exceeds its Part VIII refund for the year that

  • (a) the total of all amounts so designated by it under section 194 in respect of shares or debt obligations issued, or rights granted, by it in the particular month

  is of

  • (b) the total of all amounts so designated by it under section 194 in respect of shares or debt obligations issued, or rights granted, by it in the year.

• Marginal note:Evasion of tax

  (5) Where a corporation that is liable to pay tax under this Part in respect of a share or debt obligation issued or a right granted by it wilfully, in any manner whatever, evades or attempts to evade payment of the tax and a purchaser of the share, debt obligation or right or, where the purchaser is a partnership, a member of the partnership knew or ought to have known, at the time the share, debt obligation or right was acquired, that the corporation would wilfully evade or attempt to evade the tax, for the purposes of section 127.3, the share, debt obligation or right shall be deemed not to have been acquired.

• Marginal note:Undue deferral

  (6) Where, in a transaction or as part of a series of transactions, a taxpayer acquires a share or debt obligation of a corporation or a right granted by a corporation and the corporation is controlled (within the meaning assigned by subsection 186(2)) by the taxpayer and it may reasonably be considered that one of the main purposes of the acquisition was to reduce for a period interest on the taxpayer’s liability for tax under this Part, the share, debt obligation or right shall, for the purposes of this Part (other than this subsection) and section 127.3, be deemed not to have been acquired by the taxpayer and not to have been issued or granted, as the case may be, by the corporation until the end of that period.

• Marginal note:Avoidance of tax

  (7) Where, as part of a series of transactions or events one of the main purposes of which may reasonably be considered to be the avoidance of tax that might otherwise have been or become payable under Part II of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, by any corporation, a particular corporation has issued a share or debt obligation or granted a right in a taxation year in respect of which it has designated an amount under subsection 194(4), the particular corporation shall, on or before the last day of the second month after the end of the year, pay a tax under this Part for the year equal to 125% of the amount of tax under Part II of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, that is or may be avoided by reason of the series of transactions or events.

• Marginal note:Tax on excess

  (7.1) Where a corporation has in a taxation year made an election under subsection 127.3(9) in respect of any share or debt obligation that was part of a distribution of shares or debt obligations referred to in that subsection and, at the end of that year or any subsequent taxation year,

  • (a) the total of the amounts designated under subsection 194(4) in respect of those shares or debt obligations as evidenced by the prescribed information returns required by regulation to be filed with the Minister by a taxpayer other than the corporation

  exceeds

  • (b) the total of the amounts designated under subsection 194(4) in respect of those shares or debt obligations acquired by the taxpayer and in respect of which another taxpayer was required by regulation to provide the taxpayer with a prescribed information return relating to the designation under that subsection,

  the taxpayer is liable to pay a tax under this Part, for the taxation year at the end of which there is such an excess, equal to 50% of the excess, which tax is to be paid to the Receiver General within 60 days after the end of the taxation year, and the excess shall be included in determining the total under paragraph 195(7.1)(b) for any taxation year of the taxpayer subsequent to that year.

• Marginal note:Provisions applicable to Part

  (8) Sections 151, 152, 158 and 159, subsection 161(11), sections 162 to 167 (except subsections 164(1.1) to 164(1.3)) and Division J of Part I are applicable to this Part with such modifications as the circumstances require and, for greater certainty, the Minister may assess, before the end of a taxation year, an amount payable under this Part for the year.