Previously, I listed a series of CRA guidance and policy documents that were archived in December 2012. This was done following the introduction of a new Eligibility policy document that is based on the criteria described by Justice Bowman in the Tax Court of Canada, in Northwest Hydraulic Consultants v The Queen, in 1997. Among those documents archived was the information circular IC86-4R3, which was the standard document describing SR&ED eligibility at the time that Justice Bowman issued his judgement. The really interesting thing about IC86-4R3 is that Justice Bowman also discussed it in the Northwest Hydraulics judgement, before he wrote his more widely quoted observations about scientific method.
Here is what Justice Bowman had to say, in paragraphs 11-15. In the interests of readability and clarity, I have added sub-headings and/or underlining for emphasis:
 The tax incentives given for doing SRED are intended to encourage scientific research in Canada (Consoltex Inc. v The Queen, 97 DTC 724). As such the legislation dealing with such incentives must be given “such fair, large and liberal construction and interpretation as best ensures the attainment of its objects (Interpretation Act, section 12).
 The second preliminary observation that should be made is the use of the Information Circular 86-4R3 which sets out criteria to be applied in determining whether an activity qualifies as SRED. In general I am reluctant to rely too heavily on interpretation bulletins and information circulars in determining contested issues under the Income Tax Act. The reason for this is that in any litigious situation seems somewhat unfair for an independent arbiter to place much weight on the rules of the game devised by one of the players. I recognize that frequently interpretation bulletins and information circulars set out administrative interpretations and practices that are beneficial to the taxpayer and I am reluctant to do anything that would cast doubt on those interpretations or practices.
The consultative process:
 There is a further consideration that relates specifically to IC 86-4R3. That circular has been revised a number of times. Dr. J.R. Roberts was a Senior Science Advisor in the Department of National Revenue with a doctorate in organic chemistry. In his extremely helpful and informative testimony he described in some detail the evolution of the government’s guidelines with respect to SRED which culminated in IC 86-4R3. It was the result of extensive consultations between government and the scientific community both in industry and in universities. It represents a broad consensus of persons in the public and private sector who are like to be affected by or to have an interest in the interpretation of the SRED provisions of the Income Tax Act. The process demonstrates the sensitivity of the government to the concerns of the scientific and business communities in this area. Numerous submissions were received from organizations.
 Three basic criteria were considered by the panels who were involved in the process: scientific or technological uncertainty, scientific or technological content and scientific or technological advancement.
 In light of the extensive consultation and the impressive credentials of the persons who participated in the process, the document that emerged, IC 86-4R3 is a generally useful and reliable guide.
Now, whether archived or not, the document IC 86-4R3 has the distinction of having been referenced and endorsed in jurisprudence by the same Justice Bowman whose words (in paragraph 16, immediately following those above) have provided the legal foundation for the current eligibility policy. Taxpayers ought to be able to continue to reference this document in support of their cases, in the same way that other documents and cases may be brought usefully into a discussion of the merits of a particular claim. In addition, it might be argued – and this is my opinion only – that other policy and reference documents (such as IC 97-1, or Recognizing Experimental Development) that were created through similar consultation (as was IC 86-4R3) should also be given similar weight, based on the criteria expressed by Justice Bowman.
It just seems reasonable that if Justice Bowman believed that extensive consultation provided unusual usefulness to the document, that other documents created through the same or similar processes should also retain their usefulness. Certainly, jurisprudence does not get archived or discarded merely because a set of administrative policies or guidelines may change. The portion of the judgement quoted above is the section immediately preceding Justice Bowman’s far more widely quoted remarks on the scientific method, the five stage process and the five criteria. It just happens to be a part of the jurisprudence that is not so frequently quoted or referenced by CRA.
The CRA may wish us constantly to work within the parameters expressed in paragraph 16, with the five criteria and the five stage process, and I agree. But out of respect for the jurisprudence, and for telling the whole story, and given that our entire current Eligibility policy appears to have been premised on paragraph 16, it is equally important to emphasize those earlier remarks, and the foundations on which paragraph 16 and its remarks were laid: context is important. In this case, selective memory is not much more useful than no memory at all: it’s just another kind of memory loss. And the shame of it is, these are words that also need to be remembered.
- Bruce Madole