We have found the current CRA version of the Claim Review Manual for Research and Technology Advisors to be difficult to navigate, so we have reproduced it here as a single page with a clear table of contents.

This version of the CRM is effective as of May 17, 2021, also available on the CRA website. The previous version (archived) is available here.

Claim Review Manual for Research and Technology Advisors

SR&ED Program

The Claim Review Manual cancels and replaces The Guide to Conducting a Scientific Research and Experimental Development (SR&ED) Review and Directive 2004-03 SR&ED Reports and is effective June 1, 2010.

CRM Table of Contents

Chapter 1.0: Introduction

Chapter 2.0: Overview and General Information

Chapter 3.0: Guidelines for Coordinated Review

Chapter 4.0: Planning the Review

Chapter 5.0: Conducting the Review

Chapter 6.0: Documenting the Review

Chapter 7.0: Finalizing the Review

Chapter 8.0: Glossary

Chapter 9.0 Appendices

Chapter 1.0: Introduction

1.1.0 List of Acronyms

English Acronyms	English Acronyms Meaning
AAF	Accepted as Filed
AD	Assistant Director
AE	Account Executive
AIMS	The Audit Information Management System (AIMS) Online Guide discusses how to use it.
ASA	All or Substantially All
AP	Application Policy
ATIP	Access to Information and Privacy
AW	All Work
BC	Business Context
CF	Control Function
CICA	Canadian Institute of Chartered Accountants
CRA	Canada Revenue Agency
CRM	Claim Review Manual
CTSO	Coordinating Tax Services Office
FCRM	Financial Claim Review Manual
FR	Financial Reviewer
FRM	Financial Review Manager
FTA	Financial Technical Advisor
FTC	First Time Claimant
FTCAS	First-time Claimant Advisory Service
HQ	SR&ED Program Headquarters
IC	Information Circular
IFA	International Fiscal Association
IP	Intellectual Property
ITA	Income Tax Act
ITC	Investment Tax Credit
LFCM	Large File Case Manager
NOO	Notice of Objection
NTSS	National Technology Sector Specialist
NW	No Work
OAG	Office of the Auditor General
OC	Outside Consultant
PA	Privacy Act
PCPR	Pre-Claim Project Review
QA	Quality Assurance
RFI	Request for Information
RTA	Research and Technology Advisor
RTM	Research and Technology Manager
RTO	Research and Technology Officer
SALT	Self-Assessment and Learning Tool
STA	Scientific or Technological Advancement
STU	Scientific or Technological Uncertainty
SR&ED	Scientific Research and Experimental Development
SIS	Systematic Investigation or Search
SUE	Shared Use Equipment
SW	Some Work
TA	Technological Advancement
TGD	Technical Guidance Division
TC	Tax Centre
TPR	Taxpayer Requested Adjustment (amended claim)
TSO	Tax Services Office
UN	Unsubstantiated

1.2.0 Purpose and Scope of the Claim Review Manual (CRM)

The CRM provides a comprehensive set of procedures for the Canada Revenue Agency’s (CRA) research and technology advisors (RTAs) to perform the technical review of scientific research and experimental development (SR&ED) claims. The CRM serves as a complete guide for the RTA in planning, coordinating (with financial reviewers), conducting and documenting the review of claims. Review procedures for FRs are described in the Financial Claim Review Manual (FCRM). The procedures in the CRM will help enhance consistency and quality in the review of claims among RTAs nationally. Consistency in this context is defined as follows: in similar circumstances, the RTA will follow the same or similar procedures to uncover the same facts on which to base a decision.

In addition, the CRM provides part of the basis for a quality assurance (QA) program that will ensure the proper application of the SR&ED legislation, policies and procedures, thereby contributing to the maintenance of the fiscal integrity of the SR&ED program.

By providing the means for consistent and fair treatment of SR&ED claims nationally, the CRM will help ensure that claimants receive their full entitlement allowed under the Income Tax Act. To improve the level of service to claimants, these procedures emphasize working with, informing and educating claimants on the many aspects of the SR&ED program. For example, within each chapter of the CRM, some highlighted boxes draw attention to numerous proven approaches for working effectively with claimants at each stage of the review process, which is especially important for first-time claimants (FTC). In addition, the CRM incorporates, where required, procedures for resolving claimants’ SR&ED concerns. These procedures help resolve disputes early in the review process and at the lowest level possible. All of these suggested approaches to help improve claimants’ compliance are based on best practices employed in various coordinating tax services offices (CTSOs). By working with claimants and objectively reviewing their claims, the CRA will be able to deliver SR&ED tax incentives sooner.

The procedures in the CRM begin when the RTA is assigned the SR&ED claim and end with the completion of the TF98 file. The CRM briefly discusses the control function (CF) and coding for files in the Audit Information Management System (AIMS) but does not cover detailed procedures for these subjects. The CRM also does not cover procedures for pre-claim project reviews (PCPRs), process reviews, account executive (AE) services, the first-time claimant advisory service (FTCAS), the random review program (RRP) or the financial review. Procedures for these topics are described in the relevant publications or the directives, accessible on the CRA Infozone.

The CRM does not provide comprehensive information on general CRA policy or non-CRA legislation such as those concerning security, confidentiality, health and safety. As a matter of convenience, the CRM provides some summaries of and links to important policies.

However, it is the responsibility of the RTA to know and follow all the current applicable policies and legislation with respect to these matters.

The CRM discusses procedures concerning some review issues, but it is not intended to discuss the definition of SR&ED or provide training on determining the eligibility of work.

SR&ED is defined in the Act and explained in Eligibility of Work for SR&ED Investment Tax Credits Policy (eligibility policy). There are two other publications that relate to the eligibility of work: SR&ED while Developing an Asset Policy (asset policy), and SR&ED During Production Runs Policy (production runs policy).

A general reference guide for SR&ED employees is available at the SR&ED Reference Guide. This contains additional useful information for SR&ED employees, not just about the SR&ED Program.

1.2.1 Training courses for RTAs

(Reminder that the text below comes directly from the CRA website)

There are currently a number of courses for RTAs that deal with subjects not covered in the CRM.

Course TD 1170-000 is a basic training course for RTAs.

Course HQ1188-000 “Eligibility of work for SR&ED” is a three-day course covering the eligibility policy with case studies on this topic.

The following are one-day courses dealing with specific aspects of the review process;

• HQ1180-000 – SR&ED review report writing
• HQ1181-000 – Documentation and supporting evidence
• HQ1182-000 – Risk-based review process
• HQ1183-000 – Business context (BC) in the review process

The RTA’s manager will determine the appropriate time to take these courses. For more information on these courses, contact your manager.

1.3.0 Authority of the CRM

The CRM identifies the procedures that RTAs follow when reviewing SR&ED claims. Chapter 1.6.0 outlines the minimum (high level) requirements for all reviews. The other chapters outline how these minimum requirements generally apply to the procedures described in each chapter. The RTA is responsible for deciding what procedures to apply, or how to apply them in a particular situation, in order to meet these minimum requirements.

1.4.0 Terminology concerning requirements

While the CRM does not generally identify a specific procedure as being necessary to meet one of the minimum review requirements, certain terms may be used to provide guidance to the RTA. The CRM uses certain terms to describe three levels of latitude or discretion:

Level of Latitude or Intended Meaning of the term	Term(s) used
Requirement: The procedure is a requirement and there are no exceptions unless otherwise indicated, or otherwise indicated, or specific facts of the case render it unnecessary or not applicable.	Must, Required
Recommendation: The procedure is likely the preferred or best choice among possible alternatives in order to meet the minimum requirements.	Recommended, Should, Need
Possible Approach: The procedure is considered to be one possible practice or approach to meet the minimum requirements, and there are likely other practices that are equally valid or effective.	Can, Could, May, Might

1.5.0 Due process / Taxpayer Bill of Rights

Due process is a fundamental requirement in the review of claims and means that the review is fair and impartial. While not specifically mentioned, the characteristics of due process follow from the CRA’s Taxpayer Bill of Rights. This subject is mentioned in many other places in the CRM. The requirements described in this chapter apply generally during all aspects of the review, particularly during “Conducting the Review” described in Chapter 5. Failure to give the claimant due process could result in the review process not being supportable, and thus the claimant could successfully challenge the CRA’s decisions at the notice of objection (NOO) stage (discussed in Chapter 2.6.0). Refer to the following link for more information on the Taxpayer Bill of Rights.

A claimant can still be given due process even if some steps or procedures in the CRM are not followed or are followed in a different order than presented. For example, if the RTA did not review certain documents during the on-site visit, the review of them at the proposal stage would correct that situation. Therefore, it is the treatment of the claimant as a whole, during the entire review process, which determines whether due process is given. Mostly, due process means treating the claimant with courtesy, respect, and fairness while applying the legislation and CRA policies correctly. If the RTA does all of the activities noted in this chapter, it will ensure that due process is given.

Eight characteristics of due process and the particular taxpayer rights that they derive from are as follows:

1. provide service in the official language of choice; (Taxpayer right #2)
2. explain the review process, issues and the planned approach to resolve them to the claimant; (Taxpayer rights #5,6,10)
3. communicate the options available to the claimant if they do not agree with CRA; (Taxpayer rights #4,9)
4. give the claimant information on the CRA requirements and explain what information the CRA needs to satisfy them; (Taxpayer rights #6)
5. give claimants the opportunity to present their position, ask questions, express their concerns and to provide further information with respect to their claim; (Taxpayer rights #1,5,15)
6. consider additional information provided in support of the claimant’s position before coming to a decision; (Taxpayer rights #1, 5, 15).
7. explain decisions and the rationale to the claimant; (Taxpayer rights #5,6,9,11) and
8. make decisions that are fair and impartial and respect current legislation and policy. (Taxpayer rights #1,8)

Details of the above steps are discussed in the appropriate places in the CRM. As will be noted, the specific details of what needs to be done depend on the particulars of each case and what the claimant already knows about the SR&ED program.

1.6.0 Minimum review requirements for RTAs

This chapter outlines the minimum requirements for any review of an SR&ED claim. These headings do not correspond to individual chapters in the CRM. Many of these requirements apply generally or in more than one aspect of the review. The requirements, as they apply in each part of the review, will be described in more detail in each chapter of the CRM.

List of requirements

1. General requirements:

Follow all CRA approved procedures concerning:

• communication of information to the claimant or their authorized representative;
• safety and security;
• information security;
• service in the official languages; and
• matters outside the scope of the CRM.

2. Documentation requirements:

• document all relevant review work (working papers), as well as keep other relevant supporting documentation related to the claimed work;
• do not document irrelevant personal opinions or irrelevant information about other claimants;
• prepare an SR&ED review report using the described format, or other working papers that explain the decisions and the rationale; and
• keep and organize working papers and supporting documentation in the TF98 file.

3. Requirements on consulting the research and technology manager (RTM):

• if there are contentious or problem situations;
• if there are questions about the application of policies;
• if referrals or outside consultation is needed;
• for approval of the review plan;
• for approval of important modifications to the review plan;
• if it is recommended that a claim will be disallowed for lack of information;
• if unfavourable decisions will be made without an on-site visit;
• if penalties may apply;
• if fraud is suspected;
• if formal better books and records letters are needed;
• for approval of the SR&ED review report; and
• if waivers may need to be used.

4. Requirements on coordinating the review:

• coordinate the technical review with the FR assigned to the claim.

5. Requirements on planning the review:

Prepare a written review plan, which includes the:

• scope of the review;
• major issues / concerns, and
• methodology or information required to resolve the issues / concerns.

6. Requirements on conducting the review:

• explain to the claimant the review process, issues and the planned approach to resolve them;
• communicate the options available to the claimant for resolving any of the issues;
• give the claimant information on the CRA requirements, including documentation requirements, and explain what information the CRA needs to satisfy them;
• give claimants the opportunity to present their position, ask questions, express their concerns and to provide further information with respect to their position;
• consider additional information provided in support of the claimant’s position before coming to a decision;
• make decisions that are fair and impartial and respect current legislation and policy;
• document key activities and observations concerning the claim, supporting information and the identified claim issues;
• for claimants who have previously received the FTCAS, determine if the recommendations of the FTCAS report have been addressed;
• document communications and meetings with the claimant, managers, co-workers and others that are relevant to the eligibility determinations and other decisions;
• obtain any documentation from the claimant necessary to support the eligibility determinations and other decisions; and
• do not negotiate eligibility or expenditures.

7. Requirements on finalizing the review:

• assist the FR in preparing the contents of the proposal letter package by providing any needed explanation of the proposed changes with respect to eligibility and any other technical issues;
• explain the proposed decisions with respect to eligibility or other technical issues to the claimant; and
• respond to any claimant’s concerns, rebuttal or additional information relating to the RTA’s decisions, as reflected in the proposal package.

1.7.0 Reference to the definition of SR&ED in the Income Tax Act

For the purposes of the CRM, where the context is clear, references to subsection 248(1) or paragraphs of subsection 248(1) of the Act, without any other qualifier, mean references to the definition of SR&ED in subsection 248(1) of the Act, or paragraphs of that definition.

1.8.0 Revisions of the CRM

The CRM will be updated and revised to ensure that it remains current. Feedback and suggestions from anyone who sees opportunities to improve the CRM is encouraged. Comments can be forwarded to SR&ED CRM.

Chapter 2.0 Overview and General Information

2.1.0 Summary of Chapter

This chapter provides general information about the claim review process, including information that applies to all audit-type work in the Canada Revenue Agency (CRA), not just scientific research and experimental development (SR&ED) reviews. The main sections cover:

1. an outline of the SR&ED claim review process;
2. an outline of the CRA information sources;
3. special SR&ED terminology;
4. an introduction to dispute resolution in the CRA;
5. the legislated authority of CRA officials;
6. the legislated requirements for taxpayers;
7. procedures to follow when communicating with claimants;
8. safety, security, and health considerations during a review;
9. information security requirements; and
10. service standards for the SR&ED claim review.

2.2.0 Requirements of Chapter

Following from Chapter 1.6.0, the research and technology advisor (RTA) must follow all CRA approved procedures and job requirements for:

1. communication of information to the claimant or their authorized representative;
2. safety and security;
3. information security;
4. service in the official languages; and
5. consultation with the research and technology manager (RTM) in certain specified circumstances involving safety, security or difficulties with the claimant.

2.3.0 Outline of the Review Process

The following chart outlines the main steps in the review process and provides references to the main sections of the CRM that discuss each step. Note that the chart is a general guide only and does not cover every possibility or exception encountered during a review. The RTA should consult the CRM for details. The chart generally follows the usual steps of a review, but this does not mean that these steps must always follow this sequence.

Step 1: The RTA receives the claim from the control function (CF) (main references are chapters 1 and 2).

Step 2: The RTA studies the information as received (main reference is chapter 4).

Step 3: the RTA contacts the FR to initiate coordination (main reference is chapter 3).

Step 4: The RTA begins planning the review by identifying issues and obtaining additional information (main references are chapters 4 and 5).

Step 5: The RTA assesses risk and determines the scope of the review (main reference is chapter 4.).

Step 6: The RTA develops a review plan (main reference is chapter 4).

Step 7: The RTA communicates with the claimant, gathering information by letter and/or telephone (main reference is chapter 5).

Step 8: the RTA visits the claimant on site (main reference is chapter 5).

Step 9: the RTA analyzes information and resolves issues (main reference is chapter 5).

Step 10: the RTA gathers additional information by letter and/or telephone (main reference is chapter 5).

Step 11: The RTA prepares the review report (main reference is chapter 6).

Step 12: the RTA communicates the review results to the FR (main references are chapters 3 and 7).

Step 13: the RTA assists the FR with the proposal package (main reference is chapter 7).

Step 14: the RTA addresses any representation from the claimant on review results (main reference is chapter 7).

Step 15: the RTA concludes the review (main reference is chapter 7).

2.4.0 CRA Information Sources

2.4.1 Publications

Understanding CRA’s SR&ED documents and using them effectively during the technical review is critical. The SR&ED reference guide has links to key information. The following are the key reference materials needed to resolve review issues:

• The definition of SR&ED in subsection 248(1) of the Act;
• Eligibility of work for SR&ED Investment Tax Credits Policy (eligibility policy)
• SR&ED while Developing an Asset Policy (asset policy),
• SR&ED During Production Runs Policy (production runs policy), and
• T4088 – Guide to the Form T661.

There are also many other links to relevant policies, directives and guidelines in the CRM.

2.4.2 CRA Information Systems

Much information, including the tax centre (TC) risk assessment sheet, is available only from the internal CRA information systems referred to in the CRM. For tax years ending after 2008, claimants can file project information electronically, and the TC does not always print it. Therefore, the RTA may need to access the following systems, or have someone else access them, in order to review project information, verify authorized representatives, record delays, record the results of reviews and carry out other information management activities:

• audit information management system (AIMS) has information on current and past reviews and audits;
• CORTAX is the CRA system for accessing T2 (corporation) information as well as Form T661 prescribed information, including SR&ED project information (e.g., names of authorized representatives);
• RAPID is the CRA system for accessing non-T2 and other information; and
• SR&ED risk management tool is the information system where the RTA can access the initial risk assessment provided by the TC.

The CRA has given RTAs a profile that identifies the particular information systems and levels that they are authorized to access. Local offices manage access profiles.

2.5.0 Special Terminology

2.5.1 Control Function

The Control Function (CF) is the function in each CTSO that receives/ screens SR&ED claims referred to them from the TC. The CF decides if the claim must be reviewed in more detail by the RTA or the FR, or both.

2.5.2 SR&ED project and activity

The CRM uses the word “project” frequently. Although the Act does not define or use the term “project”, form T661 requires SR&ED work to be claimed as SR&ED projects. The CRM will use the term as defined in the eligibility policy:

 “Every project claimed must fall within the definition of SR&ED in subsection 248(1) of the Act. An SR&ED project is defined as a project comprising a set of interrelated activities that:

• collectively are necessary in attempting to achieve the specific scientific or technological advancement defined for the project by overcoming scientific or technological uncertainty; and
• are pursued through a systematic investigation or search in a field of science or technology by means of experiment or analysis performed by qualified individuals.”

A project may consist of one or more activities. An activity is therefore an element of work within a project. Chapter 4.6.2 discusses how to address situations when not all the claimed activities are part of an SR&ED project.

2.5.3 “Eligible” and “Ineligible”

The terms “eligible” and “ineligible” (including the forms “eligibility” and “ineligibility”) are widely used in the SR&ED program, although the Act does not define these terms. For the purposes of the CRM, “eligible”/ “ineligible,” without any other qualifier, means work which meets/ does not meet the definition of SR&ED in subsection 248(1) of the Act.

2.5.4 “Determination”, “Conclusion”, and “Decision”

The term “determination’ is used in the CRM to mean the result of the technical review conducted by the RTA with regard to whether the claimed work meets or does not meet the definition of SR&ED in subsection 248(1) of the Income Tax Act. The RTA’s determinations will include situations where:

a. all of the reviewed work meets the definition of SR&ED (AW);
b. some of the reviewed work meets the definition of SR&ED and some does not (SW); and
c. none of the reviewed work meets the definition of SR&ED (NW).

The term “conclusion” is used with this meaning: the RTA “concludes” that the claimed work is unsubstantiated (UN). This situation occurs when the claimant is unable to provide sufficient evidence to substantiate the claimed work and so, it is not possible for the RTA to determine if the claimed work meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

The term “decision” is used with respect to the RTA’s work that does not relate to the definition of SR&ED. It includes “decisions” concerning joint technical-financial issues. It also includes cases when the RTA decides to accept as filed (AAF) all or some of the claimed work without conducting a review to determine if the claimed work meets the definition of SR&ED in subsection 248(1) of the Income Tax Act. The decision to AAF the claimed work means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.

2.5.5 Desk, On-Site, Limited and Detailed Reviews

These terms are used when coding the RTA’s work in AIMS. More information on this subject can be found in the AIMS online guide.

2.6.0 Dispute resolution, notices of objection and appeals

2.6.1 Dispute resolution

During the review process, the claimant may not agree with decisions made by the RTA. Because dispute resolution is important to the CRA and the SR&ED Program, a process for dealing with disagreements has been developed and described in Application Policy (AP) 2000-02R “Guidelines for Resolving Claimant’s SR&ED Concerns” and is applicable to RTAs when they conduct reviews. It describes a three step process whereby the claimant is encouraged to talk first with the RTA or FR to resolve disputes, second to talk with the RTM or financial review manager (FRM), and third to request an administrative second review (ASR). Other procedures and approaches recommended for the RTA for effectively resolving claimant concerns are presented in Chapter 5.

2.6.2 Notices of objection and appeals

At various places in the CRM, there are references to notices of objection (NOO) and appeals to the Tax Court of Canada. The following website contains details on the CRA formal dispute resolution process: Complaints and disputes.

Disputes that are not resolved to the satisfaction of the claimant during the review can be resolved via a more formal process that begins after a notice of assessment/ reassessment is issued to the claimant. In the case of amended claims, sometimes a reassessment is not issued and the process is different. Directive 1997-02 Scientific research and experimental development (SR&ED) – Requests for investment tax credit (ITC) refunds has details.

In most cases, a claimant must file a NOO within 90 days of the “Notice of Assessment/Reassessment.” Claimants can file an objection by using the My Account feature on the CRA Internet site or by writing to the chief of appeals at their appeals intake centre. The file then becomes the responsibility of the CRA’s Appeals Division who does an impartial review. Sometimes the RTA is involved in this process. Refer to the Stakeholder Relation Division in SR&ED Headquarters (HQ) for a more detailed discussion of this review process. Refer to Appendix A.6 for a discussion of some specific considerations for dealing with files where there is a NOO or appeal, and when the RTA may be involved in the appeals review process.

If the claimant still disagrees with the outcome of the appeals decision, they have the right to file an Appeal to the Tax Court of Canada. The Tax Court of Canada publishes their decisions and they are available from a number of sources such as the Tax Court of Canada website and Knotia News. RTAs can subscribe to Knotia News using this link in order to receive copies of published judgments.

When objected to by the claimant, the RTAs decision can be reviewed by other branches of the CRA and by the Tax Court of Canada. It is important that the RTA follows the principles set out in the CRM so that the decisions are appropriately documented and supportable.

2.7.0 Legislated authority of the RTA to conduct reviews

Subsection 231.1(1) of the Act provides the legislated authority for authorized CRA staff to conduct reviews, and the RTA is an authorized person under this section of the Act. The RTA is issued an RC121A authorization card indicating that they are so authorized. The following extract from the CRA audit manual section 4.5.1 states the following about the card:

 “Auditors are provided an RC121A authorization card that outlines that the person named on the card is authorized to carry out the following functions under the relevant provisions of the ITA and the ETA:

• enter a place of business,
• enter a personal residence where required with the occupant’s consent,
• require persons on the premises to give assistance and to answer questions,
• require a person to accompany them where legally provided,
• examine and copy documents,
• examine property.

Entering a personal dwelling without the occupant’s permission is expressly forbidden under the legislation unless a judge has issued a warrant that authorizes entering the dwelling.

The legal name as shown on the authorized person’s birth certificate or other official document (certificate of name change, marriage certificate, certificate of Canadian citizenship) should be shown on the RC121A authorization card. A new authorization card must be issued when a person legally changes their name.

The RC121A authorization card must not be used as a personal identification card or for any purposes for which it is not intended. It must be kept separate from the employee’s building identification and should never leave the employee’s possession. Any requests to photocopy it must be denied for security reasons but taxpayers/ registrants may copy the wording by hand. A lost or stolen card must be reported immediately as a security incident and a security incident report must be completed.

The status of authorized person is not restricted to CRA employees. For example, an outside consultant (OC) can also be an authorized person, but the CRA normally gives this authorization on a file-by-file basis, and it is limited by the terms of the contract. Chapter 4.7.3.1 contains more information on OCs.

Chapter 5.10.0 discusses of procedures for dealing with problems concerning entering the claimant’s premises, conducting the review or obtaining information from the claimant.

2.8.0 Legislated requirements for taxpayers and compliance

2.8.1 Requirement to provide information

Section 231.1 of the Act allows CRA officials to inspect, audit, review or examine the books and records of a taxpayer and any document of the taxpayer or of any other person (including third parties) that relates or may relate to a taxpayer’s books and records that may be relevant to the administration or enforcement of the Act. This is discussed in greater detail in Chapter 5.4.2 of the CRM and Chapter 10.6 of the audit manual.

Section 231.1 requires anyone (not just the taxpayer) to provide documents or information needed to administer the Act, although, in practice, requests from third parties are not routinely made. Under the provisions of subsection 231.5(1) the RTA can require a taxpayer to make copies of documents.

Information requests made under Section 231.2 of the Act are known as requirements. A requirement is a legal document issued by the CRA that compels a taxpayer/registrant or third party to provide information and/or documents under this section. This is discussed in Chapter 5.12.3. Requirements have a force of law equivalent to a court order but should be used only when necessary. Failure by the recipient to comply with a requirement could result in prosecution.

Accountant’s and authorized representative’s working papers relate to a taxpayer’s books and records, and CRA officials have the legal authority to request such working papers at any time during an inspection, audit or examination for any purpose relating to the administration or enforcement of the Act.

Provisions in the Act provide the CRA with many legislated compliance tools that enable an official to request or require information for verification and administrative purposes.

Chapter 5.4.0 contains a discussion of the procedures for acquiring information from claimants and third parties. This chapter also lists the applicable Compliance Programs Branch (CPB) Communiqués that discuss CRA policy and the legislated compliance tools.

Chapter 5.10 and 5.11 discuss procedures for dealing with claimants who fail to provide information.

2.8.2 Requirement to maintain records and books

Subsection 230(1) of the Act requires that taxpayers keep records and books

…in such form and containing such information as will enable the taxes payable under this Act or the taxes payable or the taxes or other amounts that should have been deducted, withheld or collected to be determined.

The Act defines records as follows:

‘record’ includes an account, an agreement, a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map, a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other thing containing information, whether in writing or in any other form.

This definition is broad enough to include the kinds of supporting evidence claimants need to substantiate an SR&ED claim. Chapter 5.6.6 has more details.

Subsection 230(3) of the Act allows the CRA to require a taxpayer to keep adequate records and books if they have failed to do so. Subsections 238(1) and 238(2) outlines the consequences of failing to keep adequate books and records. Chapter 5.11.3 discusses procedures for dealing with problems of inadequate records and books.

2.9.0 Contact and communications with the claimant

2.9.1 General considerations

All RTAs must know and follow the CRA policy on communications security for protected information. All forms of contact must adhere to CRA information security protocols. Please note that the CRA communication policy is currently under review.

The key points of CRA’s policy are:

• cell phone contact and email with the claimant are not considered secure and must be avoided when dealing with technical issues or other protected information.
• Protected and classified information must not be sent via email, even if the taxpayer specifically requests and authorizes it.
• Taxpayers must be advised not to send any of their personal information to the CRA by email.
• As email received from taxpayers cannot be authenticated and can be intercepted and altered, individuals should remind taxpayers not to transmit their personal information to the Agency using unsecure email.
• It is possible to exchange emails with other CRA staff. However, these emails must respect the confidentiality provisions of section 241 of the Act and CRA security policies. Protected information can be exchanged by email only within the CRA, and it must be encrypted by CRA approved means. According to the CRA Protected Information Policy paragraph 5.6, the “Public” network consists of facsimile machines without encryption devices enabling information to be received from taxpayers. It can also be used to send to taxpayers documents that specifically concern them, but only if the taxpayer provides satisfactory identification (in accordance with existing Taxpayer Services standards) and have specifically requested a reply by facsimile. The identification standards are in TOM 3980 – Confidentiality of Taxpayer services – individual programs).

2.9.2 Authorizations / contact with the claimant

While the RTA is authorized to speak to anyone in order to obtain information for purposes of reviewing a claim, the RTA has no authority to provide information about a claim to any individual who is not authorized by the claimant to receive that information.

When the RTA initially contacts the claimant, the first person to contact is the technical contact person listed in Box 115 of Form T661. This person may refer the RTA to other people within the company in order to answer questions or arrange meetings. If the contact person is not an employee, or refers the RTA to someone outside the company, the RTA must ensure that an authorization is on file before speaking to them. If there is no authorization on file, the RTA must contact the company (the contact person or the person who signed the T661) advising them to Add An Authorized Representative online via their CRA My Business Account.

Alternatively, the RTA can check the Business Number System to identify the owner or authorized representative and the limits to the authority of the authorized representative (such as the years, time limits, and whether it applies to a firm or a single individual), but sometimes this is not up to date. The most recent communications from the company owner are the most accurate. If a new authorized is received, the RTA should put a copy in the files and send the original to the TC so that Business Number System may be updated.

The RTA must be vigilant when a third party is requesting or wishes to discuss confidential information. Even when the claimant makes a verbal request to authorize a third party, an authorization must be indicated in the CRA Business Number System or completed and signed by the claimant and in possession of the CRA before the third party request can be satisfied. The RTA may contact a person who is not the owner or an authorized representative to obtain information about a claim, but it does not mean that any information regarding the review or the claimant’s tax matters can be divulged to that person. It is important to remember to discuss confidential information only with the claimant or their authorized representative. Confidential information must not be disclosed to an unauthorized person according to the provisions of Section 241 of the Act. Chapter 5.4 discusses obtaining information from third parties.

The RTA should work with the authorized representative to schedule interviews and meetings with the claimant’s personnel. However, at the beginning of every review, the RTA should confirm with the claimant the communication protocol preferred by them (such as information requests, scheduling of interviews, communication of results), and emphasize the importance of timely responses to queries made to both the claimant and the authorized representative. Discussing these expectations with the claimant at the outset of the review will help to avoid potential communication problems.

2.9.3 Official languages

Communications with claimants must follow the provisions of the Official Languages Act.

2.9.4 Claimant’s representatives

Claimants frequently use the services of tax professionals to prepare their tax returns and act on their behalf with the CRA. Claimants may also hire representatives to write the project descriptions as well as assist them during the claim review. The claimant’s representatives may be present during meetings and may answer questions on behalf of the claimant.

The choice to use a representative is right #15 of the Taxpayer Bill of Rights and must be respected by the RTA. However, that right does not negate the RTA’s right to obtain information they need or the right to directly contact anyone they need about the claim, which includes the claimant or the scientists or engineers having responsibilities for the claimed work. For example, if the RTA cannot obtain needed information through a representative, the RTA can go directly to the claimant. A claimant representative does not have the right to restrict the RTA from access to information or people that the Act permits. In fact, sections 231.1 and 231.2 of the Act give the RTA the authority to require anyone to provide information or documentation. If problems arise with the representative, such as miscommunication or undue delays, and the claimant has asked that all communications be sent via the representative, the RTA must discuss this with the RTM and document the facts before contacting the claimant directly. When a claimant has an authorized representative, the RTA should discuss with the claimant whether they want verbal and written requests for information to be sent to the representative or not.

2.9.5 Access to Information and Privacy (ATIP)

Two Acts are relevant to the disclosure of information, including the information generated in the course of the review of SR&ED claims. The Access to Information Act deals with the rights of access by the public to information under the control of the Government of Canada. The Privacy Act protects personal information and gives individuals rights of access to their personal information held by the government.

For more information about ATIP, including discussion of what does not have to be released and the RTA’s obligation to keep the information he/she created, refer to the Access to Information and Privacy Directorate website.

2.9.5.1 Informally requested information

Claimants can make a formal ATIP request for information in their tax file, or informally by simply asking the RTA or their manager. According to the Access to Information and Privacy Directorate, the informal method is considered to be the preferred method of access for claimants to their tax file, and a response should be provided if possible. The response depends on whether the file is currently under review or not.

If an SR&ED file is currently under review, informally requested information may be disclosed after a proposal letter is issued to the claimant.

If an SR&ED file was reviewed, (re)assessed and sent back to the TC, the files may be borrowed from the TC, copies made and the informally requested information disclosed to the claimant.

All ATIP and informal information requests should be coordinated through the RTA’s manager to ensure consistency in handling them. Most of the TF98 file and the audit file could be released to claimants after the review is completed, but some important information must not be released.

Examples of information that may be released include:

• T2020, financial report and SR&ED review report;
• external and internal correspondence, including memoranda, appropriately severed where necessary;
• related correspondence with headquarters (for example, technical interpretation requests or opinions and referrals); and
• audit working papers, excluding third-party information, leads, disclosure of audit techniques, and information from informants.

Examples of information that cannot be released include:

• business numbers, names and addresses of secondary files;
• information obtained in confidence during an audit that may prejudice the results of the audit, such as Criminal Investigation reports, Royal Canadian Mounted Police reports, or documents obtained as part of an investigation;
• audit verification techniques and specific audit guidelines;
• information about investigations in process when a decision is pending;
• documents of a related file under investigation;
• confidential information about another taxpayer;
• Department of Justice correspondence and information under solicitor-client privilege, including legal opinions from the Legal Services Branch. For more information, go to “Disclosing legal opinions” and “Use of legal opinions inside the Agency” on the Legal Services Branch Guidelines webpage;
• accounts of consultations and deliberations involving officials or employees of a government institution or minister of the Crown that if disclosed, may reasonably be expected to cause injury or restrict the CRA’s ability to administer the Act;
• copyrighted material; and
• printouts from CRA computer systems. Instead, transcribe relevant information from the printout and include in a letter to the claimant.

2.10.0 Safety, Security & Health Considerations

2.10.1 Introduction

As noted in Chapter 1, the CRA policy summaries in the following section do not eliminate the RTA’s responsibility to follow all applicable legislation and current CRA policy.

In any potentially dangerous situation, the RTA’s safety must be the first priority. CRA employees must remove themselves from any threatening situation. CRA employees must protect themselves at all times to ensure their own safety and that of their families, together with the safety of their fellow employees and the claimant. Such situations cannot be predicted but the RTA, along with their RTM, can use their experience and best judgement to identify potentially threatening situations when conducting reviews. To do this, the RTA must know and follow CRA work procedures, preventative measures, guidelines and the related reporting requirements. Currently, these include:

• Canada Labour Code, Part II;
• CRA Occupational Health and Safety Policies; and
• Abuse, Threats, Stalking and Assaults against Employees Policy (Security Volume, Finance and Administration Manual).

In addition, the RTA must:

• request guidance and assistance from managers, if required, when it is necessary to call on and confront difficult individuals; and
• report any threats or abuse immediately to the managers, to Security and to the police.

The CRA offers the Employee Assistance Program as a service to employees in dealing with a variety of concerns, whether personal or work-related.

2.10.2 Requests by a claimant to video or audio record

Although claimants and their representatives may take notes during a meeting, the RTA must not consent to being recorded by any video or audio recording equipment. If the RTA discovers that the claimant is recording a meeting, they must immediately terminate the meeting, and inform the claimant that CRA management will be in contact with them to discuss the issue and make other arrangements. The RTA must then immediately inform the RTM of the situation.

2.10.3 Offensive or threatening interviews

In later chapters, the CRM provides suggestions and best practices for managing reviews that are difficult. However, if during the course of the review, the claimant’s or their representative’s language or behaviour becomes offensive or intimidating, and the business purpose of the meeting cannot reasonably be achieved, the RTA must:

• calmly suspend or terminate the interview;
• consult the RTM to decide on appropriate measures to be taken; and
• prepare a written report of the incident for management, detailing all relevant facts.

When the potential for assault exists and the RTA’s safety appears to be at risk, the RTA must:

• not restrain or agitate the person or persons;
• vacate the premises immediately;
• use best judgement on how to secure personal safety and protection if unable to leave, such as calling for help using a cellular phone or attracting attention of other people nearby;
• call the police as soon as possible, if assaulted, follow their instructions, obtain a medical examination from a qualified physician, and alert the RTM and security as soon as possible (the threat reporting number is 1-866-362-0192); and
• prepare a written incident report (using Form RC166) for management of the incident, detailing all relevant facts.

2.10.4 Demands for personal information or other information

If requested by the claimant, the RTA must present their CRA RC121A authorization card and explain to the claimant the reason for, the nature of and legal authority for their review. However, the RTA must never provide any personal information such as a home phone number or address, or produce personal documents like a driver’s license. The RTA can also show the claimant their government identification card, but if this does not satisfy the claimant, the claimant can speak to the RTM. If the claimant continues to demand other irrelevant information, and those demands hinder the RTA from performing their duties, they must terminate the meeting. The incident must be reported immediately to the RTM. The RTA can submit to normal company security procedures (such as baggage searches and reasonable requests for information), if this is standard for all visitors. If there is any concern about the nature of the procedures, the RTA should contact the RTM.

2.10.5 Questionnaires, forms and non-disclosure agreements

Claimants might ask the RTA to fill out questionnaires or forms before allowing them access to the records and premises. The RTA must not, under any circumstances, complete questionnaires, forms, or other non-CRA documents. The RTA must inform the RTM that the claimant made such a request. This restriction does not, however, prevent the RTA from such routine practices as signing the visitors’ log identifying their name and organization. If the RTA is not sure whether the information should be provided, they should contact their RTM.

Some claimants are concerned that their confidential information may be divulged inappropriately and may request that the RTA sign a non-disclosure agreement before allowing access to the records and premises. When faced with this concern, the RTA must not sign the agreement. Instead, the RTA must inform the claimant that section 241 of the ITA includes strict confidentiality provisions that, if breached, will result in fines and/or incarceration. In addition, the RTA must inform the claimant that all federal public servants, including them, have appropriate security clearance and have taken the Oath of Office and Secrecy and swore or affirmed that they would not disclose any information they may become aware in the course of the exercise of their duties.

A refusal by the claimant to allow the RTA to conduct a review because they have refused to sign a form will be dealt with by first informing the RTM of the situation. If the claimant continues to prevent the RTA from conducting a review, the RTA must communicate to the claimant in writing to explain that the claim will consequently be disallowed.

2.10.6 Health and safety during on-site visits

The CRA has developed a number of policies, standards, regulations and guidelines concerning employee safety and health to ensure protection from exposure to occupational hazards and environmental conditions and factors. As mentioned earlier in Chapter 1, the RTA must know and follow applicable legislation and CRA policies.

Some of the important points from these policies are:

• Becoming aware of any potential health or safety risks prior to visiting the claimant’s premises is an essential part of planning an on-site visit. By asking for information from the claimant on necessary or advisable precautions, such as the need for a facemask, hearing protection or steel-toed boots, the RTA can assess their safety needs and act accordingly. The RTA should consult the RTM for more details.
• Pay particular attention to plan for safety when preparing to travel to and from the claimant’s premises. Under no circumstances is it necessary to travel when unsafe or risky travel conditions (for example, icy roads, snowstorm, limited visibility) prevail along the travel route. When travelling by car, and road conditions are poor, the RTA must always try to find out if these conditions might remain poor or worsen.
• If during an on-site visit the RTA believes that the working conditions or premises are not safe, they cannot access the site safely or that they cannot continue to conduct the review safely, they must terminate the on-site visit immediately. RTAs must not put themselves into a situation that they feel is unsafe and they must remove themselves from any unsafe situation that develops. The RTA must then contact the RTM to discuss their health and safety concerns, preferably prior to making a decision, where possible.
• The RTA should discuss any other health and safety concerns with the RTM. The RTA can also consult the Treasury Board Guidelines on Occupation Health and Safety if they need further information.

2.11.0 Information Security

The RTA must know CRA security policies and must follow them when they receive, share, transport or transmit sensitive information. The Security Volume – Finance and Administration Manual discusses CRA security policy. The policies described there are the CRA standard and take precedence over any other instructions or requirements in the CRM. Additionally, the RTA must follow the security guidelines published by the Program Support and Integrity Division. As mentioned in Chapter 1, the summaries provided in this chapter are not the complete policy. The summaries do not eliminate the RTA’s responsibility to know and follow all current CRA policy.

The following is a summary of the main points of the CRA policies:

• The CRA must protect the confidentiality of client information and manage its use and disclosure in accordance with privacy and access to information laws and confidentiality provisions of legislation it administers. Client information will only be used for the purpose for which it was obtained or the purpose for which the information was legally disclosed to CRA. See Client Information for details.
• The CRA considers most of the information used by the RTA to be sensitive and classifies it at the “Protected B” level. This includes all information that has the potential to identify a particular claimant, whether directly or indirectly. Information sent to claimants, such as proposal letters and information requests, is Protected B, and steps such as verifying the address on the BN systems must be taken to avoid misdirection. Ensure that no information from other claimants is present before sending a letter. Use clean templates instead of modifying existing letters. In addition, as per a CRA policy, replace the first six digits of any SIN with X’s on letters sent to claimants.
• Information security is vital in the CRA, and the RTA must, as a general rule, exercise good judgement and ensure that every reasonable effort has been made to safeguard protected information or assets at all times. If the RTA has any doubts about how to handle a situation or any concerns about security in general, they must consult the RTM for guidance.
• As specified in Appendix A of Chapter 9 of the FAM, Security Volume, when in transit, employees must secure protected information and/or assets they are carrying in a locked briefcase or container. The RTA must tag the briefcase or container with forwarding or return address information and/or the phone number of the RTA’s office.
• Paper files and assets are only to be in vehicles during the conveyance between the employee’s residence, place of work and claimant’s place of business. While travelling by vehicle, employees are to secure classified and/or protected information and/or assets in a locked briefcase. The briefcase must be of a type approved by the CRA for the type of information or assets, and the RTA must place it in a locked trunk or out of sight in a locked vehicle. Placement of the briefcase or container and / or the asset must occur at the time of departure from the employee’s residence, place of work or claimant’s place of business. The RTA must make every reasonable effort to plan the itinerary to eliminate or minimize stopovers before reaching a final destination. However, if brief unforeseen or planned stopovers are necessary (for example, lunch, convenience store, or daycare), the RTA must exercise good judgement and make every reasonable effort to minimize the risk to the protected information and/or assets.
• Information classified at higher than Protected “B”: The RTA must never leave Classified and / or Protected C information in a vehicle unattended. The RTA who must store protected information and/or assets such as a laptop or notebook computer at a claimant’s residence or place of business must do so in an approved container, or in an approved filing cabinet provided by the claimant, on which they can fasten an approved Agency combination padlock. The RTA must also secure the container or filing cabinet in a locked room. The CRA does not consider a briefcase an approved container when left on claimant’s premises;
• As specified in Transmittal and Transport of Protected and Classified Information and Assets Standards of the Finance and Administration Manual, Security Volume, when in transit, employees must secure protected information and/or assets they are carrying in a locked briefcase or container. The RTA must adequately safeguard protected information during transmittal by mail. The key point of the policy is that the RTA must send all protected information and assets through a CRA mailroom. Mailrooms have established security-approved procedures for transmittal within and outside the CRA.
• Transmittal and Transport of Protected and Classified Information and Assets Standards of the Finance and Administration Manual, Security Volume also  discusses transmission of protected information via fax. That document indicates that Protected A and B information may be communicated to the claimant by fax (no encryption device required), but only upon verification of the claimant’s identity and only at the express written request of that claimant.
• For tracking and security purposes, the RTA must, for internal transmission of TF98 files, use a T973 Routing Advice of Controlled Shipment Tracking form. This form tracks “controlled shipments” between CRA offices that contain protected material. Those forms are available through all CRA mailrooms.

2.12.0 Service standards and the complete claim date

The CRA is committed to certain service standards for the processing of SR&ED claims. The service standards were determined by calculating reasonable lengths of time to process SR&ED claims, based on the normal steps involved. The CRA has committed to achieving these standards 90% of the time.

The RTA must take into consideration the CRA service standards when planning and conducting a review. The four service standards are:

• current refundable claims (claim type 2337 for corporations, un-assessed returns with 35% ITC) , 120 days;
• claimant requested adjustments of refundable claims (claim type 0402 for corporations, assessed returns with 35% ITC) , 240 days;
• current non-refundable claims (claim type 0450 for corporations, assessed returns with 20% ITC) , 365 days; and
• claimant requested adjustments of non-refundable claims (claim type 0452 for corporations, assessed Returns with 20% ITC), 365 days.

Service standards webpage has more information on service standards.

The CRA determines the number of days to process SR&ED claims from the date the TC considers the SR&ED claim complete until the date the claim is sent back to the TC for (re) assessment. Both of these dates are recorded in AIMS.

If the claimant’s actions or requests result in a delay of the review of the claim, the number of days available to review the claim is lengthened by the duration of the delay. These delays are entered in AIMS.

The process to initiate and approve the use of a delay code is set by the individual CTSO and should be followed by the RTA. In all cases, the reasons for placing the delay must be indicated in the file. Directive 2003-03 Use of Delay Codes on AIMS contains complete information.

When planning the review, note that the time allotted is for the complete review, not just the technical review. The RTA should complete their work early enough to allow sufficient time for the FR to review the SR&ED review report, perform the financial review of expenditures claimed, prepare the proposal package, and for the TC to complete the (re)assessment.

If any RTA believes, for any reason, that he cannot review the file within the applicable service standard, the RTA should advise the responsible RTM.

Chapter 3.0 Guidelines for Coordinated Review

3.1.0 Summary of chapter

This chapter introduces and discusses guidelines linked to a coordinated review between the research and technology advisor (RTA) and financial reviewer (FR). Specifically:

1. A definition is provided.
2. Its characteristics are discussed.
3. Ways to coordinate are discussed.
4. The benefits for both the Canada Revenue Agency (CRA) and the claimant are discussed.

3.2.0 Requirements of chapter

Following from Chapter 1.6.0, there are two requirements that apply equally to both the RTA and the FR:

1. All reviews must be coordinated between the RTA and the FR.
2. Relevant interactions must be documented.

3.3.0 Background

The underlying principles of coordination between the RTA(s) and the FR also apply to SR&ED claims that have been assigned to both an RTA and an FR. The principles also apply to other situations where consultation and sharing of information leads to more effective and more efficient services, such as process review, pre-claim project review, first-time claimant advisory service (FTCAS), account executive service, or outreach services (such as information seminars). FTCAS in particular is deigned to be provided jointly by the RTA and FR.

In general, depending upon the specific issues identified in the review plan, a coordinated review may be done by applying the relevant guidelines outlined below. Most of the guidelines reinforce the need for discussion with the other reviewer (the RTA or FR) for the purposes of planning reviews, coordinating activities, and monitoring progress on the file. When appropriate, the research and technology manager (RTM) and / or financial review manager (FRM) may need to participate in the discussion and resolution of issues related to the claim.

It is preferable if the FR and the RTA can receive the file at the same time to facilitate timely planning and coordination of efforts.

3.3.1 Definition of coordinated review

A coordinated review is one which is undertaken using an approach whereby the RTA and FR and, when needed, their respective managers, discuss and determine the principal issues of the claim and arrange to coordinate their respective activities throughout the review. For example, when a review is coordinated, the RTA and FR will consult and communicate with each other on the following relevant items:

• the scope of their reviews, including the need for an on-site visit;
• joint issues in the claim that require the input of both reviewers to resolve, and the planned approach to resolve those issues;
• responsibilities for initiating contact with the claimant, and mechanisms for obtaining and then sharing pertinent information with the other reviewer;
• significant events (such as planned leave and changes to availability) or occurrences (new priorities and decisions to abandon the review) that may impact the work plan, or may provide milestone or status information on the review process;
• contemplated significant revisions to the review plans of the RTA or the FR. In the CRM, the words “review plan” may also refer to a joint review plan;
• on-going findings of review work performed, especially as they impact joint issues;
• adjustments each reviewer will be proposing and representations / additional information received from the claimant;
• sources of delays that affect the review process;
• content of communications with the claimant;
• the SR&ED review report and the proposal letter so that feedback from the other reviewer can be sought and provided prior to mailing to the claimant; and
• any other information that affects the review process of the other reviewer, or that affects the completion of the file on a timely basis.

Coordinated reviews are required in all cases when both the RTA and the FR receive their parts of the file at the same time. A coordinated review allows both reviewers more flexibility in how and when to perform their work.

A joint review, on the other hand, is one where the FR and RTA work in tandem, and all work on the file, including meetings with the claimant, planning and correspondence is conducted with the concurrent participation of both reviewers. Joint reviews are encouraged, especially with large files, but are not required. The CRM does not discuss procedures for a joint review as they are considered part of the more general coordinated review.

In summary, a coordinated review is a collaborative and supportive process using on-going communication as its primary tool, which resolves joint or overlapping issues and assists each reviewer to manage and meet their own review objectives efficiently and effectively.

3.3.2 Characteristics of coordinated review

There are two objectives of performing a coordinated review:

• to improve the efficiency and effectiveness of the claim review by encouraging improved communication between the RTA and FR; and
• to reduce the administrative burden on the claimant and minimize the interruption to their business operations (for example, coordinating requests for information and a site visit).

Each reviewer should undertake to assist the other reviewer on joint issues identified in the review plan, and to inform the other reviewer of all relevant developments that could affect the other reviewer’s review process. These responsibilities to one another and ultimately to the overall review process would normally be evident in the file through documentation showing that sufficient relevant interactions occurred to meet the two stated objectives of a coordinated review.

Typical interactions of a coordinated review:

• Early in the review process, the FR and the RTA communicate the scope of their planned review to each other. They discuss and decide which common issues require coordination of review procedures.
• Each reviewer shares relevant information they have concerning the claim or claimant with the other reviewer.
• The reviewers discuss their information needs with respect to reviewing the claim. Opportunities for improving efficiency of the review may result where both reviewers would otherwise examine the same or similar information independently or seek different information from the same source. For example, both might want a cost breakdown by project.
• The reviewers decide on the most appropriate and effective manner for obtaining information from the claimant. This avoids asking the claimant for the same information twice and may eliminate the need for a second visit.
• The reviewers discuss and coordinate the need for an on-site visit to the claimant.
• The reviewers update each other on the progress and status of their respective reviews. This could include updates concerning:
  • the scheduling of meetings with the claimant;
  • information requests issued and information received;
  • interim findings by the RTA on project eligibility;
  • new issues uncovered during the review;
  • changes or modifications to the review plan or to the scope of the review;
  • the inadequacy of the claimant’s documentation or books and records;
  • anticipated internal delays (for example, leave plans); and
  • the time anticipated by each reviewer to complete their review.
• The reviewers communicate in a timely manner any other information that is discovered which could have an impact on the other reviewer’s review process. This would apply particularly for information of the sort discussed under “joint technical-financial issues” in the CRM for RTAs.
• The RTA provides the SR&ED review report to the FR for examination and feedback. Any comments provided by the FR are addressed prior to sending the report to the claimant. This ensures that nothing of importance to the financial review has been overlooked in the SR&ED review report. Within this context, the RTA ensures that the SR&ED review report does not include decisions on strictly financial issues. Nevertheless, the RTA still provides commentary on any potential financial issues when the RTA has concerns or reservations resulting from information received from the claimant or otherwise. This commentary only puts forward factual comments and relevant observations that will assist the FR in making decisions on their issues. For example, the RTA comments on the role of an employee performing SR&ED, or the time or period spent by that person on a project, but does not comment on whether that person is a “specified employee”. The RTA could, however, note in their report that the employee stated that they were a shareholder of the corporation.
• If the services of an outside consultant (OC) are required for the review, the RTA responsible for the OC regularly updates the FR on the OC’s progress on the review. A copy of the OC’s report is provided to the FR for comments before it is sent to the claimant as an attachment to the RTA’s SR&ED review report.
• The FR may need to access information in the TF98 file for the current or prior tax years and therefore needs access to any such information not keyed on CORTAX. How this is done is left to the coordinating tax services office (CTSO) management to determine and implement. It is recognized that geographical distances between CTSO and tax services office (TSO) may encumber movement of the TF98 file to the FR;
• The FR and the RTA communicate to each other delays set or removed in AIMS on a timely basis.
• If gross negligence penalties are considered, the FR and the RTA work together and inform their managers, prior to communicating with the claimant.
• The RTA and the FR should strive to visit the claimant together to discuss contentious issues so that the claimant may better understand the potential impact of the review on the investment tax credits (ITCs) claimed.
• The FR provides the proposal letter to the RTA, prior to providing it to the claimant.
• The FR and the RTA present their results in a proposal package that includes both the eligibility and the financial changes to avoid delays associated with multiple claimant responses. However, it is understood that under certain circumstances it is preferable that the RTA sends a preliminary SR&ED review report to the claimant prior to the proposal package, such as when there is a significant delay between the completion of the technical and financial reviews. The decision to send a preliminary SR&ED review report is at the discretion of the RTA and local management.

When an issue in the file is strictly financial or technical, the RTA or FR will resolve the issue without involving the other reviewer. However, coordination is particularly useful for the review of a number of joint issues and situations, for example:

• work and related expenditures – to determine if an expenditure was incurred for SR&ED may require a decision by the RTA as to whether the expenditure claimed is reasonable in light of the SR&ED work that was performed. It may also require a decision in respect of the context of the expenditure;
• salaries – to determine if an expenditure was incurred for SR&ED may require a decision by the RTA as to whether or not the employee was directly engaged in the identified SR&ED work or otherwise directly attributable;
• materials – to determine if an expenditure was incurred for SR&ED may require a decision by the RTA as to whether the materials claimed were “consumed” or “transformed” in the prosecution of SR&ED and whether all or substantially all (ASA) of the quantity claimed was consumed or transformed;
• SR&ED contracts – to determine if a contract expenditure was incurred for SR&ED may require a decision by the RTA as to whether the contractor or subcontractor (performer) performed SR&ED and whether that SR&ED was performed on behalf of the claimant;
• equipment – to determine if a capital expenditure was incurred for SR&ED may require a decision by the RTA whether it was intended that the equipment would be used ASA for, or that ASA of its value would be consumed in SR&ED. It may also require a decision in respect of the actual use of the equipment in a case of shared use;
• prototypes and pilot plants –to determine if an expenditure was incurred for SR&ED may require a decision by the RTA as to the actual use or intended purpose and use of the property by the claimant; and
• experimental production versus commercial production with experimental development contexts (EP+ED vs. CP+ED) to determine if an expenditure was incurred for SR&ED may require a decision by the RTA as to the context of the production run claimed.

3.3.2.1 Working with claimants in the coordinated review

All of the coordinated review practices discussed in Chapter 3 act to benefit both the CRA and the claimant. From the claimant’s perspective, coordinated reviews are more coherent, timely and less burdensome. An integral part of ensuring that coordinated reviews work for both the CRA and the claimant is to solicit the claimant’s input to ensure that the review can be completed efficiently. This is even more important in situations requiring significant travel by the RTA, FR, or employees and representatives of the claimant.

A number of specific practices are noted below that will help to demonstrate the CRA’s commitment to working with the claimant in order to ensure that all parties benefit from a coordinated review.

If either the RTA or the FR is familiar with the claimant, either through previous reviews or preliminary research, they must share that information as it may affect the review plan or the quality of service to be provided. Sharing this information between the RTA and the FR reduces the number of questions that the claimant is asked. Prior to the meeting, once the RTA and the FR have agreed upon the review plan, they together can plan the initial contact with the claimant, either by phone or via the initial contact letter, to determine or confirm:

• the timelines and anticipated on-site time requirements to complete the review;
• the means (letter or telephone) by which the CRA will request information, and to whom in the claimant’s company the request will be sent;
• time frames for responding to any CRA request or query so that the timeline for completing the review can be met;
• how and when updates on the progress and outstanding issues will be communicated between the CRA and the claimant; and
• mechanisms for resolving any concerns of the claimant.

During the review, when deficiencies in documentation or understanding of eligibility of work are noted, the RTA and FR should offer the claimant suggestions for improvements to their documentation thus providing them with a consistent message on the expectations of the CRA. A consistent message will enhance the claimant’s understanding of the SR&ED program and improve their working relationship with the CRA.

Chapter 4.0 Planning the Review

4.1.0 Summary of chapter

This chapter discusses how to plan for the review, and some special situations that might affect the review. This chapter covers the following activities:

1. identifying the important claim issues or concerns;
2. managing risks;
3. preparing a written review plan;
4. developing a strategy to deal with claims that include a large number of projects;
5. dealing with special situations or circumstances that could affect the review;
6. identifying and gathering missing or additional information;
7. studying and analyzing materials provided by the claimant and from other sources;
8. developing suitable methods to resolve review issues.

4.2.0 Requirements of the chapter

The following requirements apply to this chapter. The research and technology advisor (RTA):

• plans the technical review, and coordinates the planning with the financial reviewer (FR).
• makes a written review plan (the only exceptions are described in Chapter 4.8.0) with the following key elements:
  • identification of issues and / or applicable projects to be reviewed;
  • scope of the review, based on the risk assessment and other factors; and
  • proposed review strategy and methods for review.
• consults the research and technology manager (RTM):
  • to determine if a review plan is not needed;
  • for approval of the review plan;
  • if referrals or formal consultation are needed; and
  • if there are any concerns about the results of referrals.
• documents:
  • all relevant communications with respect to the review;
  • revisions to the review plan; and
  • referrals, their results, and what was done with the advice or guidance received.
  • the review and provides a rationale for the determination(s)/ conclusion(s)/ decision(s)
• follows general Canada Revenue Agency (CRA) requirements for:
  • communications and information security; and
  • handling claimant information (do not write on or alter original documents from the claimant).

4.3.0 Risk management

The course HQ 1182-000 Risk-Based Review Process is available to RTAs. It describes the risk-based review process and how to use it in conducting reviews. This section summarizes the key points of this course.

Risk management is an important aspect in all of the CRA’s operations. In the Scientific Research and Experimental Development (SR&ED) Program, using risk assessment techniques is crucial to selecting claims for review and to determine the scope of review. Properly conducted risk assessments identify files with the greatest potential of non-compliance and thus allow for efficient use of resources. It helps prevent doing unnecessary reviews of compliant claimants, thereby increasing the overall efficiency and effectiveness of the SR&ED Program.

The risk management policy of the SR&ED Program follows from the CRA Enterprise Risk Management Policy and covers all aspects of the CRA employee’s work.

The SR&ED risk management policy explains that reviews are conducted only to the extent necessary to obtain a reasonable level of confidence that there is a minimal risk of material error in the claim. The review ends when there is a minimal risk of a material error remaining in the claim. SR&ED staff uses risk management to select files and to determine the scope of reviews. This, in conjunction with claimant-centered services, provides a balance between fiscal integrity, delivering timely incentives to claimants, and minimizing the cost of compliance to the claimant and cost of administering the SR&ED Program. A detailed description of the SR&ED Risk Management policy is in Directive 2003-01R SR&ED Claim Processing Risk Management Policy. It is important to note that there is no exact way to determine the risk in a claim.

The risk management process for SR&ED claims begins as soon as the CRA’s Tax Centre (TC) receives a claim and it continues throughout the entire review process. When a claim is received in the TC, it is reviewed for completeness. Complete claims are processed through the risk management tool and are either downscreened or referred to the Control Function (CF) in the coordinating tax services office (CTSO). The CF performs a risk assessment as well, and either accepts the claim as filed or identifies possible areas of concern and refers the file to an RTA and/or an FR. According to the enterprise risk management policy (ERM), management and employees have different roles in the risk management (RM) process. The managers’ role is implementing risk management. The employees’ role is practicing risk management, specifically stated in the policy as:

• Considering risk as part of every business decision.
• Taking prompt action to manage risk within risk tolerance levels and in accordance with the ERM Policy and the CRA RM Process.
• Communicating risk-related information to the appropriate Agency levels as required.
• Seeking learning and training opportunities to increase awareness and understanding of RM.

4.3.1 Risk considerations and determining the scope of review

After receipt of the file, it is the RTA’s responsibility to determine the scope of the review, based on a risk assessment. The following diagram illustrates the process.

This flow chart illustrates how risk is continuously assessed throughout all stages of the review process. Initially, the RTA gathers information and identifies issues by reviewing the submitted project information, and other information gathered by a request for information (RFI) letter, phone calls, and any preliminary research work. Then the RTA assesses risk and materiality to identify factors that have the potential for significant compliance issues and prioritizes the issues. This process is iterative. The RTA then comes to a decision point for each of the identified issues: Is there a significant risk? If not, the RTA drops the issue because it is not worth pursuing, and moves on to the next issue. If “yes”, the RTA reviews the issue with the claimant, gathers more relevant supporting evidence, and makes a decision, that is, resolves the issue in the claimant’s favour or not. It is the additional information and supporting evidence that will help the RTA decide whether to keep, drop, or modify the issue or even to add new issues, as called for. The cycle goes on while the review is in progress. The point of this chart is that risk is continuously assessed throughout all stages of the review process. As new information comes in, risk must be re-assessed.

To determine the scope of the review means that, for all the compliance issues, the RTA assesses the associated risk of non-compliance and determines a course of action to resolve them that is appropriate to the circumstances.

Compliance issues are specific concerns or questions that relate to some aspect of the compliance of a claim; the RTA needs the answer to determine if the claim is compliant in some respect. The scope of the review determines which issues are reviewed, to what extent, and what course of action is needed to either determine that there is compliance or not, or that there is minimal risk of material error. Chapter 4.7 also discusses the scope of the review.

To assess the risk, the RTA considers many of the same risk factors as the CF and the TC but reviews them with greater depth and with the perspective of their specialized knowledge. Risk assessment is ongoing throughout the entire review process. As the review progresses, the RTA learns more about the compliance issues for the specific claim and is in a better position to assess the risk of non-compliance.

Risk assessment works most effectively when a standardized approach is used. Even so, risk assessment of the claimed work depends on the professional judgement and experience of the RTA and the research and technology manager (RTM). A standardized approach is particularly important for assessing the risk of the claims in the industry/ technology sectors that the RTA reviews. This will help increase consistency and ensure that the RTA uses their time efficiently. A number of considerations are provided in the pages that follow. Chapter 4.6.0 indicates that the RTA does a preliminary identification of potential issues. For each issue and associated project, the RTA assesses the material risk of non-compliance and decides whether to review the file further or to accept the file without conducting further review. The RTA considers both the risk of non-compliance and the materiality of such non-compliance to efficiently plan and complete a review, and to determine the amount of effort and time to spend on any given issue.

The analysis of potential risk, carried out in consultation with the FR and other CRA staff if necessary, will form the basis for the review plan. In simple cases, the RTA can usually identify the issues of potential non-compliance and determine the scope of the review at the same time. For some claims, the RTA may need to review in detail all of the potential issues. However, for most claims, not all the potential issues will be of equal significance or importance in terms of non-compliance with the Act and policies of the CRA. In such cases, the RTA assesses the potential for significant non-compliance and the materiality associated with those issues of non-compliance.

The RTA uses this risk assessment to decide upon the scope of review when preparing the review plan. In making these decisions, the RTA should take into consideration their workload and the fact that not all files, projects or issues can be reviewed to the same extent.

4.3.1.1 Factors that influence the scope of review

Factors that can influence the scope of review for the RTA include the:

• filing and compliance history of the claimant;
• existence of a preclaim project review (PCPR) for the claimed year;
• existence of ongoing account executive (AE) or process review;
• recommendations from a previous first-time claimant advisory service (FTCAS);
• work described in the project information;
• sector-specific issues;
• nature and extent of the non-compliance issue;
• amount of investment tax credit (ITC) at risk;
• opportunity to educate claimant on the requirements of the SR&ED Program and to inform the claimant about available services and literature;
• opportunity to promote self-compliance and proper self-assessment by the claimant;
• opportunity to obtain a better understanding of the claimant’s work; and
• effect of either carrying out a review or not carrying out a review on future compliance.

The depth and scope of the review plan should be sufficient to deal with all significant non-compliance matters. Nevertheless, once the RTA starts to conduct the review, they still should continually re-evaluate the potential for non-compliance and adjust the review as needed. An estimate of the level of non-compliance will determine whether additional review is warranted or whether the review can be terminated earlier than initially planned. If the RTA discovers systemic non-compliance, the RTA should consider expanding the review of the file to include additional projects or issues. On the other hand, the RTA can terminate a review once the RTA has a reasonable level of confidence that there is minimal risk of material non-compliance in the claim.

Directive 2003-01R, SR&ED Claim Processing Risk Management Policy implies that it is not necessary to review all individual projects in a claim, nor must each project be reviewed to the same depth. If the risk of material error is higher, the depth of review is greater. Chapter 4.7.0 contains more details.

Assessing the risk of each issue of concern, and thereby determining the scope of the review, depends on numerous factors and considerations. This is to be carried out on a case-by-case basis and within the context of the RTA’s workload. This list (some of it from page 11 of Directive 2003-01R) provides a partial list of factors or considerations that indicate a potential for higher risk:

• large projects/claims in relation to the industry sector or the claimant’s norm or resources;
• projects that seem unusual for the claimant’s business line;
• project information that strongly suggest that work is not SR&ED or where the descriptions make it difficult to determine what was done;
• indications of lack of separation of SR&ED and commercial activities, particularly where the claim may involve questions of experimental production with experimental development (EP+ED) or commercial production with experimental development (CP+ED);
• projects that are ongoing for many years with no clear end in sight;
• historically significant problems with the issue, with the claimant or with other claimants that had similar issues;
• an issue that could affect other issues or other companies with the same issue;
• the materiality of the issue. (Chapter 4.3.2 discusses factors to determine materiality.);
• work may have resulted in the creation of a significant commercial asset;
• known R&D centres outside Canada;
• the issue is material, typically the amount of ITC at risk relative to the total claim.

Decisions concerning the scope of the review are a matter of judgement and will need to be coordinated with the FR. The RTA can consult the RTM, if guidance is needed. Important changes to the review plan (scope of the review) once it has been approved by the RTM, requires RTM approval.

4.3.2 Materiality

Materiality is a major consideration in assessing risk. The CRA uses a concept of materiality similar to the one used in public accounting, in that it recognizes that some issues have a greater impact in a given situation and therefore warrant greater scrutiny. Materiality is normally related in terms of amount, either as a specific amount, as a range or as a percent of the total claim.

Like risk, there is no exact way to determine materiality. There is no fixed formula that the RTA can apply. Materiality should be determined on a case-by-case basis; it is a matter of professional judgement, and it may need to be discussed with the FR and / or the RTM.

The RTA should always be alert to circumstances that can change an apparently otherwise immaterial issue into a material one and vice versa. As the RTA discovers new information concerning the file, the RTA should be prepared to revise the scope and extent of the review at any point during the review process, and not just at the planning stage.

The following are some factors for consideration when determining materiality:

• Size of Claim: When all other factors are equal, this approach results in higher materiality for larger claims. Materiality is often determined by relating the amount of ITC at risk to the size of the total claim. An amount considered material for one claimant may not be considered material for another. For example, a $20,000 project may be material where the total claim is $100,000 while the same amount is not likely considered material when the claim is $10,000,000 unless the issues are recurring, or could recur in later years for even larger amounts;
• Cost versus Benefit of Carrying out the Review: Due to the cost involved in carrying out a review, it might not be economical to review issues and projects in cases where the ITC amount at issue is relatively small;
• Consistency: For claimants whose research and development work is similar, materiality should be approached in a consistent manner;
• Replication or Escalation: An issue may be material if there is a potential for the issue to be replicated in current or future claims, or if there is a potential for the issue to be escalated in future claims. Such is the case when an RTA receives the first year’s claim for a large project that will continue for years. Also, an issue may become material if there are large numbers of projects involving the same issue, even though, individually, each one is relatively small or immaterial;
• Nature of the Non-compliance: A claim or an issue that may be considered material if there is obvious or significant non-compliance. This would include claims where it appears likely that all of the claimed work is excluded in paragraphs (e) to (k) of the definition of SR&ED in subsection 248(1) of the Act, and claims where similar work has been previously reviewed and found to be ineligible.
• Other Non-monetary Factors: The effect of carrying out a review or not may affect the compliance of other claimants. If a number of claimants have similar or identical issues caused by a common or shared reason, an otherwise immaterial claim or issue may become material if there are large numbers of claims involving the same issue, even though, individually, each one is relatively small. Such might be the case when a claimant representative has a significantly different interpretation of the ITA than the CRA, or when there is a systemic or recurring issue specific to an industry sector.

4.4.0 Other planning considerations

Planning for some claim reviews can involve additional procedural considerations or requirements. Some of these include:

• Files that are so large and complex that they have a CRA large file case manager (LCFM) assigned to them as a special CRA contact or coordinator for tax issues. Compliance Programs Branch (CPB) Communiqué AD-98-20 has the specific definitions and rankings of these files.
• The claimant’s company is large or rapidly growing, and it is expected that future SR&ED claims of the claimant will tend to be large and/or complex in nature.
• The claimed ITC is high (for example, the largest claims in the CTSO).
• The claim includes numerous individual projects (Chapter 4.5.0 has specific suggestions).
• There are many obvious non-compliance issues in the claim received.
• The work presented as SR&ED in the claim or claims occurred in a number of different cities or provinces.
• The claimant has more than one facility that should be visited.
• The RTA should speak to many individuals at different working and/or management levels, in order to review the claimed projects.
• More than one field of science or technology is involved in individual projects.
• The claimant has had an FTCAS service in a previous year and the CRA has made recommendations to the claimant. Consult the complete guide to the FTCAS.

4.5.0 Claims involving a large number of projects

When a claim contains a large number of projects, it may not be possible for the RTA to review each of them to the same degree because of several constraints including cost and time.

In addressing situations like this, generally the first step is to determine whether the claimant has a clear understanding of the definition of an SR&ED project. As a starting point, it is preferable for the RTA to ask the claimant to explain their own way of structuring their claims. If it is determined that the claimant misunderstood the concept of an SR&ED project, the RTA can work with the claimant to better define the projects and then proceed with the review. For example, it is possible that a high number of projects, each comprised of standard practice, might have been claimed as individual SR&ED projects although they are all related to the same attempt to achieve technological advancement at a higher/different level. In this case, the RTA should work with the claimant to better define the project(s) and then proceed with the review.

If this first step is ineffective, then the next step is to apply the grouping strategy as described below.

The CRA does not support direct extrapolation of the results of determinations from a random sampling of projects to the rest of the claimed projects. However, grouping projects based on common attributes (such as a common technological problem, common technology platform, common issue, etc.) and extrapolating the determination from a limited sample of projects to the rest of projects within the group, is an acceptable approach.

The common attributes should be based on common facts from each project in the group and must relate to the issues initially identified by the RTA.

This review strategy allows the RTA to make determinations on a large number of projects without an in-depth review of each one of them. This concept is illustrated below.

Assume that the RTA is reviewing a claim that has one hundred (100) projects. The RTA randomly selects twenty (20) claimed projects for a detailed review, and concludes that there is no SR&ED in sixty percent (60%) (twelve (12) out of twenty (20)) of those projects. The RTA then extrapolates the results of the random sample and concludes that, on the same basis, there is no SR&ED in 60 out of the 100 projects. This conclusion would not be supportable except for the eligibility determinations on the 12 projects that were reviewed since the rationale for finding the remaining forty eight (48) projects ineligible is neither valid nor supportable. There is no linkage between the ineligibility of one of the reviewed projects and the ineligibility of one of the non-reviewed projects.

Now in this same situation, assume that the claimed 100 projects are logically divided into five (5) groups based on common attributes, and four (4) projects within each group are reviewed. If the RTA then concludes that there is no SR&ED in all the sampled projects within the three (3) out of the 5 groups, but there is SR&ED within the remaining two (2) groups, then there is a logical and supportable rationale for concluding that there is no SR&ED in all the projects within the 3 groups for which the determination is that there is no SR&ED in the sampled projects. Similarly, there is a logical and supportable rationale for concluding that there is SR&ED in all the projects within the 2 groups for which the determination is that there is SR&ED in the sampled projects.

Based on a risk assessment (discussed in Chapter 4.3), all projects that belong to a group could be accepted as filed (AAF) based on a limited review of a sample projects within the group provided the limited review of the sampled projects does not identify any issues of concern. For other groups, the RTA can review a sample of projects within each group and extrapolate the results of determinations to the entire population in the same group.

If a common issue spans several projects, it may be possible to ask the claimant a common set of questions or require a common type of documentation for each of the projects in a group. The supportability of the review results will depend on whether the information for each project in the group obtained and reviewed by the RTA is sufficient to support any determinations. See Chapter 5.11.0 if the claimant does not provide sufficient information about projects for the RTA to make determinations.

The RTA should explain the review methodology to the claimant and provide the rationale used for grouping, preferably at the start of the review process.

It is a best practice for the RTA to work with the claimant when proposing the grouping strategy.

If the claimant disagrees with the RTA’s approach, they should provide an explanation of why the RTA’s approach for grouping projects is not valid.

The claimant may object to any attempt at grouping of projects. If so, the RTA should explain to the claimant that the other alternative, which is the review of all projects, would be time- and resource-consuming for everybody concerned. The RTA should explain that grouping is a method to expedite the review process – a common goal for both parties.

If the claimant does not wish to co-operate, the RTA should seek their RTM’s approval before proceeding further with their planned grouping strategy. The RTA must document the strategy, the rationale, and decision, and communicate it to the claimant in a timely manner.

4.6.0 Analysis of information and identification of review issues

This step is the heart of the review planning process. Generally, it involves an iterative process of gathering and analyzing technical information, identifying and requesting needed technical information, and identifying issues to be reviewed. Issues are questions relating to some aspects of compliance in the claim. Ultimately, issues must be resolved before a review is concluded. To “resolve” an issue in the context of the CRM means that the RTA has to make a decision on the outcome of the issue. It does not mean that the RTA and the claimant must agree.

Typically, the process starts with a review and analysis of current and past TF98 files and the information received from the Control Function. Where there has been a previous review, a review of this past information should be conducted when preparing and planning the review. This also includes information from the AE and any PCPRs. The RTA would then typically identify any relevant information missing or needed and obtain it, which may include information requests to the claimant. The analysis of this new information may result in a modification of the review issues.

At the planning stage, prior to the completion of the review plan, the RTA contacts the FR to begin coordinating the review. Consultations with the RTM and/or co-workers who may be familiar with the claimed work may also occur in the planning stage. In some situations (such as large claims, partnerships or companies with multiple departments or divisions), the review may involve a team of people including one or more FRs, other RTAs, national technology sector specialists (NTSS), Outside Consultants, the RTM, the FRM, the large file case manager (LFCM) and other CTSOs. All their activities will need to be planned and coordinated.

In identifying issues, the RTA should consider any prior difficulties encountered in dealing with the claimant, and in particular, any outstanding issues from prior reviews or recommendations made to the claimant as part of the FTCAS, as these need to be reviewed in the current year. Other factors to consider include whether the claim has other years associated with it, outstanding notices of objection or court cases, or partnerships.

The RTA may find out about non-technical issues that could affect the review process, such as a claimant bankruptcy. If so, the RTA should consult the RTM and/or the FR. “Special Situations” in Appendix A.6 discusses how to address these situations.

Many issues may pertain to one project, or there may be one issue that applies broadly to many projects. Identifying common issues that clearly apply to many projects is important when establishing the scope of the review, since it may be possible to resolve the issue while limiting the review to a carefully selected group of the projects sharing that common issue (discussed in Chapter 4.5.0).

Some review issues may extend generally over the entire claim. Therefore, it is not necessary that they are identified on a project-by-project basis. For example, the project information may indicate that a claimant lacks a clear understanding of the difference between SR&ED and routine work. Therefore, the review effort, at least initially, may involve identifying the claimant’s rationale for putting the claim together. It may not be possible to identify other issues until this underlying one is resolved.

4.6.1 Review issues

As noted in Chapter 2.5.3, eligibility refers to work which meets the definition of SR&ED in subsection 248(1) of the Act. The eligibility policy uses five (5) questions to determine if any work is SR&ED.

Where an issue directly concerns a question of basic eligibility, the review should first focus on those specific eligibility issues. For example, the substantive issue might be to establish the knowledge base of the claimant prior to their claimed work. Another example might be to determine whether the claimed work was for the purpose of seeking a scientific or technological advancement (STA). Since the resolution of these issues directly affects the basic eligibility of a project, resolving these issues is usually the highest review priority.

The RTA should conduct the technical review in such a way as to reduce or eliminate doubt as to whether or not the selected projects are SR&ED (step 1 of the eligibility policy).

Once the RTA has determined that there is SR&ED (step 1 of the eligibility policy), there may be additional issues to address related to the extent of eligible work (step 2). These issues include, but are not limited to, questions regarding the start and end of the SR&ED project, support and excluded work, assets and production runs. The RTA, in coordination with the FR, will then resolve the most significant issues from a risk assessment perspective. However, it is important to note that issues related to step 2 of the eligibility policy (extent of eligible work) must never be addressed without having first determined that there is some SR&ED. In other words, the RTA must always establish the presence of SR&ED (step 1 of the eligibility policy) before addressing issues related to the extent of SR&ED (step 2).

Note that not all issues may be evident or relevant at the planning stage. Some of them may only become apparent later in the review. Also, note that while the observations and comments of the CF are a helpful first step in planning the review, they are only considered the starting point. More issues may exist than those identified by the CF.

The following flowchart illustrates the process that should be used to resolve issues.

This schematic illustrates the 2-step methodology that RTAs should use to determine if work meets the definition of SR&ED.

First, it has to be determined if there is SR&ED; this is step 1 and this step involves determining whether the answer to each of the 5 questions is “yes” or “no”. It is important for the RTA to understand how and why the SR&ED is performed by working with claimants to fully understand the work. Remember that the 5 questions are inter-related and need to be considered as a whole. Do the answers make sense when compared to the other answers? The RTA should also remember that all answers must be “yes” for there to be SR&ED before continuing to step 2 and that, if all answers are “yes”, they can identify the specific scientific or technological uncertainty (STU) and STA before considering step 2.

The second component of the schematic illustrates the various components of step 2: where the extent of eligible work is determined. Step 2 involves including support work, which is defined in 248(1)(d), as well as excluding any work defined in 248(1)(e-k). The key factor used to distinguish between support work and excluded work is purpose; why was the element done and how much is needed? Part of step 2 also involves identifying types of assets. This information assists the FR in determining how the costs are handled. Likewise, with respect to claimed production runs, in step 2 the RTA must determine if they are required, the portion of [sic] facility in which the runs are conducted, their duration, and personnel and materials involved. Furthermore, the RTA must determine the context of the production runs. Are the claimed production runs ED+EP? If not, then they are ED+CP? The context of production runs also communicates to the FR how costs are handled. Context is based on technical risk, established by technical consideration and evidence.

4.6.2 Reviewing the SR&ED project and project activities

As noted in the eligibility policy, claimants are required to claim their work as SR&ED projects, and a project consists of one or more inter-related activities. It is also important to note that where an SR&ED project has been correctly identified, that project should not be divided into smaller and possibly ineligible activities. Therefore, the starting point for reviewing issues in projects is to consider that “projects” exist as submitted by the claimant on Form T661. In resolving the identified issues, the RTA should review claimed SR&ED projects in their entirety, rather than breaking them down into their constituent activities. If a project is broken down into isolated and disconnected activities, it may be difficult or impossible to identify any SR&ED.

However, it is quite possible that the claimant has not correctly identified the SR&ED project or all the activities in it. Some likely possibilities include:

1. The claimant is claiming the entire “company project”, that is, the work needed to do a business activity such as developing a new product, not an SR&ED project. There is, however, some SR&ED. Some activities would not be SR&ED.
2. The projects as claimed are not SR&ED projects, but it appears that the company may have broken down an SR&ED project into activities which by themselves ae ineligible. The entire claim may be a single SR&ED project.

Therefore, if all the work in the claimed SR&ED projects is not directly in support and commensurate with the work required to meet the SR&ED definition, the RTA can, for these examples:

1. identify parts of a claimed project that are not SR&ED, since although there is an SR&ED project, the claimant has not correctly identified all the components;
2. work with the claimant to identify the SR&ED project and determine what work is SR&ED, since the project as a whole is not; or
3. work with the claimant to identify an SR&ED project and try to determine, if possible, whether the claimed projects are part of this project or reflect work that is commensurate with the needs, and directly in support, of the SR&ED.

From a financial perspective, doing this successfully would also require that the claimant’s internal controls and accounting methods are sufficient and appropriate in order to support the project cost allocations. The RTA would need to coordinate this work with the FR.

If the claimant is unwilling to work with the RTA, or cannot support their claims, the RTA will have to apportion only the work that can be substantiated based on the facts, the documentation that is available, and their professional experience and expertise.

4.7.0 Methodology for resolving issues

The next step in the planning process is to identify the proposed method for resolving the issue(s). Note that the RTA is likely to have a good idea of how to resolve the issues even during the analysis stage of the planning. In the simplest situation, the RTA could propose the same methodology for each of the review issues, but each issue may need a different procedure. There are three basic review methods for resolving issues:

• review without an on-site visit, with or without claimant contact;
• review with an on-site visit; or
• referrals or consultations.

The method to resolve the issues relates to the risk assessment, as noted in Chapter 4.3.1.1. A simple way to relate the risk assessment to the method is noted in this list:

1. low risk – desk review without claimant contact;
2. medium risk – desk review with claimant contact;
3. high risk – review with an on-site visit; or
4. unable to determine risk based on lack of knowledge/ information-review with an on-site visit.

4.7.1 Desk review with or without claimant contact

In some cases, the issues identified by the CF, in the view of the RTA, are not considered issues requiring further on-site review and can be resolved by the RTA without contacting the claimant.

In other cases, some issues may be resolved by contacting the claimant (by phone or by letter). Telephone contact is recommended for relatively simple issues, for straightforward questions of fact or clarity, or for simple information requests. Letters are recommended if the requests are larger or more complicated, or if there is a need to establish a written record of the request. Chapter 5.5.0 contains more information.

If the information received in response to the telephone call or letter is sufficient to resolve the issues, the review can be concluded, and the RTA then documents the decisions and the rationale. Chapter 6 contains details on documenting decisions.

4.7.2 Review with an on-site visit

An on-site visit gives the claimant a greater opportunity to explain their work, and is especially important when it appears on initial examination that some of the issues of concern may not favour the claimant. There are a number of specific reasons for an on-site visit:

• The RTA can better understand the claimant and their business and give them information or advice;
• The issues cannot be resolved using the information submitted with the claim, nor by way of a telephone interview or written correspondence;
• Work is not well-described and fails to adequately explain how it meets the requirements of SR&ED;
• There is supporting evidence to inspect, and equipment or processes that can be demonstrated to the RTA, which relate to the claimed SR&ED;
• It is easier to resolve issues on-site since more supporting evidence is on-site. The RTA may need to discuss certain issues with a group of key individuals involved in the project and the people who did the work are available on-site to explain their involvement in the claimed work;
• It is easier for claimants to present information in a face-to-face meeting; and
• It is easier to explain concerns or decisions.

4.7.3 Referrals and consultations

In some cases, a formal referral or consultation with program specialists (for example, the national technology sector specialists (NTSS) or other Headquarters (HQ) staff) or the involvement of other RTAs may be required. A referral or consultation may be needed to resolve an issue, to clarify how the policy applies to the facts of the case, or because of the size or complexity of a claim. Aside from informal consultation with co-workers, if a referral or formal consultation is necessary, the RTA should first discuss the situation with their RTM. The RTA must have authorization from the Coordinating Tax Services Office’s (CTSO) management before undertaking a formal referral or consultation of the types described below. The RTA follows local procedures for any consultations outside their immediate team. Since referrals and consultations can take some time, the RTA should try to identify the need for consultation as early in the process as possible, preferably as part of the review plan.

The appropriate communication tool (such as form, memorandum or letter) should be used to provide the necessary details about the referral or the consultation. Typical reasons for a referral or consultation include:

• The claim meets one of the criteria outlined previously in Chapter 4.4.0.
• The claim is multidisciplinary, involving more than one area of science and / or technology.
• Special expertise is needed to resolve issues.
• The on-site review process reaches an impasse due to differences in opinion between the claimant and the RTA and advice is needed.
• Certain specific issues may require similar treatment in order to ensure consistency, such as when these issues persist in many claims from the same or similar sectors (for example, experimental feed consumed in a commercial context over a wide range of animal science and aquaculture claims).

4.7.3.1 Types of referrals or consultation

There are three types of referrals:

• Headquarters – HQ provides assistance to the field regarding financial, science and sector specific issues. This includes, but is not limited to, providing assistance and direction in identifying and resolving issues related to the eligibility of the projects and / or expenditures; and providing guidance to field staff on the application of the legislation, policies and procedures. RTAs would refer their issues to the Science and Technology Division (S&TD). To do so, refer to the InfoZone websites Financial & Scientific (F&S) – Referral Procedure and the National Technology Sector Specialists (NTSS) – Referral Procedure.
• Outside Consultants – OCs are experts, usually from outside the government who are contracted for their specific technical expertise. Procedures to engage an OC are described in Directive 2003-02 Managing Outside Consultants. The use of an OC incurs a cost and requires management approval.
• Referrals to or a request to involve other CTSOs – In some cases, it may be possible to transfer files to other regions. Refer to Directive 2008-01 for situations when claimants request a file transfer. In other cases, it may be possible to involve RTAs from other CTSOs. The RTA specialization tool can help to locate particular expertise among RTAs. If the RTA is aware of another RTA in another office who can help, or if the RTA wishes to request help from another CTSO, the RTA should consult their RTM.

All referrals and consultations form an integral part of the review and, therefore their results are documented and kept in the TF98 file. If there is any divergence from the advice or opinion received, it should be explained or justified on a T2020 form and the RTM should be consulted.

4.8.0 Written review plan preparation

Most situations require that a written review plan be prepared to describe the review issues and the considered methodology to resolve them.  However, a few circumstances do not require a written review plan, as described below.

4.8.1 Situations where a written review plan may not be required

There are a limited number of circumstances when a written review plan may not be required, as follows:

• At the initial stages of a review, the claim is so lacking in basic information that an information request is needed as the first step. When this information is obtained, a written review plan would then be made. However, if the information is not obtained, and the claim is considered unsubstantiated, a review plan would not be required.
• There was a PCPR for the year(s) under review, and the claimant was given a written PCPR report. If the work on the PCPR was extensive enough, the RTA would only need to verify that the work claimed was performed as discussed during the PCPR, and document their work. This is discussed in Chapter 5.5.1. If this verification indicates that the claimed work was not the same as what was discussed during the PCPR, the procedures of a regular review may be necessary.
• All the issues identified by the CF and any others identified by the RTA can be readily resolved without claimant contact.
• The RTA accepts the claim as filed without any claimant contact.

The RTA may still make a review plan, and local management may still require a review plan when one of these situations exists. Even in cases when a written review plan is not required, the RTA still must document why the review plan was not made, all the work done, what the issues were (if applicable), how the issues were resolved (if that is possible), the determinations and other decisions, and the rationale.

4.8.2 Situations where a written review plan is required

A written review plan must be made for each review in all other circumstances. While the RTA is developing the review plan, they might contact the claimant for clarification, in which case the RTA would document these conversations on a T2020 or equivalent note to file. As in the rest of the review, coordination with the FR is needed.

The details required in the review plan will vary depending on such factors as the size of the claimant, the complexity of the issues and the nature of the review. A review plan does not need to be long or complex. It can be as simple as a short list of issues, or even a single issue, a simple listing of the initial questions the RTA plans to ask, and a simple description of the planned review methodology. A more complex file might need a detailed procedure, a listing of meeting dates, topics the RTA plans to discuss, the names of CRA and claimant personnel, site locations to visit, items to inspect, and so forth. A review plan is a tool to guide the RTA, but it does not bind them. It indicates the RTA’s intentions based on an examination of the available information from the claim and other possible sources including preliminary discussions with the claimant if any occur.

As indicated in Chapter 5, it may happen that the actual work performed during the review will differ from the planned work, because new information obtained during the review may raise new issues, particularly those which cannot be easily identified in a desk review. Information obtained during the review can also make issues previously identified in the review plan irrelevant or immaterial, as the risk level goes up or down. Therefore the scope of the review would be adjusted accordingly during the review. Deviations from the original review plan, as they occur over the course of the review, are documented in the TF98 file by way of a T2020 or if done later, via the SR&ED review report. Where deviations from the original review plan are material, consultation with and approval by the RTM would be needed. Normally there is only one review plan, and it is usually sufficient to document changes to it in the file or report, rather than re-writing the review plan after every revision. The RTA keeps the review plan and any revisions to it if made, in the TF98 file.

There is no required template for the plan. The RTA may use the sample in Appendix A.4. Some offices have developed templates to be used by the RTA. However, the only requirement is that the written review plan is a separate document that must:

1. identify the claimant (name, year, business number);
2. identify the RTA’s name and date prepared;
3. identify the technical and joint technical-financial issues with the associated project(s), which includes issues previously identified by the Control Function;
4. outline the suggested scope of the review; this is applicable only if not all of the issues/projects will be reviewed in detail; explain the basis for the scoping (some details of the risk analysis); and
5. outline the proposed methodology to resolve the issues; this could be some basic questions to ask, information to request and review during an on-site visit or the need for consultation.

The review plan is an internal document that should not be given to the claimant. Among other things, it often contains information about risk assessment. In most cases, though, the review plan would be available under Access to Information and Privacy (ATIP) once the proposal package is sent. It should be noted, however, that the elements of the review plan that are important for the claimant must be communicated to the claimant at an early stage of the review.

4.8.2.1 Working with claimants during review planning

Planning the review benefits not only the RTA but the claimant as well. It can be particularly helpful to first-time claimants (FTCs). It helps to:

• establish the initial scope of the review;
• ensure that the claimant is aware of concerns and understands the review process, and
• ensure that the claimant is adequately prepared for the review and has every opportunity to address the concerns of the RTA.

As demonstrated in Chapter 4, planning for the review involves many challenging considerations, especially when dealing with large claims or a large number of projects. For that reason, the RTA should not hesitate to contact the claimant during the review planning process to clarify questions about the claim.

As noted in Chapter 5, once the issues and the need for an on-site visit have been established, the RTA would communicate to the claimant the issues and the proposed approach for resolving them. However, prior to this point, even before the review plan is complete, the claimant could be contacted if the RTA needs to ask a few questions or communicate some of their concerns and a general outline of the review process to the claimant. Sometimes the concerns that the RTA has can be resolved at an early stage by doing the following:

• Ask the claimant to explain the work that was done and the reasons why it was done rather than trying to prove that each of the five questions can be answered yes or how it meets the definition provided in subsection 248(1).
• Explain how this approach can provide insight into the answers for each of the five questions and the definition provided in subsection 248(1) of the Act. For example, the explanation about the problems they were facing could establish whether a scientific or technological uncertainty exists, their work could determine if the scientific method was followed, and the reasons they did the work could establish if there was a hypothesis.
• If the claimant does not understand, provide an example that demonstrates your point.
• Advise the claimant to use the documentation tool in Appendix 2 of the Guide to Form T661 to collect and organize the documentation that will show what work was done, how the work followed the basic scientific method, and supports the assertions made in Part 2 of Form T661.
• Ask the claimant to identify the people who are best able to describe the project and answer questions related to the issues and points raised above. Emphasize the importance of making these people available to the RTA during the on-site visit. Ask the claimant to have these people contact the RTA prior to the meeting if they require any explanation of the five questions, the SR&ED program policies, or the review process.

The fundamental premise of the review plan is that if the review is well organized, coordinated and focused from the outset, the RTA can communicate issues to claimants ahead of time, work with them prior to the review to ensure they are prepared, and complete the review with a minimum number of on-site visits and representations.

As part of this process, it is a good practice to contact the claimant shortly before the on-site review to confirm that they are prepared and to address any questions they may have. Any communications of this sort should be documented.

Of course, working with claimants implies that claimants must also work with CRA. The mutual expectations of the review need to be clear. This means that RTAs explain their expectations to claimants, specifically that claimants are expected to be ready to address the issues raised prior to and during the on-site visit, with the appropriate personnel and supporting documentation on hand, and that they are expected to respect the review plan and implement CRA’s recommendations concerning issues raised, such as documentation shortcomings. Appendix A.8 outlines these mutual expectations. This document can be given to claimants.

4.9.0 Review plan approval

The review plan must be approved by the RTM before the start of the review. The RTM may suggest additional review issues, want other elements in the review plan, or suggest that some issues do not need to be reviewed in detail. The intent of the approval is not to review all the details of the plan but to ensure the overall scope of the review is appropriate. The RTM may delegate this approval.

It is also recommended that the RTA inform and consult the RTM in certain atypical circumstances which may affect the review process or the CTSO’s resources. Examples of such circumstances may include, but are not limited to review plans that involve:

1. unusually large, complex or contentious claims;
2. significant human or financial resources, or travel expenditures; or
3. consultation and coordination with other areas of the CRA.

In addition, it is recommended that RTM consultation be required for new RTAs. The intent of this is to allow RTMs to provide training and support to new RTAs.

Chapter 5.0: Conducting the review

5.1.0 Summary of chapter

Steps taken to conduct the review, in order to resolve the issues identified in planning are discussed in this chapter. The main topics of this chapter are:

1. adjusting the scope of the review;
2. information required to support the review;
3. obtaining information from claimants by telephone or written request;
4. resolving the issues without an on-site visit;
5. the types of circumstances under which an unfavourable decision can be issued without an on-site visit;
6. the rationale and procedures for conducting an on-site visit;
7. interviewing the claimant during an on-site visit;
8. examining the claimant’s supporting evidence and obtaining samples;
9. how to deal with the issue of inadequate supporting evidence;
10. why and how to prepare interview notes;
11. the importance of and how to present decisions to the claimant;
12. dispute resolution;
13. special review situations and appropriate ways to deal with them;
14. dealing with projects withdrawn by the claimant;
15. dealing with unresponsive claimants;
16. assisting first-time claimants;
17. not negotiating with claimants; and
18. penalties and leads.

5.2.0 Requirements of the chapter

Following from Chapter 1.6.0, the following minimum requirements are outlined in this Chapter. The research and technology advisor (RTA) must:

1. explain to the claimant the review process, the issues and the planned approach to resolve them;
2. communicate the options available to the claimant for resolving any of the issues;
3. give the claimant information on Canada Revenue Agency (CRA) requirements, including documentation requirements, and explain what information the CRA needs to satisfy the requirements;
4. give claimants the opportunity to present their position, ask questions, express their concerns and to provide further information with respect to their position;
5. consider additional information provided in support of the claimant’s position before coming to a decision;
6. make decisions that are fair and impartial and respect current legislation and policy;
7. document key activities and observations concerning the claim, supporting information and the identified claim issues;
8. document communication and meetings with the claimant, managers, co-workers and others that are relevant to the decisions;
9. obtain any documentation from claimant necessary to support the decisions;
10. not negotiate eligibility or expenditures;
11. consult the research and technology manager (RTM):

a. if it is recommended that a claim should be disallowed for lack of information;
b. if unfavourable decisions will be made without an on-site visit;
c. if penalties may apply;
d. if fraud is suspected;
e. if formal better books and records letters are needed;
f. when there are significant changes to the approved review plan;
g. if waivers are contemplated; and
h. in difficult or problematic situations.

5.3.0 Adjustment of the scope of the review

The RTA can, based on information obtained during the review, add, remove or modify review issues that were identified during the initial planning stage, including reviewing more or less of the claimed projects than were originally selected for review. This is because, as the review progresses, the assessment of risk and hence the scope of the review, could change as some issues are resolved and others arise. Whenever the actual or contemplated work differs substantially from the review plan, the claimant must be advised that new issues/ more work will be reviewed, and the financial reviewer (FR) must be informed. It is also recommended that this be communicated to the RTM and, where the changes are material in nature, RTM approval of the amended review plan is required. The RTA must document significant changes to the scope of the review (that is, with a T2020 entry or in a revised plan as well as in the scientific research and experimental development (SR&ED) review report). This applies during the desk review, and subsequently, during the on-site visit (when required).

In fact, adjusting the scope of the review is a good review practice. The RTA should evaluate the risk with respect to each issue as well as to the entire claim. In this respect, the following points are noted:

• All review work is designed to lower the risk associated with an identified issue.
• If the risk is lower, the priority to review the issue is lower.
• If the issue that was identified can be resolved or no longer exists (work done by the RTA has indicated that the issue is not relevant), this has to be documented, as well as the reasons for the decision.
• If one of the issues identified as low risk now appears to be of higher risk or if new issues become apparent, based on what was seen or discussed, they should be reviewed in more detail.

5.3.1 Working with claimants to avoid common review problems

Helping claimants avoid common review problems

An effective way to work with claimants is to anticipate common problems that are either typical of first time claimants or are often encountered in the claimant’s industry. Some examples are:

• New claimants may not understand the terminology employed by the CRA, such as technological or scientific uncertainty, hypothesis or technological or scientific advancement. To avoid making the interview confusing for the claimant, explain how the business project may differ from the SR&ED project and question the claimant in a manner that allows them to first discuss their project (that is, the context in which the SR&ED fits) and to focus on the scientific or technological aspects of a project.
• Explain eligibility in plain language and emphasize how focusing on the facts and the work done can provide insights as to how the work performed answers the five questions in the eligibility policy and establishes that the requirements of the SR&ED Program have been met.
• Be aware that many claimants, particularly first time claimants unfamiliar with the process, can be easily intimidated by communications from and with the CRA.
• Be aware that industries have their own definitions for things such as pilot plants and prototypes. Take some time at the beginning of each review involving issues in these areas to discuss the differences.
• Be aware that important terms used in the SR&ED Program may have common or colloquial uses that could be very different from their SR&ED meaning. Claimants may assume that an SR&ED term is used the same way as they use it in their circumstances. For example, “SR&ED” may be taken to be “research and development (R&D)”, “systematic investigation” may be taken to mean “systematic work”, and “experiment” may not be used in the very specific way used in the SR&ED Program. Watch for signs of miscommunication like this.
• Be aware that shop floor work is often not well documented, which could make it very difficult to determine if SR&ED was done. Refer to the blue box “Working With Claimants – Helping them Understand Documentation Requirements” in Chapter 5.11.0 for more details.
• At some point during the interview or discussion of the results of the review, the RTA should spend time addressing the shortcomings, if any, of the claimant’s project information submitted with the claim in Part 2 of Form T661. Typical problems include:
  • descriptions that focus on the business project rather than the SR&ED project;
  • descriptions that make it difficult to quantify how much SR&ED work was done in a particular project;
  • descriptions that emphasize the accomplishments rather than the process (the scientific method);
  • descriptions that are poor or inaccurate; and
  • claimants send the same description used in part 2, produced in previous years without an update.

While the RTA makes a reasonable attempt to seek clarification and works with the claimant to help guide them to properly describe and document their work, the onus is still on the claimant to demonstrate that their work meets the requirements for SR&ED.

5.4.0 Communication with the claimant

5.4.1 Information requests

CRA policy concerning information requests is outlined in three Compliance Programs Branch Communiqués:

• AD-10-01 – Acquiring Information from Taxpayers, Registrants and Third Parties
• AD-10-02 – Use of Information Gathering Tools
• AD-10-03 – Solicitor-Client Privilege

RTAs should read these Communiqués to understand the details and limitations of their powers and responsibilities in requesting information.

There are five (5) key principles that an RTA should consider when evaluating the need to request information from a claimant:

• Legislative Authorities – The legislation provides a CRA official with the fundamental legal powers required to obtain the information needed to do their work. For the RTA the most relevant legislation is in the Act in section 231.1 (requesting information) and subsection 230(1) (keeping records and books);
• Intent – The scope of a review may expand or diminish depending on what facts are determined and what information is provided during the review process. The ability to expand the scope of the review includes the ability to review additional projects or issues not identified in the review plan or in the initial communications to the claimant. The authority to expand a review as necessary has been confirmed by the Courts (David Ludmer, Brian Ludmer, Cindy Ludmer and Ludco Enterprises Ltd. v. Minister of National Revenue (MNR) (93 DTC 1351 at 1423). The RTA should communicate their intent to the claimant when requesting information. As an example, when requesting information from third parties, the claimant should be informed. All these communications should be documented in the file;
• Relevance – It has to be clear to the RTA that the information sought is relevant to the review being conducted. The determination of what may be relevant is a matter for the RTA to decide based on the scope of the review. The relevance of documents requested by the RTA can often be difficult to determine until the RTA has had an opportunity to review them, and the Courts have recognized this (The Queen v. McKinley Transport Ltd. (90 DTC 6243), AGT Ltd. v. Canada (97 DTC 5189));
• Transparency – How a review progresses can depend on the transparency of the review. Clear and open communication is beneficial to the compliance process. The sooner in the review process that the RTA can identify to the claimant the issue being reviewed the better. This provides transparency to the process and gives the RTA a good reason to expect timely production of relevant information and documents; and
• Impartiality – RTAs should be objective when reviewing any information or documentation obtained during a review. They should not be influenced by any subjective analyses, comments or decisions in the information or documentation reviewed. The eventual resolution of the issue will be determined and supported by the facts of the situation and in accordance with the legislation.

Regardless of the nature of the information requests, the RTA coordinates them with the FR as described in Chapter 3.

Details of all communications with the claimant are recorded on a T2020 or an equivalent working paper. This would include location, time, date, parties involved and details of what was said. This documentation is placed in the TF98 file. Chapter 2.9.0 has detailed information on the security procedures for communications with the claimant.

5.4.1.1 Request for information by phone

As indicated in Chapter 4.7.1, it may be possible to resolve an issue with a phone call to the claimant (or authorized representative). It is important to plan the initial contact with the claimant or their representative, in order to ensure the highest degree of co-operation and to obtain as much useful information as possible. It is also important to avoid multiple requests or calls. In planning the questions for the claimant, they should be clear and specific, and structured in a way that the answers will lead to a resolution of the issue or indicate the kind of additional work needed (such as an on-site visit).

If appropriate, the RTA can explain by phone more about the review process and the review plan. However, details will be explained to the claimant in the Initial Claimant Contact Letter, which is referred to in Chapter 5.6.2.2.

If the needed information cannot be obtained during the phone call, the RTA should send a follow-up letter as a record and as a reminder to the claimant (refer to the next section). Alternatively, the claimant may request a second call to respond to questions once they have had a chance to consider the questions.

During the discussion, the claimant might ask the RTA their opinion about matters such as whether the work is eligible or not, or when they might receive the tax credits. While the RTA may be able to explain to the claimant whether they have any concerns with the eligibility of certain activities or projects, generally the RTA can only indicate that, at this point in the review, complete answers to these types of questions cannot be provided. However, the RTA can provide general information about the review process, review time frames and the reason for the information request. If the information provided by the claimant is insufficient to make a decision, the RTA can indicate to the claimant that a site visit will be necessary.

5.4.1.2 Request for information by letter

In cases where clarification or specific or detailed information is required, a Request for Information (RFI) letter is sent to the claimant. All letters sent to the claimant are sent using standard CRA procedures, via the CRA mailroom, so that the mailing can be tracked. The letter serves as an official record and a reminder to the claimant. An RFI letter may be necessary after a discussion with the claimant following an on-site visit where additional information is needed. Questions should relate to specific issues raised during the on-site visit. The RTA should not ask general questions, and only request information that is needed. This enables the claimant to provide concise clarification quickly and makes the review process more efficient. If appropriate, this letter can also include details from the Initial Claimant Contact letter of Chapter 5.6.2.2.

RFI letters ask the claimant to provide the information by a specific date. The Act (231.2(1)) allows taxpayers reasonable time to comply with requests for information. Normal practice, as described in the CRA Audit Manual, is to allow a minimum of 30 days from the date of the letter, although the claimant can agree to less time, and should be advised that providing the information sooner may speed the review. The request should be as specific as possible so that the claimant understands what is required. It is not recommended that claimants be asked to revise and resubmit their project information. Poor project information suggests the need for working with claimants to better explain the Program requirements. A good practice is to follow up with the claimant if no response is received by the due date.

If the claimant requests an extension of time, an additional 15 days can be given to provide the information. If the response to the letter is unclear or incomplete, the RTA then contacts the claimant to explain what is outstanding and can provide 15 additional days to provide it. An unworkable response (for example, an unorganized or excessive amount of material that does not directly respond to the RTA’s questions) is treated as an incomplete response. The RTA should document why the response is unworkable and advise the claimant of this. If the claimant requests more time, even beyond the original 15 day extension, extra time (15 more days) can be allowed to supply the requested information. Additional extensions beyond the second 15 days should be given only if the time is reasonable, the claimant has a good reason, and if approved by the RTM.

If efforts to contact the claimant are unsuccessful, or no response is received by the requested deadlines, refer to Chapter 5.10.0. As noted in Chapter 6, a copy of all letters must be kept in the TF98 file, and the RTA must document all conversations with the claimant or their representative on a T2020 or similar document. In accordance with Directive 2003-03 Use of Delay Codes on AIMS, a delay code may be added to the file when an information request is sent to the claimant. Chapter 2.12.0 has more information on delays.

An example of an RFI Letter is provided in Appendix A.1. Appendix A.1 includes a paragraph promoting the Electronic Transfer of Accounting Data (ETAD) application that was launched by CRA on April 16, 2012. ETAD is a vehicle that allows taxpayers to transfer electronic documents related to books and records and other supporting information that CRA reviewers may need during the course of the SR&ED claim review.

Should you need to send an RFI letter to an individual (T1) claimant, please note that a new policy is in place to limit the display of the social insurance number (SIN) on all CRA outgoing general correspondence. The first six digits of the SIN should be replaced by X’s.

5.4.1.3 Working with claimants when requesting information

Considerations when requesting information

The following points are considerations that are important when dealing with all claimants, but particularly with a first-time claimant:

• Explain the SR&ED Program review process, the various services that are available and the Dispute Resolution Policy.
• Ask them if they have any questions or if they require additional information to understand the SR&ED Program. This assistance can be provided during an on-site visit.
• Explain the relevance of the requested information in the RFI, such as why the information is needed with respect to either the eligibility of the project or the scope of the eligible work or planning the review.
• Be transparent and clear on issues identified that require resolutions in the review.
• Be specific and relate the requested information to issues identified.

5.4.2 Information requests from third parties

CRA has the legal authority to request information from third parties. The legislative basis of this power is subsection 231.1(1) of the Act, in particular, the phrase “…or of any other person that relates or may relate to…the books or records of the taxpayer…”.

Subsections 241(4) (a) and (b) of the Act allows an official to “provide to any person taxpayer information that can reasonably be regarded as necessary for the purposes of” “…the administration or enforcement of this Act…” (a) or “determining any tax, interest, penalty or other amount that is or may become payable by the person, or any refund or tax credit…” (b). In practice, when contacting third parties, the reviewer would reveal the minimum amount of information possible, such as the taxpayer’s name and the fact that an SR&ED review is underway. This does not violate subsection 241(1) of the Act, which prevents unauthorized disclosure of taxpayer information, because this disclosure is authorized. Subsection 241(4) of the Act indicates generally the situations where taxpayer information may be disclosed, not just to third parties.

Information can even be requested from lawyers where that information is not subject to solicitor-client privilege. The CRA Audit Manual Chapter 10.6 and Communiqué AD 10-01 Acquiring Information from Taxpayers, Registrants and Third Parties discusses requests for information from third parties.

One example of where this might be done is in the case of third party payments. As indicated in the documents noted above, RTAs must be careful when making requests from third parties. Such requests are not routinely done, as the onus is always on the claimant to supply needed information.

All information requests from third parties should be made in coordination with the FR.

5.5.0 Review without an on-site visit

Under certain circumstances, implementation of the review plan and the steps needed to gather information from the claimant may be carried out without an on-site visit. Whether a detailed site-visit review or detailed desk review is chosen is a decision based on numerous considerations, including consultation with the RTM. These considerations include, but are not limited to, those outlined in Chapter 4.7.1.

5.5.1 Prior PCPR

Where a claimant has already been given a preliminary opinion on planned work, and the claim has now been received, the work of the RTA may be reduced. As noted in Directive 2001-02 “Directive on the Pre-claim Project Review Service”, this would involve verifying the facts and that the proposed work took place as stated. Depending on the status of the claimed work at the time of the PCPR, the RTA may have already been able to do most of what would have been done during a regular on-site visit including the review of required TF98 documentation. When the claim is submitted, the RTA would not be required to re-do any work previously done during the PCPR. Therefore, if the PCPR was sufficiently detailed, an on-site visit may not be required.

5.5.2 Unfavourable decision without an on-site visit

If a review decision concerning an issue is made that does not favour the claimant, the claimant must have an adequate opportunity to present their case, give their opinion and make representations. Usually, an on-site visit is preferable since it can be easier for the claimant to present their case and discuss the issues in a face-to-face meeting. However, there may be some circumstances where an on-site visit is not required. These situations must be discussed with the RTM and the RTM’s approval is required. The decision with the rationale for not going on-site must be documented and kept in the TF98 file. Some examples are:

• An on-site visit for the same claimant had already been made during the review of the prior year’s claim, and the same or a similar issue had already been discussed on-site for the prior year and the claimant agrees that there is nothing more for the RTA to see or discuss related to this issue. If this situation occurs, and before making any decision or determination, the RTA must communicate with the FR since gross negligence penalty could be considered.
• The same or a similar issue was not resolved in the claimant’s favour in a prior year, there are no new facts or arguments, and the issue is now under objection. If the claimant agrees, the current file could be processed on the same basis as the prior year, in order to close it on a timely basis. It is understood by both parties that an objection will be filed and both years will ultimately be resolved at the same time.
• The basis of the issue is a question of policy or legislative interpretation, and both parties need to wait for a third party to assess the issue. Similar to the above situation, the file could be processed solely as a convenience for the claimant so that that they may immediately receive tax credits for the undisputed issues. It is understood that an objection will be filed for the disputed issues.
• An on-site visit is physically impossible, or is unnecessary because there is nothing additional to see on-site (refer to Special Situations and Alternative Review Approaches). This could be the case with Information Technology claims, where there is nothing on-site to see, and a mutually convenient alternative location to meet the claimant can be arranged.
• An on-site visit is difficult due to its remoteness or other problems, and the claimant agrees that alternative arrangements can be made to conduct the review.
• The claim appears not to be SR&ED (for example, it appears to describe work that is in paragraphs (e) to (k) of subsection 248(1) of the definition of SR&ED), the claimant agrees to the review process, and there is nothing the claimant can or needs to show the RTA on-site.If this situation occurs, before making any decision or determination, the RTA must communicate with the FR since gross negligence penalty could be considered.
• Requested information is not provided or the claimant (or their representative) refuses to meet with the RTA (refer to Chapter 5.11.0, No or Inadequate Supporting Evidence).
• Additional work is claimed after the 18-month deadline.

It should be clear to the claimant that they will receive a report and a proposal prior to the assessment, and they will have a chance to respond with additional information if they wish. Even if unfavourable decisions are made without an on-site visit, the claimant still has an opportunity to respond in the usual way after the Proposal Letter is sent. Depending on the response, an on-site visit may still be required. Chapter 7 has more details.

5.5.3 Concluding the review without an on-site visit

When the review can be concluded without an on-site visit (a Desk Review), the next stage is a joint proposal from the RTA and the FR. Chapter 7 has more details.

5.6.0 Conducting an on-site visit

5.6.1 Introduction

The primary purpose of the on-site visit is to work with the claimant in order to resolve the issues identified in the review plan. The resolution of these issues enables the RTA, among other things, to determine whether (or how much of) the claimed work meets the requirements of subsection 248(1) of the Act. Since the findings of the RTA during the on-site visit also help the FR to determine whether or how much of the costs associated with the claimed work are for SR&ED, coordination with the FR is essential.

The specific reasons for conducting the on-site visit will vary and will be reflected in the issues identified in the review plan. Other issues may emerge during the course of the review. In addition to dealing with issues, the on-site visit provides an opportunity to clarify SR&ED Program policies and address any questions or concerns the claimant may have.

The RTA has a great deal of flexibility in how to conduct an on-site visit. Much depends on the facts of the case, and even more depends on the facts and circumstances that are revealed during the visit. Therefore, the RTA’s judgement is very important.

Working with the claimant includes not only finding out the details of the work that was done, but also discussing their work with them to understand what they are trying to do and why.

There are no specific requirements for the number and length of meetings with claimants. They need last only as long as necessary to resolve issues, to obtain or examine all the information needed to make decisions, or until the claimant has, in the opinion of the RTA, nothing further of relevance to add or show to address the issues identified by the RTA or to change the RTA’s decisions. The length and number of meetings do not demonstrate due process; the content of the meetings is the only relevant concern. If at any time the RTA is satisfied that the issues can be resolved in the claimant’s favour (for example, the work is SR&ED and there are no associated financial issues of concern), then the visit can be concluded early without necessarily following all of the steps of the review plan.

As noted in Chapter 5.6.2.2, the RTA informs the claimant of the main review issues identified in the review plan. As stated elsewhere, the RTA can expand or modify the scope of the review as new information becomes available. The RTA should inform the claimant when this happens.

The following is a brief overview of the usual major review elements for the RTA during the on-site visit as the RTA resolves issues identified in the review plan:

• For First-Time Claimant (FTC), give an educational information session as described in Chapter 5.6.1.1.
• Where there has been an FTCAS in a prior year, and a claim has been filed subsequent to the claimant receiving the FTCAS report, the RTA must determine if these recommendations have been addressed.
• If required, explain and discuss with the claimant the SR&ED review process, purpose, the claimant’s options if there are concerns, responsibilities, and timelines for information requests.
• If required, give to or discuss with the claimant the document in Appendix A.8 (Mutual Expectations between the claimant and the RTA).
• Explain the SR&ED program if required (such as for a first-time claimant or first visit to a claimant).
• Tour the claimant’s premises to become familiar with the work and capabilities of the claimant, make observations of the work performed, and explain the SR&ED requirements with reference to the type of work done by the claimant.
• Conduct interviews with those supervising and performing the claimed work, typically at the claimant’s manufacturing or business premises, in order to resolve the issues identified in the review plan.
• Review documents, records and supporting evidence related to the claimed work.
• Request additional information during the meeting, if needed.
• Obtain copies of any documentation relevant to potentially contentious decisions.
• Share the initial findings with the claimant in order to create an opportunity for dialogue and to eliminate any misunderstandings.
• Outline the progress of the review and the next steps that are required.

5.6.1.1 The First-Time Claimant and follow-up to Previous FTCAS

The FTCAS is an in-person service offered to first-time claimants. However, as indicated in the FTCAS Guide, not every first-time claimant will be given an FTCAS; some will be accepted as filed (AFF) and some will be reviewed.

For those first-time claimants that have been selected for a review, the RTA and FR must give an information session similar to that described in the FTCAS Guide. This section pertains to that situation, i.e. a first-time claimant selected for a review (not an FTCAS).

The RTA will provide an information session tailored to the type of work claimed and answer any questions the claimant may have about the SR&ED Program. In particular, the RTA will explain the SR&ED Program requirements, familiarize the claimant with the SR&ED website and demonstrate the tools such as the Self-Assessment and Learning Tool (SALT) and policy documents relevant to the work claimed, to help the claimant get an understanding of:

• how to identify potential eligible work;
• the documentation and other evidence to support the claim; and
• how to complete and file future SR&ED claims.

The use of SALT is particularly encouraged, as it is useful not just for the FTC, but any time a claimant is contemplating submitting a claim for a new project. Like the rest of the review, the claimant can decide to have a representative present during the information session. However, the claimant should be present.

The RTA should also set aside additional time in the on-site visit to give greater consideration in these areas, as required:

• Explain the mutual expectations between the claimant and the RTA (Appendix A.8).
• Explain the claimant’s rights and responsibilities.
• Explain the review process.
• Explain the avenues available for resolving the claimant’s concerns and the appeals process.

Remember that the information session should be tailored to the claimant’s specific needs and what they know. Where it is clear that a claimant understands some aspect of the SR&ED Program and its requirements, the session does not need to discuss that item in detail. For example, a claimant may be an FTC, but the individual associated with the company may have considerable knowledge from past experience. Therefore while each of subjects should be discussed, the time spent can be short if a detailed discussion is not required.

5.6.2 Making Appointments and Scheduling Meetings

5.6.2.1 Telephone Contact

Initial contact with the claimant (or their authorized representative) would normally be made via telephone. This person would be contacted to set up meetings and to identify the individuals who will be responsible for explaining the SR&ED projects. When setting up meetings, the claimant needs to be given enough time to prepare, including the scheduling of key personnel. The RTA documents all conversations with the claimant on a T2020 or similar document that is filed in the TF98 file. Chapter 5.6.7 discusses documenting conversations.

If initial contact cannot be made by telephone, the first contact can be a request for an on-site visit (RFO) letter. The RFO letter must be mailed using standard CRA procedures, through the CRA mailroom. If the claimant does not respond to this letter, the claim could be considered unsubstantiated (discussed in Chapter 5.10.0 and 5.11.1.4).

5.6.2.2 Initial Claimant Contact Letter

Following the telephone contact with the claimant and prior to visiting the claimant, the RTA should send a letter to confirm any details or expectations communicated to the claimant verbally (such as the issues to be resolved and the agenda). The letter can be faxed, if CRA security policies on faxing are followed. The RTA should tell the claimant that this letter will be sent to them and that it is only intended to confirm what has already been discussed. The RTA may be speaking to a person who does not have first-hand knowledge of the work done or claims, or someone other than the one they will be meeting with to discuss the work done. If so, it may be helpful to mention that if any of the scientific or engineering people who will be interviewed have any questions, they can call the RTA.

This letter ensures that the claimant has the opportunity to gather all the information that the RTA requested and make available all the personnel with whom the RTA should discuss the work. It helps to ensure that expectations are understood by the claimant so that there will be no delay or time wasted in conducting the review. It is also a means of ensuring and documenting that the claimant has received this aspect of due process.

The letter should include the following items (unless they are not applicable or not appropriate to the specifics of the review, or if the claimant is experienced and does not need some information):

• Confirmation of the scheduled date(s) and places of any meetings, or the range of possible times and dates available to the RTA if the exact time(s) has not yet been agreed upon;
• Purpose of the visit;
• Names and/or titles of the key SR&ED performers whom the RTA wants to interview (if this information is available);
• An outline of the meeting plan or agenda, which includes the main steps that will occur during the site visit, including (but not necessarily limited to) an identification of the main issues to be resolved with the associated projects. While there is no requirement to identify every review issue in advance, the more specific the RTA can be in identifying issues, the better. Any recommendations from a previous FTCAS report must be mentioned. The outline should also mention the general approach to be taken, such as a tour of the premises, an examination of the supporting documentation; and an opportunity to answer any questions about the SR&ED program;
• Identification of information needed by the RTA, such as samples of any relevant evidence needed to support their claim;
• Suggested types of supporting evidence that the claimant might have that would be useful towards resolving the identified issues (reference can be made to Appendix 2 of the Guide to Form T661);
• Basic information about the review process (such as the Claim review process letter and the Guidelines for resolving claimants’ SR&ED concerns);
• An estimate of the time required to complete the interview or interviews, including the time needed to ask questions of the key SR&ED performers to be interviewed;
• A statement indicating that the scope of the review might be revised depending on the discussions and the results of the meeting and that the claimant should be prepared to address other issues and discuss other projects if required. Note that if very significant changes occur to the original scope, a second meeting may be required and the claimant may be given additional time to prepare;
• If required, a request for the claimant to send specific information to the RTA prior to the on-site visit. However, to speed up communications, such information may be requested separately (and earlier) by way of priority or express post, telephone, or other secure means;
• a note advising the claimant to contact the RTA as soon as possible if circumstances, like key employees being absent, may require the meeting to be rescheduled; and
• a contact number where the RTA can be reached if any discussions are needed prior to the visit.

A sample Initial Claimant Contact Letter is included in Appendix A.2 and can be adapted by the RTA. A letter co-signed with the FR outlining the technical, financial and joint issues is recommended for claims where possible.

If the meeting is scheduled on short notice and there is insufficient time to send out a letter beforehand, the RTA can explain the CRA’s expectations to the claimant over the telephone and document the conversation on a T2020 or similar form. At the meeting, or as soon as possible after, the RTA then gives the claimant any additional information that is still needed.

Prior to the on-site visit, the RTA should confirm that the claimant has put together all requested supporting evidence/information and that all technical and financial personnel that need to be interviewed will be available. If this is not the case, the RTA may need to postpone the visit. If undue delays result, such as multiple meetings being postponed, the RTA should consult the RTM to determine what action to take to complete the review and close the file.

5.6.2.3 Special Considerations for large claims

The initial letter may need more details about the review activities planned at the multiple sites/plants/facilities to be toured and the names and roles of all CRA review team members. RTA may also wish to have the claimant confirm the names and roles of all claimant personnel who will be involved in the review.

5.6.3 Making a Referral and Consulting Others

The RTA may require assistance to complete a review or to resolve issues concerning specific eligibility issues. If the RTA wants to hire an outside consultant or to involve technical experts from the CRA (such as the National Technology Sector Specialist (NTSS)), they must consult and obtain the approval of the RTM. Chapter 4.7.3.1 has more details.

5.6.4 On-Site Interviews

Interviews conducted by the RTA are intended to:

• obtain additional information to help resolve technical or joint financial issues, and
• allow the claimant opportunity to present additional information in support of their claim.

The RTA’s questions in the interview help focus it and ensure that nothing of importance is omitted. Ideally, the questions are structured and worded in such a way to help the claimants better understand the issues and help to resolve the issues. The nature of the questions posed will allow the claimant to explain the objectives, challenges, plans and work details of the claimed SR&ED work, ideally beginning from the identification of the scientific or technological objectives down to specific work elements. Subsequent or follow-up questions could then progressively address details at the product, design, technical and project levels, and any joint technical-financial issues. The answer to any given question may lead to other questions or approaches or eliminate other possible questions. The interview process needs the flexibility to add new elements or remove the originally planned elements as information is uncovered. There is no set length of time for an interview; the interview continues until the RTA has all the information that they need or until the claimant has provided all the information they can.

This makes it especially important that the RTA contact the claimant prior to the on-site visit to ensure that they are prepared, that is, that the people most familiar with the work done and documentation are available and that the issues are understood.

The RTA should encourage the claimant to speak in the technical language that they are familiar with and comfortable in using, while advising them that clarification may be needed from time to time for greater understanding.

The RTA should begin the interview by asking how the claim was put together, including how SR&ED was distinguished from non-SR&ED. The on-site interview generally provides an opportunity to meet with employees who were involved in the claimed SR&ED work. It is further recommended that the RTA indicate prior to or during the meeting if they wish to speak to those who were directly involved in that work and can speak about it based on their actual experience. This could better establish the nature and extent of their involvement in the work if this is an issue or if there are concerns about whether the work was SR&ED. The people who conducted the claimed work can often provide the facts necessary to establish whether the work is SR&ED.

If the RTA is planning to interview all of the employees directly involved in the project, the claimant should know this prior to the visit, usually in the initial contact letter, to give them time to schedule the interviews (discussed in Chapter 5.6.2.2). Remember that time spent by employees away from their regular duties is a cost to the claimant, and that scheduling may also be an issue. The RTA needs to take into consideration that not every person involved in the project can be made available (individuals may have retired or left). In the interest of time, the RTA could interview the project leaders first and then interview individual employees only as needed. By working together, the claimant and the RTA should be able to identify the best people to interview. However, the RTA can decide whom they want to interview without the approval of the claimant.

The following is typical information to obtain from either the employee, or the person directly responsible for the employee:

• the usual or normal responsibilities of the position occupied by the employee (who was claimed as a directly engaged employee);
• leadership role(s), if any, of the employee with respect to the project in question;
• partners or co-workers with whom the employee worked on the project under review, and their role(s);
• time frame(s) and work schedule for the employee’s participation in the claimed work;
• nature of the work they performed, in detail; and
• technological problems or issues they had.

Ideally, the information necessary to resolve the issues identified in the review plan will be obtained during the on-site interviews. Before concluding the interviews, RTAs should allow themselves some time to examine the information obtained and assess whether or not the information is sufficient. Possible items to consider during this quick examination are listed in Appendix A.7. Following this review, the RTA can either continue with additional questions or conclude.

The RTA should inform the claimant of any outstanding concerns, main findings and observations prior to concluding the visit, even though final decisions have not been made. Chapter 5.6.9 has more details. The claimant should also be given an indication of when they can expect the proposal.

In the CRA offices, following the on-site visit, the RTA analyses all of the information and makes determinations that will either be communicated to the claimant via a joint science-financial proposal or draft report. Chapter 7 discusses this in more detail. Either possibility allows the claimant to make additional representation.

5.6.4.1 Working with claimants during the on-site review

Involving the claimant during the on-site review

It is important for both the RTA and the claimant to use time wisely during the on-site review. Most claimants understand the importance of reviews for the integrity of our self-assessment approach to tax administration. However, their patience can be tested if a review is poorly organized, coordinated or executed.

The review plan can be used to ensure that reviews are well-organized, coordinated and completed on a timely basis. By having a plan, the RTA can explain the issues to the claimant, the proposed approach (such as the interview, review of evidence / documentation) for resolving issues, and the logical relationship of related issues, in order to:

• identify what should be emphasized during the premises tour;
• identify who would best be able to address the issues that the RTA has identified;
• identify what kind of evidence or documentation the RTA has looked to in previous reviews to support claims; and
• determine the order in which the issues/projects will be dealt with according to the RTA’s understanding of any interdependencies.

By having a review plan and informing claimants of the key aspects of it, claimants will more naturally understand the overall goal of the review and each of the steps. This does not mean that the RTA is obliged to seek approval for changes, or to change their plan according to the wishes of the claimant. It simply emphasizes that there are potential benefits to realize by ensuring that claimants understand what the RTA is doing and why.

5.6.5 Tour of the claimant’s premises

In many cases it is beneficial that the on-site visit includes a tour of the claimant’s premises, where projects selected for the review were performed, and of other possible locations on the premises that might pertain to these projects (for example, a commercial production line). This tour is often helpful towards understanding, in concrete terms, the technical and cost-related aspects of the claimant’s business and claim. If the FR is also at the meeting, the tour may be beneficial for them or could help avoid duplication of questions.

However, in some cases there is no benefit to a tour, such as when there is no plant or lab, or if the work is purely analysis. There is no requirement for a tour to satisfy due process requirements if there is no information to be gained from it. The RTA uses their judgement in these matters.

Plant tours can expose RTAs to hazards, hence, they should take all the necessary precautions to ensure their own safety throughout the plant visit. Chapter 2.10.0 has more details.

In certain cases, the SR&ED claim will relate to a manufacturing process of the claimant. It is important to understand the linkage between the process and the SR&ED work claimed. The claimant may need to explain and document the unit operations or steps in the manufacturing process to the RTA, as well as to identify the technical issues and challenges they faced at different steps.

The tour of the premises provides an excellent opportunity to visualize and contextualize the claimed SR&ED work in the claimant’s commercial environment. Many questions intended for the interview, and additional ones that naturally arise based on what the claimant says and shows may be asked at this time. Specific items that could be covered during the on-site tour include:

• capital equipment claimed as all or Substantially all (ASA) for SR&ED: During the tour, the RTA should request to see equipment claimed as ASA;
• capital equipment claimed as Shared-Use Equipment (SUE): Similarly, the RTA should request to see equipment and use logs if any is claimed as SUE;
• materials consumed: Often, equipment or materials used in the SR&ED process will be relegated to the claimant’s scrap yard. Scrap can be supporting evidence and provide an indication of the technical work done and the challenges that were encountered. Clues as to the technological problems and work done associated with the claimed SR&ED may be evident (such as breakage, excessive wear, remnants of special-purpose instrumentation). Notes of such observations during the premises tour should be made. This is especially important if the claimant has little written documentation. While the “scrap yard” can help to indicate what was done, it is of less value in determining when it was done;
• prototypes, pilot plants, and custom products: the RTA should obtain information about any equipment that was claimed as a prototype, pilot plant or custom product. This subject is discussed in detail in SR&ED while Developing an Asset Policy; and
• other specific requests made by the FR: This could include such items as identifying areas that may be allocated to SR&ED and employees claimed under proxy.

5.6.6 Claimant’s supporting evidence and oral information

It is essential that claimants have supporting evidence for their claim. This has a strong foundation in law and policy. The legal basis of the requirement for supporting evidence is in subsection 230(1) of the Act which requires taxpayers to keep (adequate) records and books of account. Subsection 248(1) of the Act defines the term record. It is discussed in Chapter 2.8.2.

This requirement in subsection 230(1) is confirmed in the eligibility policy, and is supported by the courts. Chapter 5.6.6.1 discusses some of these court cases, and Chapter 5.6.6.2 discusses another case, in the context of oral information.

However when a claimant’s supporting evidence is not adequate or incomplete, the RTA needs to determine, given the policy requirements, what and how much evidence is sufficient. This will be discussed in chapter 5.6.6.3.

Why evidence is required

According to the CRA Audit Manual Chapter 10.5.1:

Evidence is anything that can be legally relied upon to bear witness to the facts of a case. The purpose or role of evidence is to substantiate the facts and to provide a basis for judgement.

RTAs are obligated to follow the law and CRA policy. It is therefore essential that in their reviews, RTAs look for and review supporting evidence. In the context of an SR&ED review, collectively, supporting evidence can substantiate different facts like the following:

• the eligibility of claimed work (that is, whether any of the claimed work meets the definition of SR&ED in subsection 248(1) of the Act);
• the work that was actually done in the tax year;
• the start date and actual or expected completion date of each project;
• the personnel directly engaged in the claimed SR&ED work and the number of hours each person was engaged;
• details of the contractual agreement(s) between the claimant and the contractor(s) who performed SR&ED or SR&ED support work;
• details of any direct financial contributions to a Third Party SR&ED Approved Institution;
• details of partnership agreements between the claimant and other co-claimants in jointly submitted claims undertaken by a research consortium or the details of a collaborative research agreement;
• details of how the equipment was used for SR&ED; and
• details of materials consumed or transformed in SR&ED.

The facts that need to be established, and hence the particular evidence needed to establish them, depend on the review issues. As explained in Chapter 5.6.6.3, the evidence needed also depends on other facts of the case and ties into the risk determination. Ultimately, the RTA’s responsibility is to verify the needed facts to the extent necessary to obtain a reasonable level of confidence that there is a minimal risk of material error.

5.6.6.1 Claimant’s supporting evidence

Chapter 6.4.0 has definitions of evidence and documentation. Appendix 2 of the T4088 – Guide to Form T661 describes in detail how the claimant may support their claim by providing evidence that was generated as the SR&ED was being carried out. It is important that RTAs be aware that evidence can take many forms. Examples of supporting evidence that may be presented to and used by the RTA include, but are not limited to:

• project planning documents;
• records of resources allocated to the project, such as time sheets;
• experimental design records;
• design documents, CAD and technical drawings;
• project records, laboratory notebooks;
• design, system architecture, and source code (software development);
• records of production runs;
• project progress reports;
• minutes of project meetings;
• test protocols, test data, test results;
• internal emails concerning the work;
• analysis of test results, conclusions;
• final project report or professional publications;
• photographs and videos;
• prototypes, samples;
• scrap, scrap records;
• contracts; and
• invoices

The items in the list above are created or generated by the claimant. There are other sources of information that can be considered or used to establish facts such as what may be standard practice or public knowledge. Some examples are:

• textbooks;
• journals or trade publications,
• information available from suppliers or manufacturers, and
• information from Internet sources.

The supporting evidence reviewed and the documents obtained from the claimant are vital parts of the review process that will be used to bring resolution to the identified issues. This information will also form part of the overall record that will be included in the TF98 file to support the RTA’s decisions and may be used later if the claimant challenges the CRA by way of notice of objection (NOO) or in the Tax Court. TF98 files are sometimes reviewed by other government parties such as the Auditor General, Quality Assurance, Appeals or Internal Audit. The RTA should document all supporting evidence seen as well as their findings and observations concerning it; the importance of this cannot be overemphasized, particularly when the RTA bases decisions on this evidence. Retained evidence (such as copies or duplicate material presented by the claimant), is kept in the TF98 file. This is discussed further in Documenting the Review Process in Chapter 6.

Although supporting evidence may be presented by the claimant, or may be available to the RTA through public sources, it is up to the RTA to determine its relevance or significance. The CRA Audit Manual Chapter 10.5.2 discusses the principles of “weighing the evidence”. As noted in Appendix 2 of the T4088 – Guide to Form T661, contemporaneous evidence, that is documents created at the time the work was done and produced as a result of performing such work, is the most reliable kind of evidence.

It is particularly important that copies of supporting evidence be made if an adjustment is anticipated or if the information supports a decision that is not in favour of the claimant. The RTA has the discretion to use their judgement about what should be copied or not. In some cases, it may be sufficient for the RTA to simply examine the supporting evidence on-site and make notes about what was seen.

In many cases, the relevance of information in the claimant’s supporting evidence may not be immediately clear. Therefore, the context and significance of that information should be documented in the RTA’s working papers. For example, the importance of photocopies of isolated pages from a laboratory notebook may rest with the recorded dates on those pages that can be used to establish the timeframe of claimed SR&ED work.

When a claimant does not maintain adequate evidence to support the claim, the RTA should inform the claimant that the supporting evidence is inadequate and that they need to correct the deficiencies for future claims. Chapter 5.11.3 discusses this procedure.

The same principle applies if the claimant has promised information but does not provide it all or has prevented access to needed personnel or equipment. Assuming that the RTA’s requests are clear, the RTA is not obligated to make repeated visits because of the claimant’s omissions. It is recognized that misunderstandings and unexpected events such as illness can occur, but if the claimant has a doubtful or unsatisfactory explanation for their failure to provide information, and the behaviour is repeated, the RTA can conclude the review and base their decisions on the available information. The failure to provide some information does not mean that the whole claim is automatically unsubstantiated. It may be the case that the RTA could establish that some work is SR&ED.

In some situations, while there may be supporting evidence that some SR&ED was done, there may be no means of demonstrating exactly how much of the claimed work is SR&ED. This is particularly true if the claimant does possible SR&ED concurrently with excluded work such as commercial production. The RTA must never negotiate with the claimant to resolve this situation by determining eligibility on anything other than scientific or technological considerations. One possible solution is that the RTA can identify what they think may be SR&ED based on the evidence provided, and ask the claimant to reasonably quantify that work. The RTA can accept this quantification if it is consistent with all the available supporting evidence. It is important that the RTA inform the claimant that this procedure cannot be repeated in the future and that adequate evidence must be maintained for future claims.

One important point with respect to supporting evidence is that the RTA should be careful not to give claimants the expectation that providing supporting evidence will mean that their claimed work will be considered SR&ED. Substantiation of the work is not always the issue. Substantiation will not help a claimant if their work is not SR&ED. It is quite possible for work to be well-substantiated, in the sense that there is no doubt about what work was done, but the work done was not for SR&ED.

Here are some summaries of key court decisions that emphasize and support the requirement for supporting evidence:

1. Sass Manufacturing – Tax Court of Canada – 88 DTC 1363

Systematic investigation connotes the existence of controlled experiments and of highly accurate measurements and involves the testing of theories against empirical evidence. Scientific research means the enterprise of explaining and prediction and the gaining knowledge of whatever the subject matter of the hypothesis is. This includes repeatable experiments in which the steps, the various changes made and the results are carefully noted. The taxpayer was unable to provide overall descriptions or drawings for the project. There was no evidence of any hypothesis for research, and there were no test reports. The taxpayer must adduce cogent evidence of a systematic investigation or search, and the evidence fell far short of doing so.

2. Northwest Hydraulic Consultants – Tax Court of Canada – 98 DTC 1839

Although the Income Tax Act and the Regulations do not say so explicitly, it seems self-evident that a detailed record of the hypotheses, tests and results be kept, and that it be kept as the work progresses.

3. C.W. Agencies – Tax Court of Canada 2000DTC 2372

An odd feature of this case is that virtually all of the evidence relating to the detail of what was in fact done by the Appellant in the course of designing and writing the software was given, not by a person directly and personally involved in the process, but rather by the Appellant’s expert, Dr. Slonim. As I appreciate the evidence, Dr. Slonim was compelled by the absence of a detailed project management plan to examine the results of the Appellant’s work, next to examine the tools and technology used by the Appellant and, finally, to arrive at conclusions regarding the problems which he thought must have been faced by the Appellant and the steps taken to solve those problems. I note that the failure to call the project manager or some similarly placed person was never explained by counsel for the Appellant. In deciding what must in point of fact have happened, based on conjecture with regard to “the numerous uncertainties in this project”, Dr. Slonim arrived at conclusions which in my view were not justified by the evidence.

4. Les Développements De Systèmes Spécialisés M.T.P.C. Inc. – Tax Court of Canada 99 DTC 826

It is my opinion that there has been no proof of any systematic search, as required by subsection 2900(1) of the Regulations, in respect of the activities involved in this appeal.

As noted by the Minister’s scientific advisor at the appeal level, some of whose comments are set out in paragraph 10 of these reasons, in this case there was no formulation of hypotheses nor was there documentation describing studies or tests. The appellant’s documents describe a programming project that encountered problems, but they do not describe a systematic investigation or search carried out in a field of science or technology by means of experiment or analysis. The projects were business projects and not SR&ED projects.

During the on-site visit, if it is relevant to resolving the review issues, the RTA can obtain copies or duplicates of key documentation pertaining to the claim. The RTA has the right under section 231.5(1) of the Act to make copies or require claimants to make copies of documents for their retention. These copies, when certified by the RTA, have the same value as the original. If the claimant cannot or will not make copies, the RTA can borrow the documents and make copies off-site. Chapter 5.10.0 discusses what to do if the claimant refuses to allow copies to be made or documents to be borrowed.

Section 10.5.4 of the audit manual says the following about making copies:

The following procedures apply when making photocopies:

• Photocopies must be certified on the back as true copies. There should be a statement as to where the document came from, who copied it and that the copy was compared to the original. For more information, see 10.11.8 Referrals to Investigations.
• Documents must be complete. Copies of a part of an agreement, regardless of how long or how meaningless the omitted portion, cannot be presented in court since they do not represent the agreement in whole.
• Photocopies should have the auditor’s initials on the bottom corner of the document. Ideally, the initials should appear on each page of the document. If the document is quite lengthy, the first and last page can be initialled with a notation on the back indicating the number of pages, e.g. “page 1 of 27”.

The auditor must provide an accurate description of the evidence and indicate where it can be found if it is not practical or possible to obtain certified copies of the relevant documents.

It is important that the source document be properly identified, which can usually be done by copying its title page.

5.6.6.2 Oral information/ interviews with claimants

The CRA recognizes that, particularly among small companies, it is not always easy to maintain documentation. That is why Appendix 2 in the T4088 – Guide to Form T661 gives many examples of evidence that can support the SR&ED work claimed and can be used to ensure that claimants maintain adequate support for their SR&ED. This table indicates that paper documentation is not the only sort of evidence that can support an SR&ED claim.

The RTA, during the review of the SR&ED claim, works with the claimant by examining the evidence/documentation they have produced to determine its significance in supporting the SR&ED claim.

However, the RTA doesn’t just look at the physical evidence provided, but also interviews personnel who did the claimed SR&ED work to obtain information about what was done and to help establish the claimant’s business context.

Oral information is defined as any verbal statement made by the claimant, their representatives, or other sources related to the claim. Oral information is considered by RTAs during the review.

As an example, when documentation is incomplete, oral information may be very useful in helping the RTA resolve specific issues such as the project start date.

Although oral information can be accepted as evidence in the courts, this is made after an oath and before a judge. Therefore RTAs should not take only oral information as supporting evidence to substantiate the claim.

RTAs should consider the oral information provided along with other evidence that the claimant provided.

An example of how the courts treated oral evidence is given in the case of 116736 Ontario Ltd. (references 96-2484-IT and 96-4372-IT). In this case, the claimant was unable to provide documentation as it was destroyed in a fire. This extract from the case highlights the judge’s reasoning:

However, I would add that it is not without hesitation that I come to this conclusion. It is surprising that the Appellant was not in a position to show to the Minister’s representative in the course of his audit the prototypes that had been built at the time of that audit. However, on the balance of probabilities, I am inclined to believe Mr. Nelson when he says that R&D activities took place during the relevant period. The fact that he is an inventor and the fact that he was involved in projects of an R&D nature which resulted in the creation of new technologies that are being commercially marketed give the Appellant more credibility. However, just because he actually carried out R&D activities on behalf of one company it does not necessarily follow that he did so on behalf of the Appellant. As mentioned before, it boils down to a question of credibility. Having reviewed the April and the February Reports providing a detailed description of the work done during the relevant period and having heard Mr. Nelson’s oral testimony, I find that those activities constituted R&D. I observed Mr. Nelson during his testimony and he came across as an honest and credible witness.

Often only parts of this court case are cited. However, it is important to consider all of the key points made in this judgement as well as section 2.1.5 of the eligibility policy and T4088 – Guide to Form T661. Some of the key points from this case are:

• The judge said that it was not without hesitation that he accepted oral testimony. There were extenuating circumstances, specifically the fire.
• The credibility of the person giving the testimony was critical.
• There were other facts that gave credibility to the witness, specifically the past history of the witness and some documents.
• The evidence was presented by the person who did the work.
• In the judge’s view, “contemporary reports showing detailed records of each experiment attempted by a researcher could constitute evidence of a systematic investigation”.
• “Any taxpayer attempting to convince the Minister that he is entitled to deduct R&D expenditures without such evidence puts himself in a very precarious position.”

When considering oral information, the RTA should remember that:

• Oral statements are not a substitute for the claimant keeping adequate documentation or other evidence.The Act requires that taxpayers keep books and records. SR&ED claimants are given further advice in the T4088 – Guide to Form T661 and the Guide noted above.
• Only the person(s) who actually performed or saw the work can provide credible oral statements about what was done.
• There should be other facts or circumstances that are consistent with the oral statements. Examples of supporting facts or circumstances include the background or experience of the person doing the work, and other documentation, which corroborates some of the facts claimed.
• There may be extenuating circumstances concerning the lack of supporting evidence, such as the fire in this case.

To ensure that oral information is documented accurately and that there is no misunderstanding about what was said, the RTA may wish to read the key information back to the claimant or have the claimant provide a signed statement.

5.6.6.3 Schematic diagram of risk and supporting evidence

As noted earlier, the challenge for RTAs is to determine how much supporting evidence is sufficient. There is also the challenge of how to consider the oral information provided. A recommended approach when requesting documentation and supporting evidence is to use the Risk Management Policy as a guide, in order to obtain a reasonable level of confidence that there is minimal risk of material error in a claim. This schematic is a simplified illustration of how to do this. A detailed discussion follows the schematic.

The schematic ties together a number of things such as:

1. reducing risk of material error to a minimal level;
2. the need to obtain oral information;
3. the need to corroborate oral information;
4. the use of direct evidence;
5. the use of indirect evidence; and
6. the expectations for an FTC vs. a long term claimant (LTC).

The schematic illustrates the stages of a review of the work claimed, in the context of the RTA requesting documentation and supporting evidence. It starts from the time the RTA does the initial risk assessment, and if a review is undertaken, to the determination of eligibility or the resolution of other review issues. It illustrates that risk assessment is on-going throughout the review and that risk can change as new information becomes available. It also illustrates the decisions to be taken after any new information is gathered and has been risk assessed. The decisions and actions are grouped under 5 column headings.

The following explains the approach illustrated by the schematic:

1. The first column indicates the first step, which is the risk assessment before the on-site visit (discussed in Chapter 4.3.1). In this step, all information gathered before an on-site visit, through the T661, prior years’ claims, RFIs, oral information obtained from the claimant by telephone, is risk assessed and if the risk is minimal, the work claimed is accepted as filed (AAF) without gathering any further documentation and supporting evidence. If the risk is not minimal, then the RTA proceeds to the next step.
2. The second column indicates the second step, which is to determine the review scope. In this step, the RTA identifies all the work and issues that are to be reviewed based on the initial risk assessment. The work and issues could be low risk or high risk. Low risk work means that the RTA’s initial assessment of the work is that some or all of the claimed work may be eligible. On the other hand, high risk work means that the RTA’s initial assessment of the work is that little or none of the claimed work is eligible. Issues may include joint technical-financial items such as materials. The RTA then develops a review plan (discussed in Chapter 4.8).
3. The third column indicates the third step, which is to review information gathered during the on-site visit(s). This includes oral information from interviews with personnel that did the work, direct evidence that proves SR&ED or resolves the identified issues, and indirect evidence which suggests that SR&ED was performed. If the claimant is a long term claimant the RTA should also look for any information requested in prior years, based on previously discussed record-keeping requirements.
4. The fourth column indicates the fourth step, which is to re-assess the risk based on the new information that was gathered in column three. The RTA needs to determine whether the new information provides a reasonable level of confidence that there is minimal risk of a material error in the work claimed or issue identified, in other words, to answer the question “Is there enough evidence to substantiate the work claimed and resolve the review issues?”.

The starting point, after gathering the oral information, is to look for direct evidence to corroborate the oral information. If the direct evidence is missing or does not corroborate the oral information, the subsequent action depends on whether the initial risk assessment was low or high.

If the initial risk assessment was low, the RTA then considers the indirect evidence. Indirect evidence of SR&ED is evidence that suggests SR&ED but not actually proving it to be SR&ED. Some examples of indirect evidence of SR&ED (discussed in chapter 5.6.6.1) are invoices, emails, rough sketches, and scrapped materials. If the indirect evidence is sufficient to reduce the risk of material error, the RTA proceeds to step five. This situation should not happen with long-term claimants since a long-term claimant would have been advised in prior reviews of the supporting evidence requirements. Although the requirements on record-keeping are the same for all claimants, the long-term claimant is also expected to comply with previously discussed records keeping requirements. Therefore, for the long-term claimant, it is expected that there be direct evidence or the type of supporting evidence previously required to be kept for subsequent reviews. If the indirect evidence is insufficient, the risk has now become high, and the RTA proceeds to step five.

If the initial risk assessment was high, direct evidence is needed, and in the absence of direct evidence, the risk remains high, and the RTA then proceeds to step five. In exceptional circumstances, the RTA can still make a decision or an eligibility determination if there is an abundance of indirect evidence. The RTA can and should rely on their professional judgement and experience to arrive at a decision or determination in such cases.

A simple way to describe this is that a higher standard of evidence is required for higher risk.

One method to assess whether the new information has changed the initial risk is to evaluate the mitigating factors against the aggravating factors based on all the information gathered. Mitigating factors lower the risk; aggravating factors raise the risk. Here are some examples of mitigating and aggravating factors:

Mitigating factors	Aggravating factors
Credible story/ people interviewed were directly involved in work	Story not credible/ people were not directly involved in work
Indirect evidence consistent with story	Indirect evidence not consistent with story or could support a different interpretation.
Story consistent with T661	Story differs from T661
Prior history of compliance	No history, or a prior history of non-compliance
Business context: Normally little documentation is produced	Business context: Normally would be well-documented
Other circumstances that caused or explain the lack of supporting evidence, such as records loss, claimant’s education and experience	No reasonable explanation for lack of documentation

For all issues, if there is no or insufficient indirect evidence to corroborate the claimant’s oral information, then the RTA is led to a no work (NW) determination, unsubstantiated (UN) conclusion, or unfavourable decision, depending on the situation. Chapter 5.11.2 describes important considerations when deciding that claimed work is unsubstantiated or whether the evidence supplied supports a determination that there was no SR&ED.

If there is indirect evidence to corroborate the claimant’s oral information, then the RTA must re-assess the risk in light of this new information. The risk re-assessment would have to consider the mitigating factors and aggravating factors. Depending on the result of this re-assessment of risk, the RTA must then decide if there is a reasonable level of confidence that there is minimal risk of material error in the work claimed. Depending on the risk level, consideration should be given to factors such as relevance, reliability, and weight of the indirect evidence available. Ultimately, the RTAs may have to use their professional judgement and experience in answering that question.

A positive answer would lead the RTA to a determination of all work (AW) or some work (SW) or a favourable decision and a negative answer would lead to NW determination, UN conclusion, or unfavourable decision, depending on the situation.

The above process, where under certain situations the expectations of long-term claimants and first-time claimants (or first science review) concerning supporting evidence requirements are different, illustrates the graduated approach to compliance.

5. The fifth column indicates the fifth step, which is to make a determination, conclusion, or decision. After considering the oral information, evidence (direct or indirect), and the mitigating and aggravating factors, the RTA proceeds to one of the actions in the fifth column. Where the risk of material error remains or becomes high, the RTA would determine that no work is SR&ED, conclude that the claim is unsubstantiated, or make an unfavourable decision, depending on the specific circumstances. Where the risk remains or becomes low, the RTA would determine that some or all of the work is SR&ED, decided to AAF the work, or make a favourable decision. Depending on the situation and as required, other decisive actions with respect to supporting evidence are also provided, such as cite improved record-keeping in the SR&ED review report, and sending a better books and records letter.

5.6.7 Interview Notes

The comments here also apply generally to all oral communications, whether with claimants or others. Interview notes are vital parts of the working papers that the RTA will use to form decisions or to resolve the previously identified review issues. Notes taken by the RTA form part of the documentation that will be included in the TF98 file and may be used at a later date to examine the file or re-evaluate the claim by such groups like the Appeals Division, the Tax Court of Canada or Quality Assurance. The importance of interview notes is well established in CRA audit practice and jurisprudence. There is no required format for the notes. Regardless of the medium employed, the rough notes of interviews should be identified, dated, initialled and kept in the TF98 file, available, if necessary, for reference or introduction in court. It is very important for potential court use that the notes cover the entire interview and not just selected portions, regardless of whether the content seems relevant to the review at the time. Therefore:

• The interview notes should identify the project, work, or issue discussed, and the date(s), time(s), location(s) and names of all persons present during the review meetings.
• The notes should record the names of personnel interviewed and those responsible for providing key information. In a group meeting or discussion, they would need to identify which party made the statement. This is important in case any follow-up inquiries are necessary to complete the review, to conduct a second review, or to examine the review process itself in the context of a dispute resolution, NOO or an appeal to the Tax Court of Canada;
• As the interview notes will be in the TF98 file, the notes should be factual, reflecting what was said during the interview and what was seen. They should not contain any irrelevant personal opinions, assumptions or personal comments about any individuals associated with the claim, nor any criticism of the claimant’s business decisions or the quality of their work. This does not preclude a style of taking notes where the RTA notes their thoughts or questions that arise during the interview, for possible later discussion, as these are relevant to the review process.
• The interview notes should reflect, as closely as possible, what the claimant said about their work and the SR&ED claim, not an interpretation of what the claimant meant.
• The interview notes should have sufficient detail to indicate how the RTA’s questions were answered, and if anything obtained during the interview is relied upon in coming to the RTA’s decisions, this information must be reflected in the interview notes. Otherwise, the RTA’s decisions might not be supportable.
• It is understood that it is impossible for the RTA to write down every word said during an interview or conversation, nor is it expected. However, the more detailed the notes the more useful they will be if the issue is contentious. The RTA should try to record as much detail as possible, to summarize what was discussed and support the determinations made. This will depend upon the RTA’s note-taking abilities, how much is said and how quickly it is spoken.
• If there is a lot of important detail discussed, the RTA may need to slow down the conversation in order to have sufficient time to record details. If necessary the RTA may need to pause and read back what was written in order to make sure that their understanding was correct.
• It may be difficult or even impossible to take detailed notes during the interview process, especially during the actual site tour. If the RTA can only take sketch or rough notes during the actual interview, then as soon as possible the sketch notes need to be expanded based on the RTA’s recollections, and both the sketch notes and expanded ones are to be included in the TF98 file. Such notes should be explained and include the time and date that they were expanded. Another option is to write down the main points as soon as possible (for example, before driving off the premises) and expand them as soon as possible thereafter.
• In cases when another CRA employee or consultant is present during the site visit or conversation with the claimant, any notes that person takes should also be included in the TF98 file as part of the overall record.
• Usually, the FR’s notes are kept in their own files. However, when relevant, the RTA should keep copies of these notes in the TF98 file.

5.6.8 Additional information requests

During the on-site visit, the RTA may realize that additional information is required that was not specifically requested. It is recommended that these additional requests be made verbally, and if the claimant cannot provide it at the time, then ask the claimant when it will be sent. A follow-up request should be made in writing following the procedure of Chapter 5.4.1, and sent to the claimant after the visit. An alternative method is to prepare a written request at the claimant’s premises, similar to that of the audit query sheet Form T997, and give it to the claimant prior to leaving. The RTA should sign and date this document and make a copy. The RTA may need to schedule additional meetings to review the information requested.

5.6.9 Communicating Decisions to the Claimant

RTAs cannot always make decisions regarding the issues until they have had a chance to review the interview notes, together with the original claim submission and any supporting evidence viewed or obtained during the on-site visit, as well as discuss them with the FR. However, if the RTA cannot provide their conclusions at the end of the on-site visit, the RTA must inform the claimant that there are outstanding issues, while making it clear that further review and consultation may be needed, that the claimant will have the opportunity to address any concerns, and that the FR will still need to review the expenditures before the review is completed. If the RTA does not provide their conclusions at the end of the onsite visit, the claimant should be made aware of the decision prior to sending the SR&ED review report. This can be done by telephone or through a draft report.

If there are gaps in the claimant’s information, the RTA may still be able to give preliminary decisions based on the information as presented by the claimant. It is important that the RTA avoid giving the impression that there are no problems or issues when there are some. When the RTA can indicate their preliminary decision at the claimant’s premises, the claimant may have a better opportunity to present their case while equipment and personnel are more readily available. Where possible, the RTA can invite the claimant to bring forward any further representation or information that might address these concerns.

During the on-site visit, the claimant may request an additional meeting(s) to discuss the work when the RTA has some serious reservations, outstanding concerns, or if the claimant does not understand any decisions with respect to the claim. The RTA is not required to have any additional meetings unless it is clear that there is more or new information to see, or the RTA does not feel that there was sufficient time to work with the claimant to help them understand SR&ED Program requirements or eligibility concerns. The RTA should make clear to the claimant that if there is more information to support the claim, the claimant should:

• present it to the RTA during the meeting; or
• make a written representation to the RTA.

Alternatively, if the claimant does not understand a decision, the claimant is expected to clearly identify what they do not understand (and why) so that the subsequent meeting will be productive. Before denying a request for an additional meeting, the RTA should discuss the situation with the RTM to ensure that the claimant has been treated fairly.

In either of the above cases, the RTA will consider the additional information prior to the completion of the review.

Following the meeting, taking into consideration any additional representations from the claimant, the RTA documents the details and decisions in the SR&ED Review Report (discussed in Chapter 6.8.0), which is eventually presented to the claimant as part of the Proposal Package.

Decisions are preferably issued simultaneously by the RTA and the FR in the Proposal Package. However, it is possible to send out a draft SR&ED Review Report prior to the Proposal Package. For example, there may be an unavoidable delay between the completion of the technical and financial review. However, in all cases, the RTA must send the report to the FR before the claimant receives it. The decision to issue a draft report prior to the Proposal Package is at the discretion of the RTA and local management team, but it must be clearly labelled “draft”. However, for the reasons outlined in Chapter 3 the requirement for a coordinated review is better achieved with a joint proposal.

If a draft report is sent prior to the Proposal Package, the claimant should be informed that a draft report followed by a financial proposal is equivalent to a joint proposal where the report and the financial details are sent at the same time. It is important to emphasize that both approaches allow the claimant the same opportunities to make further representations. If a draft report is used, a final report must be issued whether or not any representations or changes are made to the draft.

If the draft report is sent to the claimant prior to the Proposal Package, and the claimant provides a response prior to the Proposal Package, the RTA can respond to it before or after the proposal, depending on the circumstances. For example, it may be possible for the RTA to resolve the technical issues prior to the proposal. However, joint issues could not be addressed until the FR has completed their work.

If the RTA responds to the claimant prior to the proposal, the claimant’s representation and the RTA’s response should be reflected in a revised SR&ED Review Report which would be included in the proposal package. “Proposal Package” in Chapter 7 has details concerning communicating decisions to claimants. Chapter 7.6.1 discusses addressing the claimant’s response to the proposal package, or to the draft report.

Even if the RTA cannot give a preliminary decision at the end of the on-site visit, it is still required that the RTA indicate their concerns to the claimant and give a preliminary decision to the claimant as soon as possible. By doing so prior to the proposal, whether or not a draft report is sent, it will improve openness and transparency and reduce the potential for the claimant to be surprised.

In all situations, if the RTA cannot send out a report within 30 days of the technical review (either as a draft or as part of the proposal package), then they should inform the claimant as to when it might be expected.

5.6.9.1 Working with claimants to help them understand the RTA’s decisions

Helping claimants understand the RTA’s decisions

It is often helpful to take some time at the end of the meeting to go over the on-site review in relation to the original objectives that were communicated to the claimant. Communication is the key to ensuring that both parties are satisfied that everything necessary has been done (or will be done) to address the RTA’s concerns. This should involve:

• an overview of the issues and the steps that were taken to resolve each issue;
• if possible, a preliminary indication of whether or not the steps taken have satisfied the RTA’s concerns; and if not, to the extent possible;
  • an indication of why the RTA still has a concern;
  • further discussions on what additional information the RTA may need (or what additional information the claimant possesses); and
  • the next steps in the review process and a time frame.

If there is insufficient time available during the meeting to help a claimant understand a decision, or for the RTA to consider additional information, the RTA should arrange to discuss these by telephone or in a follow-up meeting.
To ensure that these meetings are effective and efficient, the claimant should be asked to identify what needs to be clarified and why.

5.6.10 Dispute resolution

Disputes that arise during or after the review are handled by following the procedures described in the application policy 2000-02R, Guidelines for resolving claimants’ SR&ED concerns. If appropriate, the RTA can briefly describe the contents of this application policy to the claimant.

5.6.10.1 Working with claimants to resolve concerns and avoid disputes

Resolving claimants’ concerns and avoiding disputes

The AP 2000-02R “Guidelines for resolving claimants’ SR&ED concerns” provides the fundamental procedures for resolving claimants’ concerns in a meaningful and productive manner.

However, resolving potential conflicts and disputes involves much more than following a procedure. It requires communication of the RTA’s desire for achieving a common understanding, respect for the claimant’s concerns and the patience to listen to concerns and reduce frustration. It also requires a similar commitment from the claimant to listen and try to understand the RTA.

When disputes arise, the RTA should explain the three steps to trying to resolve disputes and reinforce that the CRA is committed to doing everything it can to facilitate the resolution of disputes as soon as possible and at the working level.

Ask the claimant to explain their concerns. If the claimant is upset, allow them to express themselves without arguing with them or raising your voice. Listen and calmly try to bring the discussion back to the facts at hand such as what was done rather than opinions. If the discussion becomes heated, suggest that a short break be taken so that the claimant’s concerns can be discussed in a productive manner.

When you speak, do so calmly and try to ensure that the discussion centres on facts rather than opinions. For example, explain what information you require to resolve issues as the first step and why.
One of the most effective ways of dealing with disputes is to engage in practices that prevent disputes from occurring in the first place.

According to the results of an internal national survey of RTAs, RTMs and Assistant Directors (ADs), there was an overwhelming consensus that open, early and effective communication was the key to preventing or resolving disputes.

One important technique is for the RTA to demonstrate through their actions and words that they have no stake in the outcome of the review. Another technique is to focus on facts to avoid giving the impression that they have a pre-determined decision about the work claimed. For example, the RTA should not indicate that a particular kind of work is rarely eligible without first hearing why the claimant feels that the work claimed is eligible, even though it may not be, based on the RTA’s experience. Instead, the RTA should focus on the facts of that particular claim and explain why the work claimed is not eligible based on those facts.

Another technique of open and effective communication is to ensure that potential issues are identified and explained to the claimant at the outset of the review or as soon as they are discovered.

When the RTA thinks that there is a good chance that a particular review may lead to a dispute (for example, based on previous experience with the claimant or significant work claimed is expected to be ineligible), some options for prevention include:

• discussing the file and issues with the RTM to consider the best approaches for communicating or validating concerns;
• discussion with peers to determine how they may have handled similar situations;
• discussion with an NTSS or other Headquarters (HQ) employee to determine if similar issues have arisen elsewhere, whether the RTA’s decision is in line with the decisions of colleagues in other regions, and how such issues have been resolved elsewhere; and
• considering to have a third party, such as the RTM, or a peer to accompany the RTA during the review. Often times, the opinion of another party such as an RTM can make a difference in the claimant’s willingness to accept the RTA’s decision.

It is important to treat the claimant and their work with respect. Remember that most claimants are very proud of their work. Disputes often involve either the eligibility of work or issues concerning substantiating documentation. If the RTA does not believe that the work is SR&ED, explain why to the claimant. For example, if the work involved the application of known engineering practices, explain how that is the case. Show the claimant the definition of SR&ED as stated in subsection 248(1) and use the definition to explain why their work is ineligible. For example, if their work is specifically excluded, such as might be the case if commercial production were claimed, point out paragraph (i) in this subsection.

Sometimes disputes arise over interpretations of CRA policies. The RTA cannot change policy or its interpretation, so such disputes are not productive. However, while it is important to focus on facts during a review, at times it may be pertinent to discuss the application of policy. For example, the RTA could:

1. explain the policy in more detail;
2. explain how and why the policy or legislation applies in their situation; or
3. discuss any policy application concerns they have in the context of their claim.

The RTA can also ask the RTM if there is any question about the interpretation or application of a particular policy in a given situation.

If the RTA is unable to determine if work is SR&ED, ask the claimant to consider what kind of documentation may help to demonstrate that a systematic search or investigation took place in order to resolve a scientific or technological uncertainty. Make use of the documentation tool in Appendix 2 of the T4088 – Guide to Form T661 to illustrate the types of evidence the claimant can consider using.

If the concerns remain, and the claimant wishes to bring the discussion to the second or third steps described in AP 2000-02R, advise the RTM or Assistant Director (AD) to expect contact from the claimant and inform the FR of the potential for a delay. In this situation, provide the claimant with suggestions that will help them best present their case and avoid common pitfalls. For example, it is recommended that the RTA advise claimants to focus on describing the work that was done, why it was done, rather than arguing how the final material, device, product or process represents a scientific or technological advancement. By focusing on the work that was done and providing substantiating documentation, the discussion is centred on facts rather than opinions. Avoid citing isolated sentences within the eligibility policy and other publications. Often, such approaches fail to present concepts in their whole. As noted above, they also tend to focus discussions on opinions rather than facts.

5.6.11 Claimants giving tax information during the on-site visit

Sometimes during the on-site visit, claimants may try to give RTAs tax returns or other required tax information, such as new or amended returns, or information about new projects. RTAs should tell these claimants that they cannot accept this information, but that it must be sent to the appropriate tax centre (TC), where the TC can process the information, and if necessary do timeliness and completeness checks. An RTA must not provide comments on timeliness or completeness or whether anything is missing from a tax submission.

5.7.0 Special situations and alternative review approaches

There are a number of situations that are not regularly encountered that require a different review approach. These situations, by themselves, do not lessen either the requirements of the claimant to support their claim or the CRA’s requirements to give due process to the claimant. That is, CRA employees cannot alter the CRA requirements for any particular claimant nor give the claimant less than due process for our convenience. As with other reviews, the review work of the RTA must be documented. These situations include:

1. Files with previous or outstanding Notices of Objection;
2. Bankruptcies, Company Shut Down, or Facility Sold;
3. Out-of-Country Equipment, Records or Personnel;
4. No existing physical facility;
5. Separation of Head Office from R&D Site;
6. Borrowing Claimant’s records;
7. Claimant’s documentation supplied as electronic media;
8. Remote claimant location;
9. Claims involving Classified information; and
10. Second Technical Review by a new RTA.

Details of how to address them are given in Appendix A.6.

5.8.0 Claim modifications by the claimants

5.8.1 Amended claims-general principles

Just as any taxpayer can request that their tax return be amended, claimants can request to amend their SR&ED claims. In fact, it is mentioned in Chapter 5.8.2 that if RTAs notice unclaimed work, which may be SR&ED, they should advise claimants of the possibility of amending their SR&ED claim and claiming additional work and expenditures.

In almost all situations, if a claimant wants to amend their claim, they must file an amended return at the tax centre (TC). An amended claim should not be accepted by the coordinating tax services office (CTSO) or the RTA at any time. If the claimant wants to submit an amended claim to the RTA or FR, they should be instructed to file the amended claim with the TC. Claimants should also be reminded that all new work or expenditures must be identified within the 18-month deadline.

One exception to this rule is if the claimant is requesting a minor adjustment, such as an additional expenditure to work already claimed and identified, and it is within the 18-month deadline, the RTA should inform the FR. These adjustments do not necessarily require amended claims at the TC. A letter or verbal request can be sufficient. The other exception is requests to “withdraw” some or all of the claimed work. This is discussed in Chapter 5.8.1.1.

Amended claims, when received at the TC, are subject to a risk assessment and they may be downscreened or sent to the CTSO to be reviewed by the control function (CF). The CF, in turn, may decide to accept the claim as filed or refer it to the RTA and the FR. This discussion assumes that the claim has been referred to the RTA.

There are some general principles to consider in the review of amended claims:

1. The current administrative policy, as outlined in Directive 97-04, Guidelines for Processing SR&ED Claims, states that the same claim is not reviewed again, barring exceptional circumstances. Exceptional circumstances mentioned are taxpayer request adjustments (TPRs) (the same as amended tax returns), fraud, and misrepresentation. Fraud must not be investigated by RTAs or FRs (discussed in Chapter 5.14.0), but misrepresentation can be.

2. The review of a project or claim is considered to have taken place when a determination of eligibility of work or expenses has been given.

3. The RTA should not duplicate effort in the review of amended claims. That is, they should take into consideration all the facts from the previous review in doing the present one.

4. The work reviewed in an amended claim, like any claim, is always determined based on a risk assessment, as discussed in Chapter 4.3.

5. If work is now described differently, or if different facts are described, the RTA should consider obtaining supporting evidence to demonstrate what was done.

6. It is also a long-standing CRA policy that the same item or expense is not reviewed twice, except in exceptional circumstances, generally fraud or misrepresentation.

7. It is a long-standing CRA practice in regular audit that requested changes by a taxpayer to a tax return while an audit is in progress do not stop the audit. In particular, even if a tax return is amended, it is still possible to apply penalties based on the original return, for example, when the change is requested by the claimant under the voluntary disclosures program before the announcement of the review. The CRA Audit Manual Chapter 3.3.0 presents more details on this program. It is important to note that the voluntary disclosures program is not available anymore to a claimant as soon as the review has started.

5.8.1.1 Work requested to be withdrawn by the claimant

The claimant may voluntarily request to withdraw some work, projects, or the entire claim, based on discussions with, and information received from, the RTA, or even prior to the beginning of the review.

The RTA must never accept such requests from the claimant. The RTA also must not encourage claimants to make such requests as part of a negotiation in return for more favourable treatment (such as Accepted As Filed) of other projects. Negotiation is discussed in Chapter 5.9.0.

There is no concept of a “withdrawn” claim in the Act. SR&ED claims are part of an income tax return, which is not voluntary and cannot be withdrawn. A “withdrawn” claim is actually a type of amended claim where the claimant is requesting to reduce or eliminate their SR&ED claim.

If a claimant makes a request to “withdraw” some or all of their SR&ED claim before the review has begun (before contact by the CTSO), the claimant should send their request to the TC, like any other amended claim.

However, any requests to withdraw work after contact by the TSO, either by the Control Function, the RTA or FR, will not be accepted and the review should continue as originally planned. The case remains in the Audit Information Management System (AIMS). This is important because of the possibility of considering penalties. Also, “withdrawn” work potentially can be related to other work or future claimed work, and thus the results of the review may need to be recorded for future risk assessment.

However, it is possible that the claimant may not want to supply information or discuss the “withdrawn” projects or claim. If the claimant does not allow an on-site visit or respond to information requests in such situations, the efforts to review the claim would be documented and work claimed would be considered unsubstantiated, not ineligible, and be recorded that way in AIMS.

Another important consideration is that the claimant could later decide to file a Notice of Objection if a claim is disallowed as unsubstantiated. Therefore, the RTA should document all the discussions and findings in the TF98 file. The RTA should document the reasons why the claimant requested to withdraw the work (if this is known) and if the RTA has reviewed this work or some of it, then they should still document their observations, if any are possible, in their report. It is recognized that there may be very little that could be documented if the claimant does not cooperate.

5.8.2 Unclaimed work/projects identified by the RTA

During the review, the RTA may happen to identify projects or work that have not been claimed but which may be SR&ED. Similarly, in discussing how the claim was prepared, the RTA may notice that a claimant did not fully understand what work could be claimed. The RTA should advise the claimant of their observations during the meeting and could suggest to the claimant that they may want to consider amending their claim or claim this work in future years. If time permits, the RTA can discuss the work further and look at supporting evidence to help the claimant decide whether to make an amended claim. This could be done to avoid the need for an additional visit when the amended claim is submitted.

However, the claimant should also be reminded that:

• there is an 18-month deadline (from the claimant’s year-end date) to submit amended claims with additional work or expenditures;
• requests for amendments must be sent to the TC;
• eligibility determinations can only be made after the revised claim is submitted; and
• the expenditures would need to be reviewed by the FR.

5.9.0 Working with first-fime claimants

The CRA recognizes that first-time claimants may not be familiar with the SR&ED Program requirements. Therefore the CRA provides the FTCAS service which is designed to help businesses that are new to the SR&ED Program. For first time claims that are being reviewed, the CRA gives an information session to the claimant similar to the FTCAS. Refer to Chapter 5.6.1.1, as well as the FTCAS Guide for more information on the service and the process.

The RTA is expected, during a visit to a first-time claimant, to spend more time answering questions and explaining the review process, the SR&ED Program and its requirements in detail, if necessary. In some cases, a presentation on the SR&ED Program and its requirements may be useful. It is recommended that first-time claimants be encouraged to attend one of the local public information sessions and to read the literature on our website.

In some cases, first-time claimants may choose to file a claim even if they did not maintain detailed records of all of their work. Chapter 5.11.0 discusses dealing with limited or inadequate supporting evidence.

It is important to note that SR&ED legislation and policies apply to all claimants equally. Being a first-time claimant does not reduce or eliminate the onus on the claimant to substantiate their claim and provide supporting evidence of the work performed.

However, as noted above, with first-time claimants, the RTA spends more time with them so that they can understand documentation and supporting evidence requirements and how they can be met.

With a long-term claimant, the RTA expects them to maintain appropriate documentation and evidence to support the work claimed as advised by the CRA staff during previous reviews (including FTCAS).

5.10.0 No negotiations with the claimant

The RTA must not negotiate eligibility with the claimant under any circumstances. Review decisions must be based on the facts of the case and applicable legislation. The RTA must never:

• propose to the claimant that a certain number of projects will be accepted as eligible if the claimant is prepared to accept that certain other projects are not SR&ED;
• accept as eligible a portion or percentage of a project that is not supported by evidence or facts, or
• allow an amount claimed for overhead or experimental production without some substantiation.

Negotiation creates several problems. The first is that it does not help the claimant to comply in future years since the decision is arbitrary. Secondly, the claimant can change their mind later and file an objection for the projects not considered SR&ED. If there were no rationale in the file for the work not considered SR&ED, the determination would not be defensible at the objection stage.

Working with the FR and the claimant to establish a reasonable basis for an estimate is acceptable in certain situations. Sometimes there is documentation or evidence that SR&ED was performed but it is limited and does not establish the precise boundaries of SR&ED. Sometimes it may be possible to use information like industry averages or standards, or past company practice. In these circumstances, the RTA works with the FR and the claimant to arrive at a reasonable estimate of the amount of labour, materials, or production that could be attributed to SR&ED. This process is not negotiation and is acceptable. However, there still must be some basis for the estimate and the rationale for the estimate should be documented.

CRA documents describe two methods of estimating SR&ED expenditures in the absence or lack of technical documentation. They are the:

• alternative approach described in the SR&ED During Production Runs Policy
• allocation method described in the SR&ED Salary or Wages Policy

5.10.1 Waivers of the right to object

Waivers of this sort may be used by the FR in specific circumstances where it is difficult to come to an agreement with a claimant any other way. In this process, the CRA and the claimant come to an agreement as to how the issues in dispute are to be handled and the claimant waives their right to file an objection to how these issues were resolved. The RTA must not suggest their use to the claimant, but they may be used by the FR if the claimant suggests it. If the subject comes up, advise the claimant that the request should be discussed with the FR.

These waivers are considered binding by Appeals provided that they are valid and used correctly. There are many factors and conditions that must exist before waivers can be used. Refer to the Compliance Programs Branch (CPB) Communiqué AD 05-02B dated Feb. 7, 2005, entitled The Audit Agreement and the Waiver of a Client’s Right to Object if more details are needed.

5.11.0 Uncooperative Claimants

Subsection 231.1(1) of the Act gives the RTA broad authority to request information, inspect records and books for the purposes of the review, and to require the claimant to assist them. An SR&ED claim can be disallowed, in whole or in part, if the claimant will not allow the RTA to conduct the review in the manner needed. Situations that could result in such a disallowance include:

• a repeated refusal or restriction of access to some or all of the facilities without reason, or refusal to allow an interview in a reasonable time or under reasonable conditions;
• refusal to answer CRA phone calls or letters, or failure to provide requested information in a timely manner or in a usable form, prior to or after an on-site visit; and
• the inability of the RTA to contact the claimant (for example, current address and phone numbers are not obtainable, mail returned).

If any of these situations arise, the RTA should consult with the RTM and the claim would be processed based on the information available to date. The RTA should advise the FR of the problems and the FR can then disallow the claim, in whole or in part, on the basis of the RTA’s recommendation. However, care should be taken before such a recommendation is made by the RTA. While the onus is on the claimant to supply what the CRA has requested, the RTA must be prepared to justify their requests in the case of objections or an appeal to the Tax Court. In order to support disallowing a claim for this reason, the claimant must have been given the opportunity to provide the information, the request itself has to be justifiable, and our efforts to communicate with the claimant or request information must be documented. Information requests must have been made by registered mail, and the RTA should confirm receipt of the request (unless the claimant cannot be contacted as noted above), and reasonable extensions of time given. The RTA must document all conversations with the claimant and all attempts to communicate with them in a memo to file (T2020 or equivalent). If information is requested but the response is inadequate, the specific deficiencies must be noted in a memo to file (T2020 or equivalent).

A somewhat different situation is where the claimant allows only partial access to information or facilities or is uncooperative during the review. In this case, if the claimant has not cut off contact with the RTA, the claimant should be informed by letter of what is required and the consequences of not doing so, specifically that they will not be able to determine that the work is SR&ED without the information requested. If the claimant remains uncooperative, the specific problems should be documented and the RTA should consult the RTM and make their determination based on the information they have available. As above, while the RTA has the right to determine what information they need and to whom they need to speak, it is essential to document the facts in order to justify the position in case of a dispute.

5.12.0 Inadequate supporting evidence

5.12.1 Inadequate supporting evidence

5.12.1.1 Requirements of the Act

Subsection 230(1) of the Act requires the claimant to maintain records and books in order to determine the amount of tax credits claimable. Therefore, in order to claim SR&ED tax credits, the claimant must maintain supporting evidence to demonstrate that their claimed work meets the definition of SR&ED in the Act. Chapter 5.6.6 has examples of typical supporting evidence the claimant can supply.

However, in some cases, there is inadequate or no evidence presented to support the claimed SR&ED work. For example, the available evidence may not demonstrate that:

• there was a systematic investigation or search (use of the scientific method);
• the SR&ED work claimed was actually done, or that it was performed in the relevant fiscal period; or
• the resources claimed (for example, hours or quantities of material consumed) were used in SR&ED.

5.12.1.2 Documenting observations

The RTA should document relevant observations concerning supporting evidence presented by claimants and requests for supporting evidence from the claimant. If there is actually no evidence presented, this should be indicated. In other cases, the RTA should document what was seen or presented as evidence and explain their decision. It is insufficient to simply state that the evidence is inadequate without providing some explanation. A clear distinction can be made between no supporting evidence, and supporting evidence presented by the claimant but not considered adequate or relevant.

If some evidence is presented by the claimant but it is not accurately described by the RTA in the file, there will be no way for other users of the file to determine the basis of the RTA’s decisions.

As indicated in Chapter 5.6.6, evidence is broader than paper documentation. The RTA cannot accept a claim that is totally unsupported by any evidence that SR&ED has taken place, even if the claimant agrees to maintain such evidence in the future.

However, it is open to the RTA’s professional judgement and interpretation to determine if the evidence provided is adequate to support the SR&ED claim.

The RTA can reject claimed evidence, but this position would need to be supported and documented. If the RTA thinks that it is not just a simple mistake or misunderstanding, refer to Chapters 5.13 and 5.14.

For example, the RTA may think that, for some evidence presented, the dates are wrong or the people claimed to have done the work did not do it. If that is so, the RTA could consider speaking to the person who wrote the document or was said to have done the work, to better establish the facts of what was done.

5.12.1.3 Format of evidence

Evidence presented by the claimant must be “in such form…as will enable taxes payable to be determined” (Section 230(1) of the ITA). This implies that it has to be properly organized or in a usable form. Examples of evidence that can be rejected by the RTA (that is, the RTA declines to review it in detail) include the following:

• a large amount of disorganized paper;
• a digital versatile disc (DVD) containing thousands of documents, only a few of which may be relevant and which cannot be identified by title or located in the DVD without searching each document; or
• documents that are not in an official language.

The RTA should make a reasonable effort to work with the information as presented by the claimant. For example, if the RTA has a third language capability or can readily access it, claimants may not need to have the information translated. However, if evidence is presented in a format which cannot be used with a reasonable effort, it can be treated the same way as inadequate evidence, and the RTA should advise the claimant to present what the RTA has requested in an organized fashion. For example, if the information is presented in a third language which the RTA cannot easily work with, the claimant will need to have the relevant documents translated. The RTA should document what they saw and explain the deficiencies to the claimant, indicating, for example, that they are unable to determine what was done based on what was presented. Under these circumstances, the RTA is not required to read or describe in detail every document or paper that is presented as evidence. A summary of the information received (for example; “3000 pages of unsorted papers from the production plant” or “a 10 Kg. box of unsorted papers”) would be adequate. If this situation arises, the RTA should consider consulting the RTM to get a second opinion on the correct approach.

5.12.1.4 Disallowing a claim due to lack of supporting evidence

If a claimant has not submitted any or adequate SR&ED records or evidence, the RTA should inform the claimant in writing that they must submit evidence to support their claimed work or otherwise their claim will be disallowed. If the needed information is not supplied despite this request, then a conclusion to disallow a claim/project due to lack of supporting evidence would have been documented. The claimant would be informed that their claim/project is unsubstantiated via the proposal package and the SR&ED review report.

When reporting a conclusion to disallow a claim due to lack of information, the RTA should be careful not to give a determination of eligibility. There is an important distinction between disallowing a claim for lack of supporting evidence and making a determination that the claim/project is ineligible.

For example, if the issue was whether some work is SR&ED, to say “the claimant has not provided information that demonstrates that the claimed work was done” is quite different than saying “the claimant has not provided information that demonstrates that the claimed work was done, therefore the work is not SR&ED.” In the first case, if the missing information is obtained later, there would be no automatic assumption of eligibility. Eligibility would still need to be determined based on the nature of the information. In the second case, if the missing information is obtained later, the work would automatically be SR&ED because eligibility had been implied and is conditional only on the submission of supporting evidence.

When an RTA concludes that a claim should be disallowed due to lack of supporting evidence, the RTA should indicate that the claimed work is unsubstantiated and that no eligibility determination is given.

A case in point is the Federal Court of Appeal decision on R I S – Christie Ltd. v. Canada, FCA Docket A-710-96, rendered on December 21, 1998.

At the Tax Court of Canada level, the judge concluded:

“(a) that research involving experimentation and testing had been undertaken resulting in a new product and a technological advance in the construction industry; but (b) that there had been “substantial shortcomings” in the taxpayer’s documentary evidence, since such evidence was incapable of making the tests in issue repeatable. As a result, the Tax Court of Canada denied the taxpayer the SRED treatment claimed by it in respect of its investment in the said project.” (Source: 1999 CCH Canadian Limited)

At the Federal Court level, the judge reversed the Tax Court decision saying that:

Once the Tax Court Judge had found that testing had taken place resulting in a technological advance, he erred in imposing the additional evidentiary burden of having to adduce documentary evidence relating to the repeatability of the testing data. Having reached the conclusion that a technological advance had taken place, there was a rebuttable inference that the testing in issue had been carried out in accordance with the SRED criteria in Regulation 2900.

Therefore, the RTA must not say that there is a technological advancement in the claimed work but that it is being disallowed for lack of supporting evidence.

5.12.2 Evidence of non-SR&ED work

The RTA should also consider the possibility that the evidence supplied may support the determination that non-SR&ED work was performed. That is, the claimant’s evidence may indicate, for example, that:

• only publicly available knowledge was used;
• there was no scientific or technological uncertainty as to the outcome;
• the work involved commercial production; or
• the work involved other excluded work described in paragraphs (e) to (k) of subsection 248(1) of the Act.

If this is the case, the RTA should provide rationale for why the documentation supports the determination that non-SR&ED work was performed.

In any case, whatever evidence is supplied, it is important that the RTA explain its significance when documenting their work.

5.12.2.1 Working with claimants: the importance of supporting evidence

Working with claimants to help them understand the importance of supporting evidence

Often disputes arise due to the difficulty of establishing that work is SR&ED because of a lack of supporting evidence. That is, in the absence of supporting evidence the RTA is unable to distinguish between SR&ED and non-SR&ED such as routine engineering or routine data collection. To deal with this effectively, it is important that the claimant understand that this is a review issue with their claim, and that the scientific process of hypothesis formulation, experimentation or testing, and the reaching of conclusions would be expected to produce documentation. The claimant also needs to know the general books and records requirement of the Act (see 5.11.1.1) and the consequences of inadequate documentation.

A number of different approaches may help the claimant provide support or improve their systems for future claims:

• Explain the concerns to the claimant and indicate that supporting evidence is needed to distinguish SR&ED from other non-SR&ED work.
• Discuss the process by which the claimant does their work, in order to identify what evidence is produced during the normal work process. Possibly the claimant produces but does not retain evidence, or does not realize that this can be evidence.
• Ask the claimant to consider what kind of records or notes they have that may help to demonstrate that a systematic search or investigation took place. Make use of the documentation tool in Appendix 2 of the T4088 – Guide to Form T661 to assist the claimant to identify some, or provide some examples based on the RTA’s industry experience.
• Demonstrate how to use SALT.

Some companies keep good documentation of their work, which makes it easy for the RTA to understand if they are performing SR&ED work. However, other companies may be less disciplined and their approaches to performing SR&ED are more informal, thus, their documentation and evidence will be less organized.

For claims from these companies, it could take more of the RTA’s time working with the claimant to see and understand their work. It may also take more time to ensure that the claimants understand how to improve their documentation.

A final determination regarding the adequacy of the supporting evidence will be made after examining the work performed, understanding the logic behind the approaches used and explanations provided by the claimant. The RTA should make an effort to understand and take into consideration the different investigative approaches that can be adopted.

Nonetheless, it is important to avoid creating the impression that providing supporting evidence will automatically mean that their work is SR&ED. If work is not SR&ED, no supporting evidence can change this fact. It is also important to remind the claimant that they are responsible for ensuring that relevant and sufficient supporting evidence is maintained to support their claim.

5.12.3 Sending “Better Books and Records” letters

If the claimant’s evidence is inadequate, the RTA should inform them and advise them to make improvements. Verbal requests are not always effective. One option to consider if the claimant is persistently ignoring CRA requests, such as advice in reports, is for them to be notified via a “better books and records” letter. This letter can be sent as soon as problems are noted, and does not necessarily need to be sent after the review is concluded. Appendix A3.1 contains a sample of a “better books and records” letter.

This letter is a written request to the claimant that lists the inadequacies and confirms the verbal request for corrective action, and is specific. If possible, it is recommended that the claimant be sent one letter that includes the concerns of both the RTA and the FR. The letter includes a reasonable deadline for implementation of the required improvements. This “better books and records letter” is signed by the RTA and the FR, if needed.

The letter also includes a letter of agreement that the claimant signs and returns, acknowledging that they will correct the inadequacies (see Appendix A.3.2). If the claimant has not returned the agreement within 30 days, the RTA must contact them to ensure that the letter was received. If it was not, a follow-up letter with another copy of the undertaking should be sent. A copy of all of these letters, including any returned undertaking, should be placed in the TF-98, and the originals should be given to the FR. The FR would then place copies in the working paper file, and the originals in the permanent document (PD) file. In some cases, a follow-up visit is recommended after a minimum of 60 days to ensure that the improvements have been implemented and that they meet the needs of the review process.

If a claimant does not comply with the CRA’s request to maintain adequate supporting evidence, the RTA will base their decision in future claims on the information available.

5.13.0 Leads to other CRA programs

A lead is information in any form that identifies potential non-compliance activities and indicates that an audit may be required. The RTA does not have a mandate to be familiar with or look for potential non-compliance activities in areas outside the SR&ED Program. However, if the RTA, incidentally to their work, identifies questionable items, inconsistencies or non-compliance outside the SR&ED Program, the RTA should inform the FR and RTM.

5.14.0 Penalties

The Act allows the CRA to assess penalties, in addition to disallowing any claimed expenditures. The FR and FRM would generally take the lead on considering and proposing penalties given that penalties do not appear in 248(1). This section is provided to RTAs for information only, so that the RTA can be aware of the circumstances under which penalties could be assessed in certain situations that arise or are incidentally noticed during the course of regular work. Refer to the Audit Manual or to the Gross Negligence Penalty Manual released in 2015 for more information about the details of obtaining necessary information and applying gross negligence penalties. The actual process of assessing a penalty would be performed by the FR, not the RTA. If the RTA thinks that a penalty may be warranted, they must first consult their RTM, the FR, and the FRM before saying anything to the claimant or taking action. The types of penalties are:

5.14.1 False statements or omissions

Refer to AP SR&ED 96-05 “Penalties under Subsection 163(2)”, in which gross negligence is discussed:

In order to consider the application of a penalty under subsection 163(2) in respect of a SR&ED claim, the claimant must have knowingly or under circumstances amounting to gross negligence, been involved in filing an overstated SR&ED claim. The Act clearly places the burden of proof on the Department for any subsection 163(2) penalty assessed by the Minister.

In situations where they believe that a significant false statement or omission has been made, the primary responsibility of the RTA is to communicate with the FR, RTM and FRM. As mentioned above, the process of assessing a penalty would be performed by the FR and the FRM. However, the RTA may be required to support the process by highlighting the false statement (if it relates to the technical review) and providing documentary evidence and facts that support the possibility of imposing a penalty.

5.14.2 Third party civil penalties

Third-party civil penalties are provided for in section 163.2 of the Act. This penalty is directed to persons, other than the claimant, who have made false statements or omissions in relation to income tax or goods and services tax/harmonized sales tax (GST/HST) matters. IC 01-1 “Third Party Civil Penalties” has more details.

5.15.0 Fraud

During the normal course of a review, it is possible that information indicating a potential fraud is brought to the attention of the RTA. If this happens, they must discuss the case with the FR, the RTM, the FRM and the AD to decide on an appropriate course of action. If appropriate, such cases can be referred to HQ Criminal Investigations by the FR.

Chapter 6.0 Documenting the Review

6.1.0 Summary of Chapter

Documenting the review process carried out by the research and technology advisor (RTA) is discussed in this Chapter. The main topics covered are:

1. Who uses the RTA’s documents;
2. Definition of working papers and supporting documentation;
3. Importance of file documentation, and the basic principles of what to document and how to document;
4. Types of working papers and supporting documentation;
5. The various ways that the RTA can document their work along with the details required for different situations, which include memos, the Short Scientific Research and Experimental Development (SR&ED) Report and the SR&ED Review Report; and
6. How to format and index the TF98 file.

6.2.0 Requirements of Chapter

Following from Chapter 1.6.0, the following requirements are outlined in this Chapter:

1. Document all relevant review work (working papers), as well as keep other relevant supporting documentation for the work;
2. Do not document irrelevant personal opinions or irrelevant information about other claimants as they are against basic principles of integrity and professionalism;
3. Prepare an SR&ED review report using the template in Appendix A.5 when it is required, or a memo if that is sufficient, explaining the review work performed and the rationale for any decisions and determinations;
4. Keep and organize working papers and supporting documentation in the TF98 file; and
5. Consult the research and technology manager (RTM) for approval of the SR&ED review report.

6.3.0 Users of the RTA’s Documents

Documentation supporting the RTA’s decisions provides relevant information to the following groups:

• Claimants. The SR&ED Review Report explains Canada Revenue Agency’s (CRA) decision on the issues. It outlines the facts relied upon by the RTA for any decisions and determinations and helps the claimant to understand the reviewer’s rationale, which should be based on facts. It may also provide guidance for improving compliance for future claims;
• Financial Reviewers. The documented decisions of the RTA are needed by the financial reviewer (FR) to complete their work. These decisions advise the FR about possible issues and clarify which elements of the claimed work are SR&ED;
• Management. The file documentation provides a record of the claimant’s compliance history and can also be used to monitor the quality of the CRA’s services;
• Taxation Centre, Control Function, and Research & Technology Officers. Information about prior years’ reviews is valuable in the risk assessment, screening and “limited review” of claims;
• Research & Technology Advisors. The documented review information and decisions provide background for future reviews or necessary educational services;
• Program Administration and Quality Assurance (QA) Division, Headquarters (HQ). The file documentation is used to determine the quality of the work with respect to the standards in this Manual.
• Appeals Division. The documentation will be used in resolving objections. It can demonstrate that the RTA has given the claimant due process, and that the review is supportable;
• Department of Justice. The documentation may be used as evidence in tax court, to determine if the Act is being followed correctly;
• The Taxpayer’s Ombudsperson. The documentation may be used to demonstrate adequate service delivery, when there are service-related complaints; and
• The Auditor General. To determine if CRA procedures are being followed, the documentation may be used in the course of an internal audit or in a follow-up to a previous internal audit.

6.4.0 Definitions / explanation of terms

Evidence:

• Supporting evidence – is anything that can be legally relied upon to bear witness to the facts of a case.
• Direct evidence – is evidence that proves a fact.
• Indirect evidence – is evidence that suggests a fact while not actually proving it.
• Documentary evidence – is evidence in the form of written material.

Documentation:

Documentation consists of written material such as judicial and other official records, contracts, deeds and less formal documentation such as letters and memos and the normal books and records:

• Contemporaneous documentation – is documentation produced during the normal course of (the claimant’s) work.
• Working papers – is documentation created by the RTA during the review process. They may be created entirely by the RTA (such as the SR&ED review report) or be other documents (such as documents from the claimant) which have been altered by the RTA with the addition of notes or comments.
• Supporting documentation – is a subset of supporting evidence. It is any document obtained from the claimant, representative, or any third party that is used in the review process to arrive at or as a rationale for the decision of the RTA.
• Original documentation – This term is not defined in the Act, so the standard English meaning is used. In the context of the CRA, an original document is the first instance of the reviewer obtaining it from whoever sent or provided it. As noted in Chapter 5.6.6 the RTA may certify copies received from the claimant and these are considered the same as true copies of the original. There are designated individuals in the CRA who can print out and certify information in electronic databases.

6.5.0 Basic Principles

The basic principle of file documentation is that all work on the file is documented.

Working papers are essential in explaining decisions, the application of legislation and the rationale for review adjustments. They provide an explanation of the nature and extent of the review work performed, and document the review techniques and procedures followed during the course of the review.

A well-documented file is vital for both the RTA and the FR. Documenting occurs at all phases of the review, including planning, conducting and closing the file. The advantages of a well-documented file include:

• strengthening the supportability of the decision by demonstrating that due process was provided to the claimant (refer to Chapter 1.5 for a discussion of due process);
• supporting review decisions;
• facilitating the review process for claims in subsequent years; and
• assisting in the efficient review of the file by management (RTM, Assistant Director (AD), Quality Assurance (QA)), Appeals, Tax Court, and the Auditor General.

In carrying out this documentation function, working papers and supporting documentation should:

• provide explanations for issues that were identified at or subsequent to the planning stage, but were resolved without any adjustments or contact with the claimant;
• describe problems encountered during the course of the review;
• provide information about items that require follow-up in any subsequent review;
• provide evidence that areas of material risk have been addressed;
• support decisions and recommendations;
• relate only to the claims under review and not to other claimants unless this is relevant. For example, working papers could include information about a related company or a contractor that has claimed the same work or expense;
• provide a summary of communications with the claimant;
• provide details of all meetings and discussions with the claimant including who attended, the issues that were discussed and how these were resolved; and
• reference the source and location of working papers and supporting documentation kept in other CRA files that are relevant to the review, but these working papers do not need to be copied and put in the TF98 file. Examples are financial documents that are kept in the audit file. It is recommended that information from any pre-claim project review (PCPR) and account executive (AE) be kept in the TF98 file. However, if separate files are maintained in the tax services office (TSO), the information does not need to be duplicated and kept in the TF98 file.

Working papers and supporting documentation should not:

• contain any irrelevant opinions, assumptions or comments about any individuals associated with the claim, criticize the claimant’s business decisions or the quality of their work. Working papers must only show information or comments that are factual, unbiased and relevant to the case at hand. If a file goes to the objection or court stage, the claimant should understand the review process and the rationale behind the RTA’s decision. It is important to remember that information contained in the TF98 file may be disclosed to the claimant in the course of a court case;
• have markings of any kind such as highlighting, underlining or check marks on any original documents submitted by the claimant, including project information and correspondence, aside from the identification and numbering noted in Chapter 6.10.0. As noted in the CRA Audit manual chapters 9.8.1 and 10.5.4, if such marks are made, the claimant may simply claim on appeal or at trial that the document in question is not the one provided to the RTA. If notations are made on a document or it is marked up in some manner, the question arises subsequently as to who made them and when. As well, highlighting of text or other material in a document often distorts or renders the highlighted part illegible in future photocopies of the document. If it is necessary to highlight certain statements, or to write comments in the margins, for purposes of discussion of a document, this must be done on a photocopy of the original and the clean copy must be filed separately with the working papers; or
• refer to documents or information not in the CRA files, as this information may not be accessible later. Information that would always be available later are exceptions to this rule and would include:
  • copies of CRA publications, such as information circulars, directives and application policies (AP), and court cases. These do not need to be in the file. It is sufficient to reference and / or quote these documents (including the version or publication date) since they will always be available for later reference
  • records in CRA-wide electronic databases, like CORTAX, Audit Information Management System (AIMS), and the SR&ED risk management tool. This exception would not apply to electronic applications restricted to the local office. It should be clear where the information has come from, however. If data from these electronic databases is later needed by someone outside of the CRA, such as for Tax Court, there are designated individuals within the CRA who can provide paper copies of this and a certification that it is a copy of electronic information contained in the database;
  • documents like standard references or dictionaries that are reasonably expected to be readily available later;
  • information in public databases like patents and court cases; and
  • claimant documents reviewed on-site but not copied or retained, provided they are not needed to support an unfavourable determination. Chapter 5.6.6 has more discussion on retaining copies of claimant’s supporting information.

Note that material not used or relevant to the review should not be kept in the file. However, all documentation provided by the claimant must be either returned or retained on file, even if considered irrelevant. Claimants may consider this relevant, and it needs to be in the file for later review.

It is recommended that any notes made during the analysis process be made on a T2020 or similar working document and be kept in the TF98 file. Relevant factual observations that might eventually contribute to the resolution of the identified issues are itemized in a working paper and kept in the TF98 file.

The RTA must not write on or alter any original documents submitted by the claimant. If a document is given on-site and the RTA wants to make notes on it, a copy should be made on the claimant’s premises and notes should be made on the copy.

6.6.0 Types of Working Papers and Supporting Documentation

This section describes the major types of working papers and supporting documentation that must be kept in the TF98 file.

6.6.1 Documents Received from the Tax Centre

Any documents received from the tax centre (TC), such as correspondence, and information from CRA electronic databases, such as the TC Risk Assessment documents, are on-line and do not have to be printed and kept in the TF98.

6.6.2 Documents Received from the Control Centre

Any documents received from the control function (CF), like risk assessment documents, do not have to be printed.

6.6.3 Review Plan

The review plan, which includes the issues identified and the scope of the review, revisions made to the review plan if any are made, and any notes explaining revisions to the plan, are kept.

6.6.4 Records of Communications

Records of conversations (including transcribed voice mail), discussions and meetings that are relevant to the decisions or work done in the file. It is recommended that the T2020 form be used as a universal log or diary for this purpose, so that any subsequent reader / user has a single source to identify events that occurred during the review. Notes may also be taken using a laptop or similar means, but these would need to be dated, printed and signed by the RTA. It is acceptable to use an electronic T2020 or equivalent during the review process. Included under this general heading are:

• Telephone conversations with claimants or their representatives;
• Meetings and or on-site visits with claimants including any proposal meetings;
• Meetings and discussions with RTMs, co-workers, Headquarters (HQ), other branches of the CRA;
• Meetings and discussions with people outside the CRA; and
• Briefings with outside consultants (OC) and team members.

Record the name of the claimant, date, time, person(s) you communicated with, other persons present (even if not involved in the discussions) and details of the conversation. The RTA should ensure that records of communications in the TF98 are legible. If the RTA’s handwriting is difficult to read, the notes should be legibly rewritten and attached to the original. Both transcribed and original documents should be dated, signed, and inserted to the TF98 file.

6.6.5 Correspondence

Copies of correspondence sent or the original correspondence received that pertains to the file. Correspondence includes the original request as well as the response. If there is no response from the claimant, that fact should be indicated in the file. Major types of correspondence include:

• All correspondence to or from the claimant or their representative;
• Meeting agendas;
• Written requests for information (refer to Chapter 5.4.1.2);
• Relevant advice or opinions from the RTM, the Assistant Director (AD), co-workers, HQ, OCs or other branches of the CRA;
• Relevant advice or opinions from outside the CRA;
• Internal emails. Paper copies of emails (ingoing and outgoing) must be made and kept in the file. Refer to Chapter 2.9.0 for CRA’s policy on communication via email; and
• Faxes. Copies of all incoming and outgoing faxes must be kept in the file. Refer to Chapter 2.9.0 for the CRA’s policy on communication via fax.

6.6.6 Documentation Related to Outside Consultants

Information produced for or by the OC, including briefing notes and correspondence with the OC, authorization letters, the OC resume and documentation obtained or produced by the OC during their contract must be retained on file.  Personal information such as their address and the details of their contracts with the CRA must not be kept in the TF98 file but in the contract file. Refer to Directive 2003-02 Managing Outside Consultants for details of this documentation.

6.6.7 Results of RTA’s Work

This includes the SR&ED review report, all versions sent to the claimant including any revisions or addendums, any notes describing how the issues were resolved and any documentation supporting the RTA’s decisions. Chapters 6.7.0 and 6.8.0 have guidelines concerning those documents.

6.6.8 Other Supporting Evidence

Included in this category are:

• Form T661, including the project information. (Note: The RTA may only have the information from CORTAX. The originals, if filed on paper, may be kept at the TC.);
• any additional information sent by the claimant or their representative or received at the site visit;
• copies of relevant books and records, invoices, etc;
• photographs (Note: This means photographs the claimant supplies. The RTA must not take photographs at a claimant’s premises due to security concerns);
• claimant authorization documents. If communications are made with any individual other than the claimant, authorization for any third-party representatives must be on file (Chapter 2.9.2 discusses authorization in more detail);
• electronic media (such as compact discs CDs, digital versatile discs (DVDs), or universal serial bus (USB) memory sticks), if provided by the claimant, although this is not encouraged due to storage and handling issues. CRA procedures for using electronic media from outside the CRA must be followed. The Electronic Document Management Policy can be consulted for more information. The RTA should consult their local information technology (IT) services in order to view the documentation and extract relevant parts, if necessary, and make paper copies. The original media would then be returned to the claimant if no longer needed;
• physical samples provided by the claimant (if relevant to the decisions), although this is not encouraged due to security, storage and handling issues; and
• information from public sources that is relevant to the decisions (for example, information from the claimant’s web site, textbooks, and magazines). Copies should be made and placed in the TF98 file. This is especially true of information taken from web sites due to their changing nature. Where the source document cannot be placed in the TF98 file in its entirety, it is sufficient to copy the relevant extract from the document, identify the source and place it in the file.

6.7.0 Documents supporting the RTA’s decisions

6.7.1 General Requirements

Documentation supporting the RTA’s decisions helps to demonstrate that due process has been given to the claimant. It also improves the supportability of decisions. Documents generated by the RTA usually include the review plan, letters to the claimant, field notes and other information written on a memo to file (T2020 or equivalent), and the SR&ED review report.

The principles discussed in Chapter 6.5.0 also apply to these documents. These other points apply more specifically to documents supporting the RTA’s decisions. This documentation must:

• reflect the fact that the review of the file was conducted according to applicable legislation, CRA policies and procedures;
• give sufficient detail and clarity as to why and how the RTA’s decisions were reached;
• address only matters within the responsibility of the RTA. While appropriate discussions of joint issues are required, memos and reports must not include any decisions concerning expenditures, which are the responsibility of the FR; and
• demonstrate that due process was given to the claimant.

6.7.2 Detail required to support the RTA’s work

The volume of supporting material and their details in the documentation depend on the scope of the technical review, the nature of the issues and the decisions. This section gives some general guidelines as to the nature of the documentation needed, depending on the review performed. The following list provides a summary of the documentation needed for four common review situations:

6.7.2.1 No technical issues, but the FR requires some assistance

When there are no remaining technical issues, but the FR requires the assistance of an RTA on some joint issues, the RTA simply should document their work (for example, if claimant is contacted) in a memo to file (T2020 or equivalent), and send a memo to the FR who requested the assistance. This also applies to the cases where the FR requests assistance subsequent to the RTA’s review. The memo is an internal document that will not be shared with the claimant. If necessary, the RTA may assist the FR with the appropriate text to include in the proposal letter.

6.7.2.2 All issues resolved in claimant’s favour, no on-site visit made

If the issues can be resolved in the claimant’s favour without an on-site visit, the RTA must, at a minimum, document the work they did, the decision and the rationale in a memo to file (T2020 or equivalent). An SR&ED review report is not required but is an option (see the end of this section). Typically, all that is needed is a brief explanation of the rationale for this decision, with an indication as to what additional information was used, and any other work undertaken (such as discussions with the RTM, another RTA or a search of the claimant’s website or other public information) to reach this decision.

Unsupported statements like “no problems seen” do not constitute adequate rationale. If an issue is resolved without further review, the RTA has essentially made a risk assessment and has concluded that there is a high probability that they would otherwise be resolved in the claimant’s favour. There is no requirement to repeat information already in the file or easily available elsewhere, but the source of the information must be indicated. If on the other hand the basis for the decision is difficult to understand, it is recommended that the information relied upon be included in the file (for example, a web or textbook reference). In simpler cases, the reasons why a claim is accepted as filed could be documented in the form of a memo to file (T2020 or equivalent). In more complex cases, the RTA can present their findings in a “Short SR&ED review report,” (discussed in chapter 6.9.2).

6.7.2.3 All issues resolved in claimant’s favour, following an on-site visit

In this situation, the RTA would document the work, the determination/ conclusion/decision, and the rationale. The work would typically be documented in an SR&ED review report. Details would be needed to describe the additional work done that involved claimant contact. This would take the form of notes of telephone conversations, letters, a discussion of the claimant’s response to their questions, observations during the on-site visit, observations concerning reviewing the books and records and so forth, depending on the specific details of the claimant contact. The RTA should take definite positions on the identified issues. It will be beneficial to the claimant if the CRA makes a definite determination of eligibility. The RTA’s determination may also assist the claimant in future compliance. Details of the work the RTA does are recorded with appropriate reference to other working papers or supporting documentation. The arguments should be presented with sufficient detail since the RTA is taking a position concerning a legislative or policy matter. The documents explain how and why the determination was reached, with reference to appropriate documentation, conversations or other working papers.

6.7.2.4 Not all issues resolved in claimant’s favour

If not all the issues can be resolved in the claimant’s favour, whether or not an on-site visit was involved, the RTA’s work must be documented primarily in the standard SR&ED review report, using the template in Appendix A.5, which is discussed in Chapter 6.8.0.

Documenting the rationale and the decisions reached by the RTA regarding the identified issues is required. The rationale must include appropriate references to the Act, other relevant information and the claimant’s supporting evidence that was used to come to this determination. Note that the detail needed in the rationale is greater because the RTA must make a case that the work or part of the work claimed does not meet the definition of SR&ED in the Act.

6.8.0 The SR&ED Review Report

Some of the discussion here is based on the course HQ1180-000 “SR&ED review report writing”. More information, including examples, is available in this course.

The SR&ED review report is the key document produced by the RTA during their review. The original SR&ED review report is kept in the TF98 file. The following are general requirements for the report. It must be:

• complete – the report must use the national report template in Appendix A.5, and contain all relevant observations, discussions, and evidence/supporting information considered to address issues in review plan;
• clear – the determinations, conclusions, and other decisions in the report must be unambiguous and the report should be well structured, use plain language, and not use jargon or inappropriate terms;
• concise – the report must be free of non-relevant information and unnecessary repetition;
• supportable – the report must provide adequate rationale for determinations of ineligible work or other decisions on issues that are not resolved in the claimant’s favour. The rationale has to be well-rooted in legislation and policies, so that the determinations, conclusions, and other decisions can be upheld in case of a notice of objection or if the case goes to litigation;
• accountable – the report must provide adequate rationale for determinations of eligible work or other decisions on issues that are resolved in the claimant’s favour; and
• issued in a timely manner, preferably within 30 days of the last on-site visit or the last information received from the claimant.

The SR&ED review report includes the following elements:

6.8.1 Identification

The purpose of this section is to:

• identify the claimant;
• identify the claim reviewers; and
• identify the claim in CRA databases.

All the items must be filled in and, to avoid errors, it is recommended that the RTA start with a fresh report template and avoid “cutting and pasting”. The wording for this section is slightly different for partnership claims (Refer to Chapter 6.9.3 and the discussion in Appendix A.6.11 for more details).

6.8.2 Summary of results by tax year

The purpose of this section is to provide a tabular summary of the results of the review for quick reference and statistical capture in AIMS. When filling in the table, ensure that the summary correctly reflects the determinations, conclusions, and other decisions made throughout the report, and that the numbers add up.

6.8.3 Review Issues

The purpose of this section is to identify each issue (or group of issues), including the project(s) it relates to. The issues are the reasons for the review, and include:

• the issues identified on the review plan;
• joint issues arising from consultation with the FR; and
• issues (if any) that arose during the review process that were not part of the original plan.

All issues identified must subsequently be addressed in the remainder of the report.

6.8.4 Review Methodology

The purpose of this section is to:

• summarize the review process, what happened during the review and the steps followed; and
• provide basic details of the review process.

It describes the work done by the RTA to resolve the identified issues. It includes the review steps and procedures, such as information requested, information received, conversations, meetings, on-site visits conducted, and questions asked.

6.8.5 Information and supporting evidence reviewed

The purpose of this section is to identify information, records, and documentation submitted with the claim, provided by the claimant or their representative during the review, or obtained elsewhere by the RTA or FR, and relevant to the determination/conclusion/decision.

The information in this section assists in the location of any material required for any other review processes, such as a review during dispute resolution, a notice of objection, or an appeal to Tax Court. Sufficient detail should be given to identify and, if necessary, locate the material for future use. Indicating that all relevant information presented by the claimant was reviewed helps to demonstrate that due process was given. The documentation listed in this section is different from the documentation generated by the RTA during the course of the review and documents published by the CRA.

In this section, the RTA should include a brief description of the information reviewed, preferably listed in chronological order. The information may be grouped as received

• prior to site visit;
• during the site visit;
• after the site visit, and
• any other information reviewed, such as:
  • scientific or technical journals;
  • textbooks; and
  • websites.

Examples of information reviewed prior to any on-site visit may be:

• Form T661 project information;
• claims from previous years;
• AE, first-time claimant advisory service (FTCAS) or PCPR information;
• Information on business context of the claimant or business environment , and
• additional information submitted by the claimant (for example, a reply to a request for information (RFI) letter from the CRA).

Appendix 2 in the T4088 – Guide to Form T661 provides guidance and examples of supporting evidence. Do not list any documentation published by the CRA, even if they were used as references. Policies are used and are relevant in the interpretation of the evidence, but they are not evidence.

6.8.6 Review observations, determinations, conclusions, and other decisions

Introduction

The purpose of this section is to provide a summary of review observations, determinations, conclusions, and other decisions using a rationale supported by facts. These review summaries must be:

• complete;
• clear;
• concise; and
• supportable/accountable.

In this section, a description of the review observations should be presented in as much detail as necessary to explain, based on facts gathered during the course of the review, how the issues were resolved. This section would also describe information the claimant presented about their work and their responses to questions. This is also the place to discuss business context, and what specific business context facts are relevant to the review. The facts that affected the review are part of the rationale.

This section should include relevant observations from the on-site visits or other meetings with the claimant. It should describe the significant issues that were discussed and how these resulted in the review determinations, conclusions, and other decisions. It may also include a discussion or analysis of claimant responses to our questions, observations or preliminary determinations.

The RTA should not repeat or paraphrase the claimant’s project information if the description is consistent with the RTA’s observations. The RTA can refer to the Form T661 project information. However, if some aspect of the information is or becomes a review issue, the RTA should reference the relevant information together with an explanation of the RTA’s determination and rationale.

The RTA’s determinations, as noted earlier, must not contain determinations, conclusions, or decisions on purely financial issues. For joint issues, factual observations, conclusions, and other decisions within the RTA’s mandate should be documented so that the FR can resolve the related financial issues.

The status of the projects/ issues reviewed at the end of the review period may be noted to assist in the review in subsequent years.

6.8.6.1 Documenting eligibility determinations

Determinations of eligibility must be documented to avoid misunderstandings or ambiguity, and to demonstrate that they are based on the Act and CRA policies.

A rationale supported by facts must be provided when making determinations. The rationale uses a combination of the facts, legislation, and policy that are cited and discussed in order to come to a determination about the work. Care should be taken when characterizing claimant’s work. Referring to elements of the work as “standard practice,” “knowledge commonly available to the industry,” “routine testing,” “routine engineering,” or making statements such as “there is no technological uncertainty” or “the work is not an advancement in a field of science or technology” without justification are considered not supportable at the notice of objection stage.

For instance, if the RTA states that that the claimed work was “standard practice”, it must be demonstrated, for example, by referring to the claimant’s previous practice or to published information.

The SR&ED review report should cite the evidence or information that led the RTA to make such statements. As noted in the eligibility policy, the RTA must take into account the context of the claimant’s business environment in order to make an eligibility determination. These explanations do not need to be long, but should be sufficient for the claimant and any other reader (such as a lawyer or judge) to understand the RTA’s rationale.

In the rationale, when using the Act and CRA policies, the RTA should use the exact words, and not paraphrase, add to, truncate, or use apparently similar expressions. That is because the meaning can be easily altered if the exact words are not used, and the RTA’s rationale may be unclear as a result.

It is expected that the rationale will make appropriate reference to the five (5) questions of the eligibility policy, but there is no requirement that each question be specifically answered for each project and written in the report. The 5 questions are used to communicate the determination to the claimant. Remember that for there to be SR&ED, all the five questions must be answered “yes”. Therefore, in principle, a single “no” is sufficient to demonstrate that there is no SR&ED. However, the rationale may be stronger or clearer if more than one question is specifically answered. There also may be circumstances where it is helpful to the claimant if several or all of the questions are specifically answered.

When presenting a rationale using the 5 questions, remember that, as described in the eligibility policy, the questions are linked and the answers are determined by considering all the information in the file for understanding the eligibility determination as a whole. Care should be taken that contradictory statements are not made. For example, if Question 1 is “no”, Question 2 must also be “no”.

If the RTA determines that some work is not SR&ED, it is helpful to think about potential weaknesses or counter-arguments to their explanations and attempt to address them in their rationale. It is often helpful to ask the RTM or a co-worker to review the report.

When there is a change in eligibility of on-going work (for example, if a project considered to be SR&ED in a previous tax year is no longer considered to meet the definition of SR&ED), the RTA should present a rationale that distinguishes the current work from the work of previous years. They should provide a rationale for their determination of when the SR&ED was finished. On the other hand, if the attempt to achieve the scientific or technological advancement is expected to continue into the next fiscal year, this should be documented in the SR&ED Review Report to guide future RTAs.

The eligibility policy indicates that determining the eligibility of work is a 2 step process. The first step is that the RTA determines if there is any SR&ED using the 5 questions. The second step is that the RTA determines the extent of SR&ED.

When there is a project where only some work is considered SR&ED, it is not sufficient to only state that “some” or an unsubstantiated percentage of a project does not meet the definition of SR&ED. Determinations based on vague or unsubstantiated statements are not supportable.

When only some work in a project is SR&ED, precise statements are needed in the second step to establish the extent of SR&ED (this concept is discussed in detail in Chapter 4.6.3), along with a rationale. Some common examples are with respect to matters such as:

• Time
  • when the SR&ED begins and ends; or
  • when the technological uncertainties were addressed and/or resolved
• Scope
  • work specifically excluded (par. 248(1) (e) to (k) of the definition)
  • work not directly in support of SR&ED;
  • whether production runs represent experimental development resulting in experimental production (ED+EP) or experimental development in conjunction or simultaneously with commercial production (ED+CP)
• Quantity
  • the amount of work commensurate (or not) with the needs of the SR&ED
• Personnel
  • which people claimed are / are not directly engaged in the SR&ED work

The following are some examples of such precision:

• “The data collected during the period (where the RTA provides specific dates or some other objective reference point) is not commensurate with the needs of the SR&ED because…”;
• “process trials after…(where the RTA provides a specific date or some other objective reference point)…were not directly in support of the SR&ED because…”; or
• “The work of…(where the RTA provides the names of employees)…was related to customer support because…”.

6.8.6.2 Documenting Unsubstantiated claims

If the issue is the lack of supporting evidence, it is not adequate to state only that “the documentation provided was insufficient.” This statement would need to be supported by, for instance, a listing of what supporting documentation or evidence was seen, what was in the information that was seen, and why this was inadequate (that is, what was missing).

6.8.6.3 Formal statements to be used in section 6 of the SR&ED review report

For each project (or group of projects), determinations/conclusions/decisions must contain a summary of work reviewed. Once all the facts and rationale have been presented in section 6 of the SR&ED review report there must be a formal statement of the determination/conclusion/decision for each evaluated project.

Although the discussions and arguments in the report may use the language of the claimant or CRA publications (such as the 5 questions of the eligibility policy), determinations must always include a formal reference with respect to the definition of SR&ED in subsection 248(1) of the Act, since that is the legal basis for the RTA’s determinations.

The standardized wording must not be altered. This section provides the standardized wording given during the RTA National Training in the course HQ 1180-000 “SR&ED review report writing”. For more information on the contents of this and all other sections of the SRR, please refer to the course material.

The standardized wording is as follows:

AW determination statement

All work (AW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

SW determination statement

Some work (SW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

The following work meets the definition of SR&ED in subsection 248(1) of the Act.

The following work does not meet the definition of SR&ED in subsection 248(1) of the Act.

NW determination statement

No work (NW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

UN conclusion statement

The claimant was unable to provide sufficient evidence to substantiate the claimed work and it is not possible to determine if the work in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act. Therefore, this work is unsubstantiated (UN).

AAF decision statement

The claimed work in project X is accepted as filed (AAF) without a review to determine if it meets the definition of SR&ED in subsection 248(1) of the Income Tax Act. The decision to AAF this project means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.

Joint technical-financial issues

Eligibility determinations with respect to subsection 248(1) are necessary but not always sufficient to summarize all of the RTA’s findings. The mandate of the RTA involves more than determining if the claimed work meets the definition of SR&ED set out in subsection 248(1). The SR&ED science review report must also have statements about compliance issues not directly related to the definition of SR&ED in subsection 248(1) of the Act. These decisions on joint technical-financial issues are necessary and relevant to the FR in making their determinations on expenditures, but do not relate directly to subsection 248(1). The RTA should provide as much detail as possible with respect to these joint issues to help the FR to identify allowable costs. This is also outlined in Chapter 4.6.3.

Below are examples of possible statements that could be the outcome of the assistance given to the FR.

Materials

The materials claimed in Project X were / were not raw materials, substances, or other items that compose the body of a thing at a given moment in the SR&ED process.

The materials claimed in Project X were / were not consumed / destroyed / rendered virtually valueless in the prosecution of SR&ED in Canada.

The materials claimed in Project X were / were not transformed in the prosecution of SR&ED in Canada, that is, the materials were / were not incorporated into other materials or products that have some value either to the claimant or to another party.

Contracts payments

The ZZZ contract claimed in Project X was / was not for SR&ED performed in Canada for or on behalf of the claimant.

ASA

Capital property YYY, claimed as an expenditure of a capital nature, was / was not intended to be used during all or substantially all (ASA) of its operating time in its expected useful life for the prosecution of SR&ED in Canada.

It was / was not intended that all or substantially all (ASA) of the value of capital property YYY, claimed as an expenditure of a capital nature, would be consumed in the prosecution of SR&ED in Canada.

To date the capital property has / has not been used during ASA of its operating time for the prosecution of SR&ED in Canada.

ASA of the value of capital property YYY has / has not been consumed in the prosecution of SR&ED in Canada.

Shared use equipment

Capital property YYY was available for use by the claimant on yyyy/mm/dd(1). Between yyyy/mm/dd(1) and yyyy/mm/dd(2), the capital property has / has not been used primarily for the prosecution of SR&ED in Canada.

Finally, determinations about whether the work on a project is SR&ED should not be extrapolated to other projects or other tax years without a reason. SR&ED is determined by the facts of the case, such as determining whether the technological advancements have been achieved for continuing projects. When projects are considered identical in terms of the procedures followed or content, they can be grouped for SR&ED review reporting purposes. This point was discussed in detail in Chapter 4.5.

6.8.6.4 What to avoid in documenting determinations

RTAs should avoid citing or quoting from court decisions and must not interpret them. The results of court decisions are already part of the basis for SR&ED policies and guidelines. The definition of SR&ED in subsection 248(1) of the Act and relevant SR&ED policies and guidelines must be used as rationale for eligibility determinations and other technical decisions. RTAs should not use vague language, as it creates doubt or ambiguity. Some examples of vague language are:

• “does not seem/appear to be eligible”;
• “the project has the potential for SR&ED but does not qualify”;
• “hours claimed are not reasonable”;
• “in my opinion”;
• “the SR&ED is not eligible”; and
• “the research is not SR&ED”.

Similarly, the RTAs should avoid using adjectives, adverbs, or comparatives, because they are not facts and do not strengthen the rationale for a determination. In addition, they could suggest that the RTA is rating or giving a value judgement of a company’s claim and this may lead to unproductive arguments. Some examples to avoid, and a possible context, are:

• extremely (little documentation);
• just (involved consultations with the suppliers);
• only (the evaluation of an existing technology); and
• merely (the application of known technology).

The RTA should not add unnecessary length to the report by quoting such things as:

• all relevant paragraphs from the Act or relevant policies, as these are well-known and easily found; or
• large sections of the claimant’s technical material; refer to the Form T661 project information if the description is consistent with the RTA’s observations or reference the relevant information together with an explanation of the RTA’s determination and rationale if some aspect of the information is at issue.

The RTA should not use judicial jargon, as it has specific and restricted legal meanings, as used by lawyers and judges. Some examples are:

• “on the balance of probabilities”;
• “beyond a reasonable doubt”;
• “the preponderance of the evidence”;
• “deemed”; and
• “without prejudice”.

6.8.7 Working with the claimants

The purpose of this section is to:

• describe how the RTA worked with the claimant and their representative to educate and help them during the review process;
• report any observations of unclaimed work that were made and discussed with the claimant; and
• summarize how the RTA supported the incentive nature of the program.

This would include all assistance provided to the claimant:

• to explain the SR&ED Program;
• to explain the review process;
• to identify SR&ED; and
• how to prepare their SR&ED claim.

It would include:

• presentations;
• explanations of the meaning of SR&ED;
• explanations of SR&ED Program services,
• demonstration of tools (like the Self-Assessment and Learning Tool (SALT));
• advice on documentation to support an SR&ED claim or project information requirements; and
• time spent explaining review results, especially determinations that work does not meet the definition of SR&ED as described in subsection 248(1) of the Act.

If any observations of unclaimed work are made and discussed with the claimant, they should be mentioned here (this subject is discussed more in Chapter 5.8.2). Any work of the type suggested in the “working with claimants” boxes in the Claim Review Manual (CRM) would also be included here.

6.8.8 Claimant concurrence

The purpose of this section is to:

• indicate that the claimant was informed of the results of the review, and if the claimant indicated that they did or did not concur with them;
• provide descriptions of any known outstanding areas of disagreement (if not reported in Section 6); and
• be a useful tool in planning reviews of subsequent years.

The RTA should indicate in this section if the claimant does not respond to queries about concurrence.

If there are any known outstanding areas of disagreement, descriptions of these specific areas of disagreement should be provided. If adequate details concerning these disagreements have already been provided in Section 6 Review observations, determinations, conclusions and other decisions, there is no need to repeat this information again. This section can refer the reader to Section 6 for further information. Regardless of which section provides this information, the report should illustrate that the claimant had [sic] opportunity to make representations. These representations should be documented along with the steps taken by the reviewer to resolve the claimant’s concerns. The reviewer’s response to the representations should be documented. Application Policy 2000-02R, Guidelines for Resolving Claimant’s SR&ED Concerns – Revision should be the guiding document in these situations.

6.8.9 Recommendations for future claims

The purpose of this section is to:

• provide an additional opportunity to clarify areas that need improvement in the original SR&ED claim;
• explain positive steps that can be taken in the future to avoid reoccurrences such as claiming work that is not SR&ED or is not substantiated; and
• have a record so that, in future years, RTA will be able to follow-up and monitor whether the claimant complies.

This is a step in CRA’s graduated approach to compliance. Other actions are possible. As indicated in detail in Chapter 5, if the claimant persistently ignores requests for supporting documents, an option is to send a better books and records letter (discussed in Appendix A.3). This letter can be sent to the claimant at any time during the review; the RTA does not need to wait until the review is complete.

The RTA should not use generic or vague statements and make sure that only pertinent recommendations are made. It is not the appropriate place for general education on the SR&ED Program or recommendations to review CRA publications. The advice needs to be specific, so that the claimant clearly understands the concern. Also, in future years, the RTA needs to be able to follow-up and monitor whether the claimant complies. If the claimant has been properly informed, the CRA can be justified in taking stronger compliance actions if the issue persists in later years.

It is preferable that any recommendations for future claims be formally indicated to the claimant in the proposal package. Nevertheless, this section provides an additional opportunity for the RTA to do so.

6.8.10 Other financial review considerations

The purpose of this section is to document any concerns about the claim believed to require the attention of the FR but which are not elsewhere indicated in the SR&ED review report. It is not intended to be a summary of other report sections, specifically the “Review observations, determinations, conclusions, and other decisions” section of the SR&ED review report.

Examples include equipment only partially used for SR&ED, use of non-taxable suppliers, separation of SR&ED and commercial/marketing work, and identification of work not in support of or commensurate with the needs of SR&ED. In most cases, issues would have been addressed, or, as a result of the coordinated review, the FR would have been aware of the issue already.

6.8.11 Signatures

The purpose of this section is to:

• confirm authorship of the SR&ED review report by the RTA; and
• confirm approval by the RTM.

The SR&ED review report must be signed by the RTA. There is also a place for the RTM to sign to indicate their approval of the report. The RTA must consult the RTM and obtain the RTM’s approval in every review. The approval of the review report by the RTM indicates that management agrees with and supports the determinations, conclusions, and decisions made by the RTA.

The RTA is responsible for the quality of their work and reports. The RTM has additional responsibility for the quality of SR&ED reviews and SR&ED review reports delivered by their work unit. The RTA must therefore comply with any quality assurance procedures at a local, regional and national level.

The review of SR&ED review reports by the RTM is a key element in ensuring quality. The RTM’s signature indicates that the review performed by the RTA and the SR&ED review report have been reviewed against the standards set out in the CRM and that they comply with the standards of the SR&ED Program.

RTAs may also have their reports reviewed by their co-workers (peer review) prior to the completion of the report. The procedures for this, if it is done, would be set by the local coordinating tax services office (CTSO).

6.9.0 Other methods to document the RTA’s work

6.9.1 Memos

A memo has no specific format, is kept in the TF98, and is not sent to the claimant. It is acceptable to use T2020 forms, an electronic T2020, or any equivalent. Memos include all information that is relevant to the particular claim and is not already captured in another document such as letters, information provided by the claimant, etc. As noted in Chapter 6.7 and throughout the CRM, a memo should be used to document the following information (this is not an exhaustive list):

• details of all communications, or attempts to communicate, with the claimant or their representative;
• details of all communications with the FR, RTM, piers, and other internal personnel;
• notes made during the analysis process;
• details of on-site visits and field notes taken;
• the determination, conclusion, or decision and the rationale;
• changes to the scope of the review;
• the work the RTA did with the claimant;
• divergence from the advice or opinion received through referrals or consultations; and
• divergence from the original review plan as they occur over the course of the review.

6.9.2 Short SR&ED review report

A short SR&ED review report may be used when all the issues are resolved in the claimant’s favour, as noted in Chapter 6.7. The SR&ED review report template as shown in Appendix A.5.1 is used, with the following modifications:

• section “2. Summary of results by tax year” – categories Aii., Aiii., and D. should not be populated;
• section “7. Working with the claimant” – this section may not be required, especially if no on-site was conducted. If this section is not required, do not remove it but state “none” or “N.A.” in the body;
• section “8. Claimant concurrence” – this section is not required as all the issues are resolved in the claimant’s favour. Do not remove this section but instead state “none” or “N.A.” in the body; and
• section “9. Recommendations for future claims” – this section may not be required, especially if no on-site was conducted. If this section is not required, do not remove it but state “none” or “N.A.” in the body.

6.9.3 SR&ED review report for a partnership

The SR&ED review report template as shown in Appendix A.5.1 is used, with the following modifications:

• section “1. Identification” – place the partnership name or the name indicated in the AIMS case in the ‘Claimant:’ section;
• section “1. Identification” – place the partnership number in the ‘Business/social insurance number (SIN) number:’ section; and
• section “10. Other financial review considerations” – if the names of the individual partners, their Business numbers/ SINs, and their percentage of ownership is known, this information can be placed in the body of this section. Note that this information is not mandatory.

6.9.4 SR&ED review report addendum

Once an SR&ED review report has been signed and released, an addendum report must be used to document subsequent events like representations. The SR&ED Review Report template as shown in Appendix A.5.1 is used, with the following modifications:

• title block – add “– Addendum” to “Scientific research and experimental development (SR&ED) Review Report in the title block;
• section “1. Identification” – select ‘Yes’ for the question “Are there any other reports issued for the same tax year end?” and state the date of the applicable report(s) after the statement “If yes, date(s) of report(s):”;
• section “2. Summary of results by tax year” – update the table as necessary; and
• sections 3 through 10 – if changes are required in the section, add the statement, “Additional to previously issued report:” and add the new information. If no changes are required, add the sentence, “No change to previously issued report.”

6.10.0 Formatting and indexing the TF98 file

When the review is concluded, the RTA should review the TF98 file to make sure that all needed information is present, and unnecessary information is either removed or sent to the appropriate location. The files must be complete, numbered, indexed and cross-referenced, following the format described here.

Complete, numbered, indexed and cross-referenced working papers are of considerable importance when the RTA’s findings are reviewed by management, QA, the appeals division, or in court. They can also facilitate answering subsequent queries from the claimant and others, and the planning of future reviews. Clear indexing and cross-referencing is very important to ensure that the evidence is readily accessible.

The need for a standard way of indexing follows a QA review of many files across the country. The required format is as follows:

1. The top page of the TF98 file must be a Table of Contents (TOC), which is a chronological list of every document in the file. Each document is identified by date and number of pages, a brief (one or two line) description, and the location in the TF98 (the pages where it is located). The location in the TF98 are the numbers mentioned in point 2.
2. Every document in the TF98 is in chronological order, and the entire file is numbered sequentially, with the first page of the oldest document being page one, and the last page being the last page of the newest document. This numbering ensures that the original order can be reconstructed, and that nothing is missing from the file, if the file is removed from the TF98 folder for any reason. Due to the physical construction of the TF98 folder, it is simplest to do this after the end of the review by the RTA, when no new documents are likely to be added to the file.
3. Each document in the file must be identified with the claimant’s name, business number, fiscal period covered (or the AIMS case number), a description of the contents, the preparer’s name, and the preparation date, if any of these are not clear from the document itself. If the document is more than one page, the identifying information is only on the first page, which also indicates the number of pages in the document. .
4. T2020s or documents with more than one entry date are placed in the file using the last entry date as the representative date for the full document.
5. Undated documents are given a date of receipt, which is the date used for filing.
6. For multi-year files, with only one review report, a copy of the report should be placed in the TF98 for each year. Other documents only need to go into the most recent year of the claim.

Cross-referencing

If documents in the TF98 reference or depend on other documents in the TF98, they should be described in enough detail so that the documents can easily be found in the TF98 file.

Chapter 7.0 Finalizing the review

7.1.0 Summary of chapter

This chapter discusses procedures for concluding the scientific research and experimental development (SR&ED) review. The main topics are:

1. content of the proposal package;
2. presenting the proposal to the claimant;
3. procedure for resolving claimant’s concerns with the proposal; and
4. concluding the review after resolving claimant’s representations.

7.2.0 Requirements of chapter

Following from Chapter 1.6.0, the minimum requirements of the research and technology advisor (RTA) outlined in this chapter are as follows:

1. assist the financial reviewer (FR) in preparing the contents of the proposal letter package by providing any needed explanation of the proposed changes with respect to eligibility and any other technical issues;
2. explain the proposed decisions with respect to eligibility or other technical issues to the claimant;
3. respond to any claimant’s concerns, rebuttal or additional information relating to the RTA’s work, as reflected in the Proposal Package;
4. consult the research and technology manager (RTM) in contentious situations; and
5. document relevant review work.

7.3.0 Proposal package contents with adjustments

Note that while joint proposals are strongly encouraged, there may be situations that warrant the issuing of a draft SR&ED review report prior to the FR’s proposal letter. An example is where the RTA completes their review well before the FR. The decision to issue a draft SR&ED review report is at the discretion of the RTA and is subject to local management preference.

While the proposal is the formal statement of Canada Revenue Agency’s (CRA) decision, the RTA and FR must have previously presented their decision, and shared their concerns to the claimant, so that there should be no complete surprises in the proposal package. However, the claimant may not have the full picture or all the details. Therefore, while discussions with the claimant likely took place throughout the review process, the proposal (and if required, the meeting) is the opportunity to draw all issues to a resolution, and to ensure that the claimant is aware of the adjustments proposed, whether or not concurrence is reached.

In certain circumstances, it may be preferable if eligibility-related issues are resolved prior to issuing the proposal letter. If agreed by all the parties including local management and in consultation with the FR, the RTA can send a draft SR&ED review report to the claimant, and the claimant’s concerns or additional representations can be addressed in advance of the proposal. The procedure for resolving these concerns and responding to additional representations is discussed in Chapter 7.6.1 and applies to large files as well.

The proposal package consists of the following:

• Proposal letter – This letter summarizes the proposed adjustments on claimed expenditures. This letter describes all the financial adjustments based on the technical and financial reviews. It also includes a summary of the RTA’s decisions on eligibility and eligibility-related issues. The proposal letter is prepared by the FR. If possible, it is preferable that it be signed jointly by the FR and the RTA. Upon request, the FR provides a copy of the proposal letter to the RTA. The claimant is normally given 30 days from the date of the proposal letter to provide any response, representation, explanation, further documentation relating to the proposed adjustments, or requests for an administrative second review. A reasonable extension of time can be allowed if such is requested by the claimant to consider the proposed adjustments and to prepare a response. It is recommended that the extension be confirmed in writing bearing in mind the possibility of periods under review becoming statute-barred.
• Paragraphs relating to the RTA’s review.
• SR&ED review report – Chapter 6.8.0 describes how to prepare the report and its contents. As discussed in Chapter 5.6.9, it is preferable if the claimant would already have a good idea of the decisions prior to the proposal letter, and in some cases may already have received a copy of the draft SR&ED review report. Note that if a draft report is issued, it must be marked “draft” and a final SR&ED review report must also be issued even if the content has not changed. Chapter 5.6.9 discusses the procedures concerning the various communications and report scenarios. It is understood that the SR&ED review report can and will be amended, if new information that is provided after the proposal gives a reason to do so.
• Recommendations or requests to the claimant – This includes specific requests or recommendations to the claimant as required, such as improving books and records, improving project information, identifying SR&ED, structuring their claim, and references to publications and seminars. When recommending improvements to project information, the RTA should use the current problems as an illustration.

7.4.0 Proposal package contents without adjustments

7.4.1 All work is SR&ED

If all issues have been resolved in the claimant’s favour, and if no financial adjustments are to be made, the claimant is informed that the file is being closed without any changes. If the RTA made an on-site visit and some issues have been discussed with the claimant, the RTA should write an SR&ED review report (discussed in Chapter 6.9.2) with an explanation of the position taken with respect to the issue (for example, that the work is SR&ED). This is because the claimant has likely spent some time explaining and justifying their position to the CRA, and this would provide some assurance and guidance for them in future claims.

7.4.2 Work is SR&ED but there are technical-financial issues

Even if all the scientific issues have been resolved in the claimant’s favour, some financial adjustments may be proposed after the financial review. In this case, the FR will issue a proposal letter describing the proposed financial adjustments. The work done by the RTA may be documented the same way as described in Chapter 7.4.1 by means of an SR&ED review report (discussed in Chapter 6.9.2). If needed, the RTA could provide some input to the FR’s proposal letter where helpful advice to the claimant for future claims could be given.

7.5.0 Presentation of the proposal

The specific details of this process depend on whether the proposal is presented jointly by the FR and the RTA or whether the financial and technical parts are discussed separately. However, the principles remain the same.

It is recommended that the proposal be presented jointly. To do this, the RTA and the FR have these options:

• Present the proposal package to the claimant during a meeting held specifically to explain the proposed adjustments;
• Discuss it over the phone; or
• Send it to the claimant and discuss it afterwards, if requested by the claimant.

The presentation of the proposal is not intended to be a meeting to rebut the CRA’s position. It is intended to provide the claimant details of the rationale for the decisions and thus allow them to prepare a rebuttal or additional representation, if they intend to.

Sometimes it is easier to explain or discuss the adjustments in a meeting rather than over the phone or through written correspondence. However, if a meeting is suggested and the claimant indicates that it is not necessary, this should be documented in the file.

Whatever the method, the claimant must receive a full explanation of the proposed adjustments and must be given adequate opportunity to respond to them. The FR would explain the financial adjustments and the RTA would explain how the eligibility and other technical issues were resolved.

7.6.0 Representations after the proposal letter

7.6.1 Procedure for the CRA’s response to claimant

Note: these same principles apply if a draft SR&ED Review Report is sent to the claimant and the RTA responds to the representation prior to the proposal. If the claimant agrees with the proposal, or there is no written response to the proposal within the 30 days allowed, the FR processes the (re) assessment. Otherwise, the RTA must follow the following procedure:

1. If the claimant does not agree with the proposal, they must send their representations to the CRA in writing. If they do not reply in writing, they must be informed to do so prior to any additional meetings or responses and prior to the end of the 30-day deadline. Examples of claimant requests and representations are as follows:

a. Requests for additional explanation (the claimant did not understand our rationale);
b. New arguments that identify what the claimant perceives as specific flaws or errors in the CRA’s work;
c. Additional information in support of the claim, which the claimant hopes will result in a changed decision; and
d. A request for an administrative second review (following the procedures of Application Policy SR&ED 2000-02R Guidelines for Resolving Claimant’s SR&ED Concerns). If the claimant had already made this request prior to the proposal, the CRA would have already responded to it. Note that, in accordance with Application Policy SR&ED 2000-02R, the claimant is entitled to request for an Administrative Second Review anytime before the file is closed and processed.

2. When received, respond to representations and/ or submissions from the claimant. A detailed response is necessary only if the submission is relevant to the review issues and decisions. If the submission is not relevant, acknowledge its receipt and give the claimant a brief explanation of why the decision remains unchanged. Examples of non-relevant claimant submissions or representations include:

a. No new information or arguments are submitted by the claimant or the claimant resends information previously reviewed by the RTA;
b. Request for a meeting made, but with no new information given in writing;
c. Statements that only indicate a disagreement with the CRA, a general criticism of the CRA’s work with no specific flaws or errors indicated, but with no specific question or request for clarification;
d. Statements indicating a disagreement with the CRA’s policy or the CRA’s official interpretation of the legislation. However, if the claimant does agree with the CRA’s policy and thinks that the RTA’s position differs from this, the submission would be relevant; and
e. Criticisms or comments that the CRA has already responded to.

3. The CRA’s response must address all the relevant issues raised by the claimant and explain why the CRA agrees or disagrees. It is not sufficient for the RTA to simply state that the CRA does not agree. The response should, to the extent possible, provide further explanation of the RTA’s decision, explain why the additional information did not change the decision, or indicate that the RTA has changed the decision as a result. The RTA can offer to meet with the claimant to present and explain the technical review results and then require the claimant to respond within a certain period.

4. If any of the representations change CRA’s decision, the changes are reflected in the final letter and the attachments, including the SR&ED review report addendum (discussed in chapter 6.9.4), which will be sent to the claimant.

5. If the claimant supplies further representation following the initial CRA response, follow the procedure described previously. For as long as the representations are relevant and reasonable, the RTA should accommodate the representations made by the claimant. However, when it is clear that no progress is being made or that the claimant is delaying the process by:

a. not giving all of the requested information at once,
b. requesting without reason additional time beyond the 30 days given to respond to the Proposal Letter,
c. requesting meetings without providing any additional information, or
d. being unwilling to meet to discuss the issues they raised,

then the RTA can give a final response to the claimant based on the information available. Before concluding that the claimant is delaying the process unreasonably, the RTA should inform the FR and the RTM of their intentions. If the FR and RTM agree with the RTA’s decision, then the RTA proceeds to inform the claimant of this decision, either by phone or letter, and the (re) assessment can be processed without delay.

6. Following the CRA’s response to the claimant’s representations, the (re) assessment can be processed by the FR according to the proposal (Refer to Chapter 7.9.0).

7.6.2 Documentation

The RTA should document all relevant discussions and meetings concerning the proposal or the representations, and add this documentation to the file. The documentation should include the date, place and time of meeting, persons present, details of proposed adjustments and the claimant’s representations and position on the proposed changes.

7.7.0 Statute-barred dates and waivers

If a tax year for which adjustments are proposed will become statute-barred shortly after the 30-day response period, the proposal letter must state that no extension of the 30-day period for representations will be provided without a signed waiver having been received prior to that time. If the claimant refuses to sign a waiver, the file will be processed without delay at the end of the representation period.

Where adjustments are being considered but the file will become statute-barred before the expiry of the 30-day representation period, the FR in consultation with the RTA should decide either to drop the proposed adjustment or to provide a representation period of less than 30 days. Caution should be exercised where representations are requested in less than 30 days. The adjustment should be considered material and approval should be obtained from the assistant director (AD) of SR&ED.

To avoid such situations, determine the status of the file when it is received from the control function (CF) and before commencing on the review. Files close to the statute-barred date may need to be reviewed with a higher priority. If in doubt, the RTA should discuss with the RTM and the FR on how to proceed.

7.8.0 Concluding the review for the RTA

After the period of response to the proposal is over and the RTA has made the final decisions, the FR processes the (re) assessment based on the work of both the RTA and the FR. The RTA can then complete the TF98 file discussed in Chapter 6.10.0). Local Coordinating Tax Services Office (CTSO) administrative procedures determine what is done afterwards.

Chapter 8.0 Glossary

Glossary Term	Term Explanation
Audit Manual	The Canada Revenue Agency's (CRA) guide for conducting audits.
Business Consent form (RC59)	A form used by taxpayers to consent to the release of confidential information about the claimant's Business Number (BN) account(s) to the representative named on the consent form or to cancel consent for an existing representative.
Business Number System	A CRA mainframe system to access claimant information like addresses and authorizations.
Claimant Representative	An individual or firm who is legally authorized to represent the claimant. Often they assist the claimant in preparing their Scientific Research and Experimental Development (SR&ED) claim and in dealing with the CRA.
Claimant	A person, partnership, or corporation filing an SR&ED claim. In the claim review manual (CRM) this is used when we refer only to those filing an SR&ED claim.
Control Function	The function in each Coordinating Tax Services Office (CTSO) that reviews SR&ED files referred from the tax centre (TC).
Coordinated Review	A review where the Research and Technology Advisor (RTA) and the Financial Reviewer (FR) work together cooperatively to review an SR&ED claim.
CORTAX	The CRA Corporate Tax Assessing system. It is an information system for accessing T2 (corporation) tax information.
CTSO	A Tax Services Office (TSO) that has some extra administrative responsibilities in the SR&ED Program, usually for one or more other TSOs in a region. There are 10 CTSOs for the SR&ED Program.
Decision / Determination	In the context of the CRM, the RTA makes a determination of whether work does or does not meet the definition of SR&ED in the Income Tax Act (ITA). RTAs may make other decisions that don't directly relate to the definition of SR&ED.
Eligible work	Work that meets the definition of SR&ED in subsection 248(1) of the ITA.
Financial Review	A review of an SR&ED claim by an FR to identify SR&ED expenditures.
Issue	A matter or question whose outcome needs to be determined or answered.
Memo to File	A memo, not addressed to a particular person, that is put in the file.
NOO	Notice of objection. A formal disagreement filed by the claimant in response to a Notice of Assessment / Reassessment.
Notice of Assessment / Notice of Reassessment	The latest assessment of tax for the year filed. The notice is mailed to the taxpayer and provides the taxpayer with the outcome of any review or audit affecting a tax return filed or simply acknowledges that a tax filing that has been accepted as filed.
Outside Consultant	A person hired by the CRA to provide an opinion to the Research and Technology Advisor.
Process review (for CRA internal use only)	An alternate review technique that focuses on the claimant's process for identifying their SR&ED work (that is, their policies, procedures, organization and systems), rather than on individual projects.
RAPID	The CRA tax assessment information system for accessing non-T2 tax information.
Relevant	Anything supporting a claim or anything used to arrive at a decision.
Resolve	To resolve an issue in the context of the CRM means that the RTA has to make a decision on the outcome of the issue.
Statute barred	The normal reassessment period for a taxpayer is defined in section 152(3.1) of the ITA. Reassessments are "statute barred" (that is, not legally allowed) beyond this period. Some exceptions apply.
Taxpayer	Defined in the ITA as "any person whether or not liable to pay tax". This term is used when the CRM refers to taxpayers in general, not just SR&ED claimants.
Technical review	An examination of an SR&ED claim by a Research and Technology Advisor.
T2020	The form which is used as a general-purpose log or diary by all CRA staff to record all conversations, decisions and actions concerning the file.
TD1170-000	The on-line training course for the SR&ED Program Staff.
TF98 file	A file folder for keeping all the information related to the Technical review.
Waiver	The act of a taxpayer who formally gives up certain rights under the ITA. It usually applies either to the right to the normal reassessment period or the right to appeal.

Chapter 9.0 Appendices

Appendix A

Appendix A.1: Request for information letter: Sample

Date

Coordinating Tax Services Office (CTSO) Address
Name and title of person
Company name and address

Dear Claimant:

Re: SR&ED Claim for the period(s) [insert period, yyyy-mm-dd to yyyy-mm-dd]
Business Number (BN):

As part of the administration of the Scientific Research and Experimental Development (SR&ED) Program by the Canada Revenue Agency (CRA), all SR&ED claims are subject to an initial technical and financial review when filed. During this initial review, we reviewed your project descriptions, but there was insufficient information available for us to answer all our questions concerning the claim.

Specifically, we have the following questions:

For Project A,

For Project B,

For Project C,

In order to facilitate the review, we request that you send us this information by [insert date]. After this information is reviewed, if it is not sufficient to complete the review, we may need an on-site visit to discuss the work further and resolve remaining questions.

The CRA launched the Electronic Transfer of Accounting Data (ETAD) application on April 16th, 2012. ETAD is a vehicle that allows taxpayers to transfer electronic books and records and other supporting information to CRA reviewers securely during the course of the SR&ED claim review. Access to ETAD is through the My Business Account Portal and requires prior registration.

The following link leads to a publication that will advise taxpayers on how to register for My Business Account portal.

http://www.cra-arc.gc.ca/E/pub/tg/rc345/

More information about the SR&ED Program can also be obtained by visiting our SR&ED website.

If you need further clarification, or if you have any questions, please contact [insert Financial Reviewer (FR) name and FR telephone number] or me at [insert your telephone number].

[Insert Name of Research and Technology Advisor (RTA) and insert name of FR if a joint letter]
Research and Technology Advisor/ Financial Reviewer
SR&ED Division

[Insert name of your CTSO]
Enclosures

Appendix A.2: Initial claimant contact letter: Sample

Date

CTSO Address
Name and title of person
Company name and address

Dear Claimant:

Re: SR&ED Claim for the period(s) [insert period here, yyyy-mm-dd to yyyy-mm-dd]

Business number (BN):

As part of the administration of the Scientific Research and Experimental Development (SR&ED) Program by the Canada Revenue Agency (CRA), all SR&ED claims are subject to an initial technical and financial review when filed. During this initial review, it was determined that the above claim requires a more detailed review.

The detailed review will be conducted by a Research and Technology Advisor who will evaluate the work claimed to determine whether it meets the requirements of the Income Tax Act, and a Financial Reviewer who will determine whether the related expenditures are allowable.

As we discussed on [insert month, day, year], the Financial Reviewer, [insert FR name], and I will be visiting your place of business on [insert time, month, day, year] to conduct the detailed review. The proposed agenda is attached. [The agenda identifies the specific review issues to be discussed from the Review Plan, including the specific projects the issues relate to.] As I indicated to you, you should plan that the meeting would be from [insert start and end times], but it could end earlier. It is possible that this will not be enough time. If additional time is needed, we would arrange a subsequent meeting later.

During the meeting, we will need to review the supporting information for your SR&ED claims, specifically [insert a list of information needed].

During the meeting, we will be asking some questions to help determine whether the work claimed is SR&ED and the expenditures are allowable. In addition to questions that may arise during these discussions, please be prepared to respond to, and provide supporting documentation for, the following issues. [Insert a list of specific issues]. Our discussions during the review may possibly expand to include other issues or we may request documentation related to issues not on this list.

To facilitate the review, the people most familiar with the work done should attend the meeting. An information sheet about the claim review procedures, your rights and responsibilities is enclosed. Two useful links are as follows:

Taxpayer Bill of Rights and Guidelines for resolving claimants’ SR&ED concerns.

If you would like a paper copy of any of these documents or if you have any questions, please contact [insert FR name and FR telephone number] or me at [insert your telephone number].

Sincerely yours,

[Insert Name of RTA and insert name of FR if a joint letter]

Research and Technology Advisor / Financial Reviewer

SR&ED Division

[Insert name of your CTSO]

Appendix A.3: Samples of better books and records letters

3.1 Better books and records letter

Date

CTSO Address

Name and title of person
Claimant name and address

Dear Claimant:

Re: SR&ED Claim for the period(s) [insert period here, yyyy-mm-dd to yyyy-mm-dd]

BN/Social Insurance Number (SIN):

During our recent review of your SR&ED claim for the period from [insert date] to [insert date] we determined that your records are not adequate for purposes of the Income Tax Act.

[Insert description of the specific deficiencies and what we require them to do in the future, such as how long to keep the documents.]

Copies of [insert appropriate documents, if required] are enclosed for your reference.

We trust this information and these explanations clearly outline the Canada Revenue Agency’s requirements on this matter and that you understand the importance of keeping documents that support the SR&ED expenditure and tax credit claim. If you do not keep this documentation, future SR&ED expenditures and tax credits may be disallowed.

To show that you will comply with this request, please sign and date the enclosed agreement and return it to our office within 30 days. A copy of Information Circular 78-10R4, Books and Records Retention/Destruction and a return envelope is enclosed for your convenience. If you require further assistance, please call me at the number listed below.

Yours truly,

RTA Name, FR Name or both]
SR&ED Division
Name of TSO
Telephone: [Insert local Phone Number]
Facsimile: [Insert local Fax Number]

Address: [Insert TSO Address]

Internet: www.cra.gc.ca
Enclosures

3.2 Better books and records agreement

Assistant Director Name
Name and Address of Tax Services Office

Attention: [insert reviewer name])

Re:

Name of claimant
BN/SIN:

Address
City/Town, Province Postal Code
Postal Code

In addition to the books and records I currently maintain, I will also keep the following records to comply with the requirements of the Income Tax Act in order to claim SR&ED Tax Credits:

[Insert books and records required]

I understand that I have to keep all the records and supporting documents for the time periods specified in Information Circular 78-10R4, Books and Records Retention/Destruction, and that I have received a copy of this information circular.

Name and title:

Signature:

Date:

Appendix A.4: Standard review plan: Sample

1. Identification Section

ABC Inc.

Taxation Year End (TYE): 05-31-2009

BN: 55555 5555 RC0001

2. Technical and joint technical-financial Issues

Identify technical and joint technical-financial issues with the associated project(s), including issues previously identified by the Control Function and in the tax centre (TC)’s screening.

Issue 1:

Issue 2:

3. Suggested Scope of the Review

Outline suggested scope of review if not all the projects / issues will be reviewed in detail. Explain the rationale for the scoping.

Project / Issue 1:

Project / Issue 2:

4. Plan and Steps to Resolve the Issues

Outline plans and steps to resolve the above issues, such as a list of questions to ask, information to look at, details concerning an on-site visit, consultation, etc.

Project / Issue 1:

Project / Issue 2:

5. RTM (or Delegate) approval – Signature & Date (if needed)

Appendix A.5: SR&ED review reports

5.1 SR&ED review report

Note: This appendix presents only the information that needs to be included in the SR&ED review report.

Scientific research and experimental development (SR&ED) review report

1. Identification

Claimant: [corporation’s or individual’s name]

Business/SIN number:

Claimant’s TSO: [No & Name] [For example: 99 – Headquarters]

Address:

Contact:

Telephone:

Research & Technology Advisor (RTA):

Telephone:

Financial Reviewer (FR):

Telephone:

Tax Year(s) End: [yyyy/mm/dd]

SR&ED Expenditures: [Line 400 of Form T661]

AIMS Case #:

Case selection reason:

Are there any other reports issued for the same tax year end? [Yes or No]

If yes, date(s) of report(s): [yyyy/mm/dd]

Note:
This report presents the determinations of the Canada Revenue Agency (CRA) concerning whether any claimed work meets the definition of SR&ED in subsection 248(1) of the Income Tax Act, and other decisions on joint technical-financial compliance issues not directly related to the definition of SR&ED in subsection 248(1) of the Act. The decision of whether an expenditure is for SR&ED is determined by the FR based on the determinations of the RTA as well as other requirements of the Act.

2. Summary if results by tax year

Tax Year: [Yr1] [Yr2]

Number of projects in this claim (X = A+B+C+D):

A. Number of projects where all reviewed work received an eligibility determination (A = i+ii+iii).

i. Number of projects where all reviewed work meets the definition of SR&ED ( AW ). Includes projects where the reviewed work is AW and the remainder is accepted as filed (AAF).
ii. Number of projects where some reviewed work meets the definition of SR&ED and some reviewed work does not meet the definition of SR&ED ( SW ). Includes projects where the reviewed work is SW and the remainder is AAF.
iii. Number of projects where no claimed work meets the definition of SR&ED ( NW ).

B. Number of projects where all claimed work cannot be substantiated. It is not possible to determine if the claimed work meets the definition of SR&ED, therefore the conclusion is unsubstantiated ( UN ).

C. Number of projects where all claimed work is accepted as filed without a review to determine if the claimed work meets the definition of SR&ED ( AAF ). The decision to AAF these projects means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.

D. Number of projects where claimed work received a combination of determinations/conclusions/decisions, and are not listed under A, B, or C.

Were any decisions made on other joint technical-financial issues not directly related to the definition of SR&ED in subsection 248(1) of the Act? [Yes or No]

3. Review issues

4. Review methodology

5. Information and supporting evidence reviewed

6. Review observations, determinations, conclusions, and other decisions

7. Working with the claimant

8. Claimant concurrence

9. Recommendations for future claims

10. Other financial review considerations

11. Signatures

Signed by:
Date: [yyyy/mm/dd]
[Print the name of the Research & Technology Advisor]:
Research & Technology Advisor

Approved by:
Date: [yyyy/mm/dd]
[Print the name of the Research & Technology Manager]:
Research & Technology Manager

5.2 SR&ED Review Report template-explanation of summary table

This appendix explains how to categorize the review results in the “Summary of results by tax year” table and explains each row in the SR&ED Review Report (SRR) template.

a. Revised SRR template table

Summary of results by tax year

Tax Year: [Yr1] [Yr2]

Number of projects in this claim (X = A+B+C+D):

A. Number of projects where all reviewed work received an eligibility determination (A = i+ii+iii).

i. Number of projects where all reviewed work meets the definition of SR&ED ( AW ). Includes projects where the reviewed work is AW and the remainder is AAF.
ii. Number of projects where some reviewed work meets the definition of SR&ED and some reviewed work does not meet the definition of SR&ED ( SW ). Includes projects where the reviewed work is SW and the remainder is AAF.
iii. Number of projects where no claimed work meets the definition of SR&ED ( NW ).

B. Number of projects where all claimed work cannot be substantiated. It is not possible to determine if the claimed work meets the definition of SR&ED, therefore the conclusion is unsubstantiated ( UN ).

C. Number of projects where all claimed work is accepted as filed without a review to determine if the claimed work meets the definition of SR&ED ( AAF ). The decision to AAF these projects means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.

D. Number of projects where claimed work received a combination of determinations/conclusions/decisions, and are not listed under A, B, or C

Were any decisions made on other joint technical-financial issues not directly related to the definition of SR&ED in subsection 248(1) of the Act? [Yes or No]

b. Explanation of each row of the revised table

Summary of results by tax year:
Explanation:

Tax Year [Yr1] [Yr2]:

• Replace [Yr 1] with the fiscal year of the claim.
• For example, replace [Yr 1] with 2008 and [Yr 2] with 2009.

Number of projects in this claim (X = A+B+C+D):

• This number represents the total number of projects claimed.
• This number is the same as the number found on line 050 of the T661.

A. Number of projects where all reviewed work received an eligibility determination (A = i+ii+iii).

• This number represents the total number of projects where work was reviewed and the result was an eligibility determination.
• This number is equal to the sum of the values of i, ii, and iii.

i. Number of projects where all reviewed work meets the definition of SR&ED ( AW ). Includes projects where the reviewed work is AW and the remainder is AAF.

• Enter the number of projects whose review results meet the description in category A-i.

ii. Number of projects where some reviewed work meets the definition of SR&ED and some reviewed work does not meet the definition of SR&ED ( SW ). Includes projects where the reviewed work is SW and the remainder is AAF.

• Enter the number of projects whose review results meet the description in category A-ii.

iii. Number of projects where no claimed work meets the definition of SR&ED ( NW ).

• Enter the number of projects whose review results meet the description in category A-iii.

B. Number of projects where all claimed work cannot be substantiated. It is not possible to determine if the claimed work meets the definition of SR&ED, therefore the conclusion is unsubstantiated ( UN ).

• Enter the number of projects whose review results meet the description in category B.

C. Number of projects where all claimed work is accepted as filed without a review to determine if the claimed work meets the definition of SR&ED ( AAF ). The decision to AAF these projects means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.

• Enter the number of projects whose review results meet the description in category C.

D. Number of projects where claimed work received a combination of determinations/conclusions/decisions, and are not listed under A, B, or C.

• Enter the number of projects whose review results meet the description in category D.

Were any decisions made on other joint technical-financial issues not directly related to the definition of SR&ED in subsection 248(1) of the Act? [Yes or No]

• If decisions were made on other joint technical-financial issues select yes in the column of the respective fiscal year, otherwise select no.

Appendix A.6: Special situations

6.1 Files with previous or outstanding notices of objection

As discussed in Chapter 2, claimants have a right to file an Notice of Objection (NOO) if they disagree with their assessments. This means that RTAs may find themselves with claims where prior year reviews have been subsequently reviewed or are being reviewed by the Appeals Division. Additionally, claimants can take their objections to the Tax Court of Canada.

While the RTA is normally not involved in the review by Appeals unless new information is submitted, it is important to know if there are any prior year claims currently in Appeals and the outcome of any completed appeals.

1. Identifying appeals files with notices of objection

For completed objections with a technical issue, copies of the decisions are sent to the Assistant Director (AD) of the local CTSO from Headquarters (HQ), Stakeholder Relations Division. Copies of these decisions should be placed in the applicable TF98 file by the CTSO. For files currently under objection, there are two means of identifying them from the CRA information systems. First, all active objections have a notional RAP [N] in CORTAX showing for the year under objection. The second indicator is in the file charge-out system. The file would be charged out to Appeals. If the RTA does not have access to these systems, the RTM or FR or control centre (CC) could help.

If the RTA finds out that either indicator is in CORTAX, they could then contact Appeals to see if the objection was related to SR&ED and whether the decision might affect the year under review.

Sometimes appeals can inform the RTA when a decision on the active objection can be expected. Whether the decision is imminent or not could affect how the RTA proceeds with the review.

Normally, the T2 file will include the NOO and all of the Appeals reports. An exception occurs when Appeals anticipates a Court challenge by the claimant and keeps their package until the issue is settled.

2. Basic principles

There are a few basic principles to consider when objections or court cases are involved:

• It is recommended that the current year review not be delayed as a result of the objection, unless requested by the claimant;
• Objections may result in additional information becoming available. This information should be considered during the “regular” review; and
• Any deficiencies with respect to defensibility or due process noted during past Appeals reviews should be corrected by the RTA.

When the RTA knows of an outstanding or prior objection that relates to a previous technical decision, this should be taken into consideration in conducting the review for the current year’s claim. The RTA should consult the RTM as well as the FR in order to determine the best review strategy. Delays may need to be added to Audit Information Management System (AIMS).

It is CRA policy that reviewers, whether financial or technical, must not try to interfere with the Appeals process, for example, to attempt to settle the issue for the Appeals Division, or to try to influence the decision of the Appeals reviewer. However, it is acceptable to contact Appeals in matters relating to the facts. It may be beneficial to inform Appeals of the outcome of the current year’s claim review as it may make it easier for them to resolve outstanding objections.

3. Completed objections

There are two basic situations:

• The prior years’ objections have been resolved, and the Appeals review supported the original decision. If this is the case, the RTA can proceed with the review without any special considerations.
• The prior year objections have been resolved, but the Appeals review does not completely support the original decision, and the issues / projects continue into subsequent years. In this situation, the RTA should note why the original decision was not supported, and in subsequent reviews correct the weaknesses noted by the Appeals review.

If the RTA thinks that certain factors distinguish the current issues / projects from the prior Appeals review, the reasons should be documented and approved by the RTM before the review is concluded. If a decision contrary to Appeals is maintained, the reasons for the disagreement should be documented and supported by clear rationale.

If the CTSO accepts the claim in the current year as filed, this does not bind them to accept the claim in subsequent years as there is no decision on eligibility and each year’s claim is reviewed on its own merits. The letters sent to the claimant must make these points clear.

4. Active objections

a. Objections for a prior year:

Depending on the nature of the issues under objection, one of the following three options may apply:

• If no issues or projects relate to the objection, the review can proceed normally.
• If some issues or projects relate to the objection, the claimant should be given these two options:
  • Delaying the entire review until the Appeals decision(s) are available. The RTA would inform the claimant of the estimated delays (as informed by Appeals) and how the prior year objection and issue(s) affects the current year claim. In this case, a delay would be added in Audit Information Management System (AIMS).
  • Review the issues and projects not affected by the objection and treat the affected issues the way they were earlier treated by the RTA. The claimant would be informed that after the assessment they could then file an objection for the disputed work.

If the claimant provided additional information to the Appeals Division that was not provided during the “regular” review, the Appeals Division sends it to the RTA who can consider whether they can change their original decision (resolve the issues in the claimant’s favour) on the basis of this new information. If this can be done, then the RTA with Appeals and the RTM can determine whether to proceed with the review. If a review is performed, the RTA must inform Appeals of the results; this may affect the results for the previous year.

b. Objections for the current year:

It is possible that there can be an outstanding objection for a current year claim. That is, a claim could be assessed, an objection filed, and the claimant later filed a requested adjustment for the same year within 18 months of the tax year end. In other words, there is an objection and an outstanding file for the same year. As for a prior year objection, normally the Appeals Branch would arrange contact with the RTA via the local AD, and the RTA must follow the instructions of the local Appeals Officer. The claimant must be informed that if they do not want to wait until the objection is resolved before the revised claim is processed, the reassessment for that year would cancel the objection, and a new objection would need to be made. These considerations apply:

• The additional work claimed relates to the issues and / or projects under objection and the previous objection can be accepted on the strength of the new information. Consider the relevance of any new information supplied that could relate to the previous objection. If the RTA can accept the additional work as filed, the Appeals Officer must be notified.
• The additional work claimed does not relate to the previous objection. The review can proceed normally, taking into consideration the administrative matters with the objection that are noted above.

5. RTA’s involvement with active objections

In some circumstances, the RTA may be directly involved with outstanding objections.

Appeals may request that the year under objection be reviewed with the current year claim. Therefore, the RTA may be involved in the review of a file with an outstanding objection for a prior year. Such work is only done on request and under the direction of the Appeals Branch. Normally the Appeals Branch arranges the review via the local AD. The RTA must follow the instructions of the local Appeals Officer if this happens. This is possible when:

• A determination on the work has not been previously given, as the claim was disallowed as incomplete or for lack of information. Thus, the RTA’s review essentially constitutes a first review. If the review by the RTA is unfavourable, Appeals will do another review without further involvement of the TSO or RTA; or
• Appeals requests that the RTA review additional information received with the objection, with a view to determine whether they can accept the objection on the strength of the new information. If a favourable determination cannot be given, Appeals will then give the claim a second review; or
• There is an objection for a current year claim.

6. Court cases

If the original decision by the RTA is appealed to the Tax Court and the original review is not supported by the court, subsequent reviews must correct the weaknesses of the original review. The RTA must discuss this with the RTM. In some cases, the result of the court decision may set a precedent and requires a change to the CRA administrative policy or interpretation of the legislation. If this happens, the RTA will receive instructions from management, and future reviews concerning this issue must be done according to the new policy.

6.2 Bankruptcies, company shut down, or facility sold

In situations such as bankruptcies, company shut down, or facility being sold it may be difficult to obtain required information. A physical facility may no longer exist and personnel may no longer be available. Former R&D personnel may not be available to provide information. In the case of bankruptcy, the records and equipment may have been seized or dispersed. If the records and equipment still exist, it may be possible to arrange an inspection via the trustees or the new owners. In this situation, while the evidence may be limited, the onus is still on the claimant to support their position to the best of their ability. The RTA must rely on the available evidence and make an appropriate determination using professional judgement. On the other hand, sometimes if the facility is sold the work could continue under a new organization, so that a company bankruptcy does not necessarily mean that work on the project has ended. If it has ended, that is a factor in evaluating risk.

6.3 Out-of-country equipment, records or personnel

Sometimes the claimant is a multinational company and relevant records or personnel are outside of Canada. In other cases, the facility is sold and the operations are moved out of Canada. The claimant’s obligation to support their claim is not diminished by a move outside of the country, and the CRA is usually not obligated to pay for travel outside of the country (even though some exceptions exist). In such a case, the claimant has the option of bringing their books and records, and / or personnel to Canada, or the option of paying the CRA for any required travel to perform the review. Out-of-country travel is subject to certain administrative approval procedures or requirements, and if this is contemplated, it must be discussed with and approved by the RTM and then by the AD.

6.4 No existing physical facility

Sometimes a physical facility does not exist or never existed. This can be the case with a small one-person operation, where the majority of the work was subcontracted or where the majority of the work was software development. The review will only consist of the inspection of books, records and supporting evidence, and interview(s) with the claimant. There may be no real benefit to visiting the place of business. In this situation, arrangements for the review can be made at an alternative location, including the CRA’s premises.

In this context when the work claimed by one party was done under contract for them by another party, such as a contract for SR&ED, or claimed as overhead under the traditional method, or is a third-party payment, the RTA is allowed under the Act to speak to the contractor, the contractor’s technical staff, or whatever organization is performing the claimed SR&ED. However, the onus is on the claimant to obtain needed information on work done on their behalf.

6.5 Remote claimant location

In some situations, the claimant’s facility may be difficult and expensive to access, or for security and / or health concerns, it may be difficult to visit. In these situations, alternate means of resolving the issues can be arranged. For example, the claimant could bring books and records to the CRA’s premises or another location, or send videos or photos. It also may be possible to arrange a videoconference in one of the CRA videoconferencing or teleconferencing facilities.

6.6 Separation of head office from R&D site

This may be the organizational structure of the company. Therefore, it may be possible to inspect the supporting evidence and talk to the necessary individuals without actually visiting the R&D site.

6.7 Borrowing claimant’s records

It may be necessary to borrow the claimant’s records to conduct a review, although this is infrequent. Refer to the CRA Audit Manual (Chapter 10.2.6) for details on the administrative procedures required if books and records are borrowed. The most important consideration if this is done is that the books and records be identified in detail, the claimant is given a receipt indicating what was borrowed, and that the claimant signs off the receipt when the CRA returns the records. The usually security precautions for claimant information apply for these records, particularly since they are original records. If the claimant brings the books and records to the CRA offices, they can be inspected and discussed with the claimant and immediately returned.

6.8 Claimant’s documentation supplied as electronic media

Electronic media from outside the CRA cannot be used in CRA systems without following CRA security procedures. Consult the local IT group if it is necessary to access this information.

6.9 Claims involving classified information

In some cases, a review will require access to information that has a national security classification. In such situations, project descriptions are not sent to the CRA by the claimant, but the claimant notifies the CRA of the situation by letter. The RTA should refer these situations to the RTM. If the descriptions and the work are to be reviewed, an RTA with appropriate clearance must review them on the claimant’s secure premises. Documentation kept in the CRA files must not contain classified information.

6.10 Second technical review by a new RTA

Sometimes a second RTA is involved in the file. That might be because the AD has requested a second technical review, or the first RTA is unable to complete the work. The review by the second RTA, in principle, uses the same procedures described in the CRM. Where the second RTA is involved as part of an administrative second review procedure, the main consideration is that the second RTA to the extent possible is not influenced by the work of the first RTA; it should be an independent review as much as possible. The second RTA would be aware of the previous work and not request the same information from the claimant a second time. In other situations, the second RTA may be able to rely to some extent on the work of the first RTA. The RTA should discuss these situations with the RTM.

6.11 Partnership claims

If there is a partnership, there are a few procedural differences in how the review is conducted. Most of the additional procedures are the responsibility of the FR and the Control Function (CF), not the RTA. Chapter 7.5, Appendix 5 of the Financial Claim Review Manual (FCRM) has more details. This section is only focussed on what the RTA does.

The key points to keep in mind are mentioned in the FCRM, as follows:

Where SR&ED is undertaken by or on behalf of a partnership, Form T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim, must be prepared at the partnership level, detailing the SR&ED expenditures incurred by the partnership. The financial reviewer (FR) and the research and technology advisor (RTA) review the claim at the partnership level, but the adjustments to income and investment tax credits (ITC) flow through to the members. Form T661 must be submitted with the Partnership Information Return (PIR) – T5013, if such a return is required; otherwise the onus lies with each member to file the partnership’s form T661 with their income tax return for the year.

For the RTA, the starting point of the review is when the partnership claim is referred to them by the CF. If claimant contact is needed, the RTA should contact the person listed on Line 115 of the T661. The legal basis for a partnership is the partnership agreement, which sets out each partner’s rights and obligations and their share of the partnership. The nature of this agreement is generally not relevant to the RTA. The only relevant aspect of the agreement is with respect to what part of the claimed SR&ED work, if any, is done by some or all of the partners. Work could also be done by contractors or third parties. Work done by an individual partner would not have to be SR&ED on its own; the RTA only needs to consider how the work of each partner (if any of the partners are doing any of the work) relates to the claimed SR&ED project as a whole. How the review is conducted, such as places visited, would depend on the unique features of each partnership. The review itself would be conducted according to the same procedures as any other review.

Individual partners may have different rights and obligations under their agreement. Similarly, the SR&ED review report must only be discussed with or given to the partnership, not to individual partners. In this respect, in terms of information exchange, the individual partners would be treated in the same way as employees of a company. It is the responsibility of the partnership to distribute the report to the partners.

The SR&ED Review report template is slightly modified for partnership claims (discussed in Chapter 6.9.3). Specifically Section 1, the identification section, would use different headings, and the case selection reason is always 0406. Note that the names of the individual partners and their Business numbers/SINs are not needed but can be included in section 10 of the report, remembering to replace the first six digits of any SIN with “XXX XXX”. The remainder of the report template is unchanged, and the review is otherwise conducted in exactly the same way.

Partnership claims and AIMS

A case is set up in AIMS for the partnership, using selection reason code 0406 and the partnership’s business number (BN) if it files a T5013 return, or the BN or social insurance number (SIN) of one of the members. The information on screen L for a partnership case always represents the entire partnership claim. That is, the codes relevant to the technical part of the review , “Science Review Type” and “Activity Determination Code”, apply to the partnership as a whole.

When a partner also has their own SR&ED Claim

It is possible that one of the partners also has a separate SR&ED claim under their own name. In this situation, an additional concern of the RTA could be if the claimant’s supporting evidence was inadequate to separate the work, equipment and materials for the partnership from that of the separate SR&ED claim. All the discussion in the CRM concerning missing or inadequate supporting evidence, such as in Chapter 5.12, applies in this situation as well. Therefore the claim for the work of a partner, and/or the partner’s own SR&ED claim, can be considered unsubstantiated if the supporting evidence is insufficient to establish what was done and/or by who.

Appendix A.7: Considerations during the on-site visit

Following the interview with the claimant during the on-site visit, it is recommended to review the information obtained with the following questions in mind, before the visit is concluded:

• Is any of the review information unclear or inconsistent with other information obtained before or during the interview?
• Are the claimed labour, materials, capital equipment, supplies and other SR&ED costs realistic and reasonable for the activities claimed in the project?
• For the type and scale of projects of this claim, what kind of evidence would reasonably be expected to be present and would be useful towards establishing the project eligibility and work undertaken by the claimant?
• Can the information obtained by way of the interview(s) be substantiated by the actual evidence and supporting documentation provided by the claimant? Is the evidence consistent?
• What assumptions, if any, might now be necessary to support the analyses, and do the assumptions need validation?
• Did each of the individuals claimed as involved in each project make a direct contribution to the SR&ED? What was the nature and extent of their contributions (for example, directly engaged, technical support, service support, general labour, clerical)?
• What factors and considerations need to be taken into account to establish the “business context” of the claimant in relation to their claimed SR&ED?
• Has the claimant claimed only SR&ED projects? That is, does each project as claimed reasonably represent all and only the work required to resolve a clearly defined Scientific or Technological (S/T) uncertainty and to seek a related and clearly defined Scientific or Technological Advancement (S/TA) by way of a systematic experimental and/or analytical investigation?
• What field of science or technology is the SR&ED claimed in? Is it a multi-disciplinary area of science or technology? Is it in an excluded field? Is the SR&ED in the identified field?
• For work that is SR&ED, what is the best way to describe the actual (as identified by the RTA) S / T uncertainty or research question posed by the claimant for each project?
• Does the RTA think that the Scientific or Technological Uncertainty (S / TU) provided by the claimant is correctly and accurately identified, rather than being a business or other uncertainty? If given as the latter, does the claimant’s stated uncertainty have a direct link to an apparent or identifiable underlying S / TU (that is, identifiable by the RTA)? If this is the case, did the interview bring out the important relationship(s) between the technological development goals and specific S / T research objectives? Note that there is a distinction between a technological uncertainty, which relates to a technological obstacle or barrier, and a technical uncertainty, which relates to questions as to the results or outcome of the work, such as the commercial objectives.
• Does the RTA think that the S / TA provided by the claimant is correctly and accurately identified, and not a business or other goal, achievement or desired outcome? If given as the latter, does this goal or desired achievement have a direct link to an apparent or identifiable underlying S / TA (that is, identifiable by the RTA) in a field of science or technology which is not excluded by the definition of SR&ED? and
• Is there a clear relationship between the claimed S / TU and the claimed S / TA? When the S / TU and the S / TA are about different issues or topics, it is possible that the project as claimed is too broad, or includes work that lies outside the goals of a specific SR&ED project.

Appendix A.8: Mutual Expectations: Claimant and RTA

Working with claimants – Mutual Expectations between the claimant and the Research and Technology Advisor during an SR&ED Review

The SR&ED Review will be more effective and efficient when both parties are clear about what they can expect from each other. The Research and Technology Advisor (RTA) is expected to work with claimants, and the claimant is also expected to work with the RTA. It is important that, at the start of a review, the RTA explain to and discuss with the claimant these mutual expectations.

During the SR&ED review, RTAs will work with the claimants to:

• explain the SR&ED program, its requirements, its services and policies to claimants who would like more information about the program, to encourage understanding of their entitlements and ensure compliance;
• identify, prior to the on-site visit, issues that they plan to address and their approach for addressing the issues;
• identify, prior to the on-site visit, what they need to see and discuss during the visit and indicate whether it is information from personnel who worked on the projects, or supporting evidence, or both, so that the claimant can be prepared for the review;
• determine the best people to speak to during the review;
• identify, as early as possible, any new issues that arise during the review;
• identify ways to resolve review issues, such as questions to ask or supporting evidence to examine;
• provide an indication of any concerns that remain at the end of the on-site visit or, if unable to do so until the information gathered during the review is considered, indicate when they expect to be able to do so;
• give an explanation for decisions, with reasons, in writing, if any of the work is not considered to be SR&ED, or if any other decisions are unfavourable to the claimant. This will help to improve claimant’s understanding of program requirements and enable them to be better positioned to provide any factual information that had not been considered in the RTA’s decision;
• coordinate their review work, including information requests, with Financial Reviewers (FRs) to minimize the administrative burden, such as not repeatedly requesting the same information from the claimant;
• allow a claimant the opportunity to provide additional information or explanations in response to their decisions, and to respond to the claimant concerning this additional representation; and
• provide feedback, advice and guidance to claimants, as required, to explain any deficiencies in the documentation or in the project information.

During the SR&ED review, the claimants and their representatives will be expected to:

• comply with the SR&ED Program requirements;
• prepare for on-site visits by having requested information, evidence or personnel available;
• prepare for the possibility of an expanded or shortened review by the RTA as different issues arise during the review or the original ones are resolved;
• provide, as early as possible in the review process, information or evidence relevant to supporting their position;
• answer questions and address the issues identified by the RTA during the review;
• ensure that the people who are best able to explain the work done are available to be interviewed by the RTA, should other issues arise during the review process;
• ensure that documentation created during the execution of the SR&ED work claimed is available and organized for review by the RTA and that someone is available to explain the significance of the documentation;
• prepare to explain how the claim was put together and what supporting evidence was used in the preparation of the claim;
• focus on the review issues identified by the RTA and facts related to the work done in order to address these issues;
• provide complete responses to questions asked by the RTA, whether in writing or not, within a reasonable time frame;
• expedite the review by providing any information, on a timely basis, that supports the claim;
• address any concerns raised by the RTA with respect to the quality of project descriptions, claim organization or maintaining supporting evidence for future claims; and
• advise the RTA of any concerns as early as possible.

Appendix A.9: List of websites

• Access to Information Act
• Audit Information Management System (AIMS): AIMS Online Guide
• Claimant Services Standards (TOM 3980): Service standards
• CORTAX, the CRA system for accessing T2 (corporation) information:
• CRA Occupational Health and Safety Policies
• Dispute Resolution with the CRA: Complaints and disputes
• Enterprise Risk Management Policy: The CRA policy for managing risk,
• Finance and Administration Manual, Security Volume
• Finance and Administration Manual, Security Volume, Security Incident Reporting and Management Directive
• Finance and Administration Manual, Security Volume, Transmittal and Transport of Protected and Classified Information and Assets Standards
• Finance and Administration Manual, Security Volume, Abuse, Threats, Stalking and Assaults against Employees Policy
• Add Authorized Representative
• Form AUT-01, Authorize a Representative for Access by Phone and Mail
• Income Tax Act
• Knotia
• Privacy Act
• Process Review
• Protection of Client Information: Client Information
• Quality Assurance Section of the Program Administration Division of the SR&ED Directorate.
• RAPID, the CRA system for accessing non-T2 and other information:
• Security Incident Report, Form RC 166
• SR&ED Course 1170-000
• SR&ED Reference Guide: SR&ED Reference Guide. This includes a list of current publications, directives and Application Policies.
• SR&ED Risk Management Tool, the information system where the initial risk assessment provided by TC may be accessed: SR&ED Risk Management Tool User Manual
• SR&ED Public Website: SR&ED
• Stakeholder Relations Division of the SR&ED Directorate: Stakeholder Relations Division
• Tax Court of Canada
• Taxpayer Bill of Rights.
• Transmittal of sensitive information: Security of Scientific and Technological Information.
• Treasury Board Guidelines on Occupation Health and Safety: Treasury Board Guidelines

Appendix B

Appendix B.1: Revisions

1. 1 Explanation of changes

The following are the explanation of changes to the Claim Review Manual for Research and Technology Advisors as part of the revision of April 21, 2015.

Chapters 1 and 2 have been revised to clarify Agency guidelines regarding compliance approaches, email communications and Access to Information and Privacy (ATIP) in addition to clarifying definitions for “determination”, “conclusion” and “decision”.

Chapter 3 has been revised to include information on joint technical-financial issues.

Chapter 4 has been revised to include information on risk assessment and review issues in addition to clarifying procedures regarding review plan requirements and approval. The section on “claims involving a large number of projects” was clarified. The section on “consideration for large claims” was deleted. The first-time claimant advisory service (FTCAS) service is also included.

Chapter 5 has been revised to clarify procedures regarding requests for information (RFI), reviews with or without onsite visits, and communicating decisions to the claimant to improve transparency and consistency. In addition, new sections describing FTCAS and claimant’s supporting evidence and oral information have been added.