ChangesResourcesTax Court of Canada Rulings

Announcing Updates to our SR&ED Legal Rulings Database


Changes to SR&ED financial policy documents Dec. 2014
We’ve expanded the SR&ED Education and Resources Legal Rulings Database

Legal Rulings and the SR&ED Program

Since it was first incorporated in the tax code in 1986, the SR&ED program has a evolved. Some of these changes have been driven by changing budgets, changing priorities, and changing use of the program, but others are caused by the ongoing creation of legal precedent. This is reflected in the most recent revision to the SR&ED program policy documents – 23 cases are cited as specific jurisprudence that informed the policies.

One of the best known examples of legal precedent informing Canada Revenue Agency (CRA) policy is Northwest Hydraulics v. The Queen.

Precedent in Action: Northwest Hydraulics v. The Queen

If you’ve worked on a SR&ED application before, you are hopefully well-acquainted with the five questions. These were created in 1998, when Judge Bowman issued a decision in Northwest Hydraulic Consultants Limited v. The Queen based on his understanding of the concepts laid out in the current policy documents (IC 86-4R3). In the ruling, he introduced the five questions that now appear in 2012 Eligibility of Work for SR&ED Investment Tax Credits Policy policy (which has replaced IC86-4R3) – meaning it influenced how SR&ED is interpreted by the CRA. His approach provided an understanding of the relationship between the three existing criteria (criteria of scientific or technological advancement, scientific or technological uncertainty, and scientific and technical content) and the legislative definition of SR&ED.

The ruling in this case eliminated a number of ambiguities found in the tax code and existing Information Circular documents, specifically related to the contested term “standard practice” and whether the scientific advance had to be achieved for a project to be considered eligible SR&ED work or if it needed only be the goal. Subsequent jurisprudence reinforced the approach set out by Judge Bowman – which is why it was ultimately incorporated into policy.

The Northwest Hydraulics case is only one example of the relationship between tax court cases and CRA policy. Because the federal tax court is a separate institution from the CRA, judges are tasked with interpreting CRA policy, which is sometimes different from how it is interpreted by the CRA.

Learning from SR&ED History

There is another valuable reason for SR&ED practitioners to study legal precedent: becoming familiar with SR&ED as it is practiced. You can find in case history stories of individuals and companies who end up in courts that do not have power over their specific case, because they did not pursue the proper channels of appeal before ending up in court. While cases like these may have merit, the judge is unable to act in the taxpayer’s favour. Reading past cases will allow you to become familiar with the proper chain of action in the event of an appeal or disagreement with the CRA.

Another lesson to be learned from reading past cases is where appellants often go wrong in court. Learn from their mistakes. Certain mistakes are repeated over and over: problems with deadlines, expert witnesses, lack of documentation, and lack of awareness of due process. Reading about the these mistakes can help you avoid making the same ones.

Reading legal precedent can help avoid problems before they make it to court. Of course, if you do find yourself in tax court, there is no substitute for a lawyer. Nothing on this website should be considered to constitute legal advice – we strongly recommend consulting an experienced tax lawyer about your specific situation.

Changes to the SR&ED Education and Resources legal rulings database

We have made a number of improvements to make the database easier for you to navigate and read (there are 196 entries!). We have added a relevance score, allowing you to sort from routine cases to the complex cases with a large effect on precedence. Also, we have enabled sorting entries by whether they relate to the technological or financial sides of the program, and we’ve included links to CRA policy for cases cited by the CRA. We are always working to make the legal rulings database as comprehensive and easy to use as possible, so check back regularly for more updates!

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Note: The Legal Rulings Database is available to SR&ED Education and Resources Master Members

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