In the recent case “Price Waterhouse Coopers Inc., agissant ès qualité de syndic à la faillite de Bioartificial Gel Technologies (BAGTECH) Inc. v. The Queen,” the Tax Court of Canada ruled in favour of Bagtech that it qualified as a Canadian-controlled Private Corporation (CCPC). Even though more than 50% of Bagtech’s voting shares were owned by non-resident shareholders, it was deemed that they did not legally control Bagtech, because according to their shareholder’s agreement, Bagtech’s Canadian resident shareholders had the power to elect a majority of Bagtech’s board of directors.
The control of a corporation has a large impact on the availability of SR&ED tax credits. CCPCs are eligible for an enhanced refundable tax credit for SR&ED. On the other hand, foreign-owned and public-owned corporation are not eligible for the enhanced refundable credit, and are only eligible for the general non-refundable tax credit.
For a corporation that is concerned about qualifying for refundable SR&ED tax credits, it is recommended that no combination of non-residents and/or public corporation shareholders own more than 50% of its voting shares. Caution should be exercised in relying on the Bagtech decision, as it is likely to be appealed by the CRA.