CAE Inc. v. His Majesty the King

(Federal) (Civil) (By Leave)


Taxation — Income tax — Assessment — Characterization of government financial contributions in form of non-forgivable loan — Government assistance — Whether Federal Court of Appeal and Tax Court of Canada were correct in finding that principal of loan that was fully repayable and not forgivable could constitute “government assistance” for purposes of Income Tax Act — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 127(9).


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The Department of Industry Canada made financial contributions to the applicant under an agreement concerning a scientific research and experimental development (“SR&ED”) project undertaken by the applicant. The agreement provided, among other things, for the full and unconditional repayment of all contributions received by the applicant. The Minister of National Revenue made two assessments in which it was determined that the sums the applicant had received or was entitled to receive under the agreement constituted “government assistance” within the meaning of s. 127(9) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“I.T.A.”). As a result, the portion of those sums used for SR&ED purposes was subtracted from the amount of deductible SR&ED expenditures, and the total of those sums was subtracted from the amount of qualified SR&ED expenditures for the purposes of the investment tax credit claimed by the applicant. The difference between the amount received by the applicant and the amount of its SR&ED expenditures was also included in the computation of its income. The Tax Court of Canada dismissed the appeal from the assessments on the ground that the sums received by the applicant had not been paid under an ordinary business contract and therefore constituted government assistance within the meaning of s. 127(9) of the I.T.A. The Federal Court of Appeal dismissed the appeal from that decision.

Lower Court Rulings

September 14, 2021
Tax Court of Canada

2016-4984(IT)G, 2021 CCI 57
Appeal from two assessments made by Minister of National Revenue dismissed
October 19, 2022
Federal Court of Appeal

2202 CAF 178, A-264-21
Appeal dismissed