Variance 3 – Acknowledging or adjusting for the business context of the taxpayer contrasts sharply with the current trend, in which CRA reviewers are holding out definitions of advancement at the industry or technology level, regardless of business context. (Note: This will heavily penalize smaller firms, and effectively eliminates the notion of considering business context from the application of the SR&ED program.)
You may notice that, although the phrase “technological uncertainty” is certainly dominant, Section 2.11 uses technical uncertainties as an equivalent wording, in the section about the application of the criteria. That they do so calls into question the validity of the entire construct or distinction drawn between “technical” vs “technological” uncertainty.
The current policy review and consultation, with its consolidations of various documents, may enable the CRA to quietly replace IC86-4R3 with some other document that does not contain such contradictions.
Clearly, therefore, the CRA is narrowing its definitions and the claim assessment practices that derive from them. These more restrictive definitions are now being taught, and applied during review, and to challenge these will probably require recourse to the secondary mechanisms, up to and including the Tax Court of Canada, or direct appeal to the Minister responsible.
Unfortunately, in Court, the taxpayer does not find it helpful to rely on interpretations of CRA circulars, policy documents, or guidance papers – although, neither does the CRA. The Courts have made it clear that administrative policy is not the same as the Income Tax Act, and that Ministerial discretion extends only to the interpretation and application of the Act itself. The Courts have been vigilant to preserve the right of the Courts, to interpret the law, and of Parliament, to change it.
This is one reason, I believe, why the CRA’s current Claim Review Manual instructs reviewers to refer only to the Income Tax Act when explaining their decisions to claimants. They’ll use their circulars and guidelines and interpretations bulletins, etc. to form an opinion, but they’re not allowed (by administrative policy) to explain to claimants why or how those documents shaped the outcome of their ruling, or which particular rule or paragraph or point they think you violated.
In the case of Kruco Inc v Her Majesty The Queen, Judge P.R. Dussault J.T.C.C., in paragraphs 111 to paragraph 117, clearly speaks against any tendency or attempt to raise administrative policy to law, including these words: “the adoption of an administrative policy for the purpose of interpreting an ambiguous provision cannot be a substitute for a clarifying legislative amendment.”
I believe that, with the Courts insisting that the Income Tax Act (ITA) is the only enforceable standard, the tax authorities have mandated that the ITA must also be the only reference point provided to claimants when discussing their findings or opinion of the claim, purely to avoid being accused, in any subsequent legal proceedings, of having elevated administrative practices and policies to law. Of course, the CRA will still do that, applying their policies as needed for their own convenience, but now, per the Claim Review Manual, they will hide the application of those policies behind the more general and unspecific language of the Income Tax Act when rendering their decisions.
What hope is there for a frustrated claimant seeking consistency or transparency of process from the CRA under such circumstances, where CRA apparently feels the need to withhold details, merely to avoid being punished for it later in the Courts?