Income Tax Act s. 149(1): Tax Exempt Entities

Subsection 149(1) lists the entities that pay no Part I tax: municipalities, Crown corporations, charities, non-profit organizations and others. It matters to SR&ED in two ways. A corporation controlled by, or related to, any of these tax-exempt persons is an “excluded corporation” that cannot receive refundable SR&ED credits, and paragraph 149(1)(j) separately exempts non-profit corporations constituted exclusively to carry on or promote SR&ED. The excerpt below reproduces the paragraphs most often relevant to that analysis; the full list appears in the PDF.

Text of the Provision

149(1) No tax is payable under this Part on the taxable income of a person for a period when that person was

… [paragraphs (a) and (b), foreign government employees, omitted here] …

(c) a municipality in Canada, or a municipal or public body performing a function of government in Canada;

(d) a corporation, commission or association all of the shares (except directors’ qualifying shares) or of the capital of which was owned by one or more persons each of which is Her Majesty in right of Canada or Her Majesty in right of a province;

(d.1) a corporation, commission or association not less than 90% of the shares (except directors’ qualifying shares) or of the capital of which was owned by one or more persons each of which is Her Majesty in right of Canada or Her Majesty in right of a province;

… [paragraphs (d.2) to (d.6), further Crown and municipal corporations, omitted here] …

(e) an agricultural organization, a board of trade or a chamber of commerce, no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof;

(f) a registered charity;

(j) a corporation that was constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development, no part of whose income was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof, that has not acquired control of any other corporation and that, during the period,

(i) did not carry on any business, and

(ii) expended amounts in Canada each of which is

(A) an expenditure on scientific research and experimental development (within the meaning that would be assigned by paragraph 37(8)(a) if subsection 37(8) were read without reference to paragraph 37(8)(d)) directly undertaken by or on behalf of the corporation, or

(B) a payment to an association, university, college or research institute or other similar institution, described in clause 37(1)(a)(ii)(A) or 37(1)(a)(ii)(B) to be used for scientific research and experimental development, and

the total of which is not less than 90% of the amount, if any, by which the corporation’s gross revenue for the period exceeds the total of all amounts paid in the period by the corporation because of subsection 149(7.1);

(l) a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder was a club, society or association the primary purpose and function of which was the promotion of amateur athletics in Canada;

… [remaining paragraphs, chiefly pension, insurance and trust exemptions, omitted here but appear in the PDF] …

Source: Income Tax Act (Canada), subsection 149(1) (selected paragraphs), as consolidated May 14, 2010. Archived excerpt; subsequent amendments are not reflected. For the current text see the Income Tax Act at Justice Laws.