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SR&ED Consulting, SRED Consultant, SRED Toronto

Memory Loss

Memory loss. Disorientation. Fear and doubt and confusion. All of these could be the results of a stroke – or a policy decision by the Canada Revenue Agency (CRA).

When the CRA revealed its new Eligibility document in December 2012, and archived its old policy and guidance documents, CRA took the position that nothing was being changed. Consultation, they said, had been extensive, and this new small document said everything that was necessary. It was a policy consolidation, and that was all.

In fact, the loss of those old documents represents a loss of memory, from the program perspective, that has not been entirely helpful to claimants, or to the program as a whole. The purpose of those documents was to guide people who were trying to claim SRED properly, according to the rules … there was no other reason to read them. Among the key documents that were suddenly archived were these four:

  • Information Circular IC86-4R3
  • Recognizing Experimental Development
  • IC 97-1 – The Administrative Guide to Software Claims
  • A Guide To Supporting Technical Aspects of a SRED Claim

(There are reasons why, I believe, these documents won’t actually “go away quietly”, despite having been archived, but more on that later.) There were other sector-specific guides, such as a guide to claiming shop-floor development, or experimental production, and these documents were created to address recurrent problems in the perception or administration of SR&ED eligibility. The documents themselves are now archived, but does that mean that the problems they addressed are no longer an issue? I doubt it.

On the other hand, you could ask yourself – were those documents ever actually helpful in your dealings with CRA? They may have helped to guide in the framing and definition and submission of claims, in understanding the program as a whole, but … how often (if ever) have you had a real dialogue with an RTA in which the substance or wording of any of those documents ever made a material difference in the approach that an RTA was taking to your claim? You can make note of your disagreement with their approach, and you can file a notice of objection, but seldom could you correct the path of a claim that was heading for the dumpster with an RTA steering it. Those science reviewers are trained not to discuss policy with you, and not to discuss the jurisprudence. Policy and jurisprudence are the sticks that CRA will beat you with, but they are seldom a resource that you can call on, as a claimant – unless, perhaps, you take the fight up at the Tax Court. Even so, at that level, everything comes down to the law.

So if it didn’t ever really help to quote a policy in rebuttal of an auditor’s opinion, why is it a loss to have that policy document archived? Because the policy document told you what should be the case. If you understood it correctly, which could take some doing, you could as a claimant use its existing language to give a shape and precision to your perceptions that something was “not fair” in the way your claim was handled. Absent those policies, where are the reference points? Will the program demand that claimants re-develop the clarity and precision of thinking required to penetrate to those distinctions? I suspect that in future, many such claimants will simply give up and go away rather than continue their struggle to realize a tax benefit to which they might otherwise have been entitled. Moreover, I believe that such “attrition” was an intended side effect of the policy changes, in the same way that reductions in the claim percentage and recent CRA positions re: government assistance have been calculated to moderate the overall cost of the SRED program.

Whether such adjustments should be made using non-policy approaches (by which I mean an administrative practice designed to impact delivery or outcomes without recourse to a legal decision or a public policy debate) is a matter for lengthier consideration. Yet clearly, switching the claimants away from what was formerly a larger and detailed body of information to a comparatively miniscule “guidance document” left many claimants (and even some preparers) unsure of how to proceed.

The fact is that the new eligibility document emphasizes different things and it has been used, by RTAs in the field, to drive a renewed emphasis on scientific method within the SRED program, somewhat to the detriment of Experimental Development. Disorientation arising from this sleight-of-hand was only accelerated when RTAs immediately began assessing claims (filed under the old rules) according to their adherence with a five stage process. In some cases, this happened even before the new Eligibility document was unveiled, and the grounds would have been that the new policy was based on old law – the formulations of Justice Bowman in a Tax Court of Canada case from 1998.

However, Justice Bowman had a great many other things to say in that same case (NW Hydraulic Consultants v The Queen), and some of that material, perhaps equally relevant, has been consistently overlooked … or at least, not quoted by CRA. More on this later.

- Bruce Madole

Nov 20, 2013 20:27 by
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