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5 Points from the recent Tax Court of Canada ruling

In recent years, the CRA has come down ever harder on SR&ED claimants, appearing to tighten their internal definition of what’s claimable without making it crystal clear what would definitely qualify for SR&ED refunds. It is increasingly rare for an audited claim to end up accepted as filed. Interestingly, a Montreal-based manufacturing company facing similar frustrations has found some success in their appeal to the Tax Court of Canada. Their SR&ED claims had been denied by the CRA, but the judge of this trial has found in their favour.

The outcome of this trial will not magically change the attitudes of all SR&ED auditors—such shifts occur over longer time spans, if at all. However, we should pay attention to the outcome of this case, especially when other manufacturing companies continue to find themselves in this similar situation, facing three common reasons for claim denial: the activities claimed were routine, lacked technological uncertainty, and no systematic investigation took place.

Here are five key counterpoints provided for why the judge found in favour of the manufacturer:

  1. Manufacturing process adjustments can qualify as systematic investigation.

  2. The term advancement can include manufacturing process improvements such as increasing the flexibility of a process, increasing productivity rate, and other progress of a technological nature.

  3. Commercial viability is a valid need to consider when measuring SR&ED eligibility.

  4. The term technical uncertainty encompasses a lack of available public domain information about how to solve the problem.

  5. Ongoing projects should be viewed as one big project spanning separate years, not separate projects.

While every SR&ED claim’s outcome is unique to the company, the time it is filed, and the reviewers giving said claim consideration, these five points are generic enough to apply to many different claims. Another finding worth mentioning is regarding how SR&ED work documentation is presented in the event of an audit: you need to be able to crosslink the documentation of work claimed to the time frame, but said documentation doesn’t need special SR&ED content. With so many counterpoints made in this case, it will take time for the full repercussions of the case (if any) to be experienced by other claimants.

And even though this case is encouraging to manufacturing claimants, it’s also worth noting that they had expert witnesses on their side to help make their case. An excellent quality SR&ED consulting firm is on your side in the event of an audit, helping you to get that documentation together and make your case. Why face that alone? SR&ED Unlimited offers this service by default.

Mar 13, 2015 21:52 by
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