HistoryTax Court of Canada Rulings

Landmark SR&ED Ruling: Northwest Hydraulic Consultants Ltd. v. The Queen (1998)

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Northwest Hydraulic Consultants Ltd. v. The Queen has become perhaps the most widely cited Scientific Research & Experimental Development (SR&ED) case. The ruling states that a “technological advance” may also be defined as “an advancement in the general understanding.” The ruling also says that even if a technological advance exists, if it is not “generally known” it may still be SR&ED-eligible. This ruling established the 5 Questions, which were an important touchpoint for the new T661 form.

SR&ED Ruling Information

In the ruling, the judge appears to say that a “technological advance” is synonymous with “an advancement in the general understanding.”

“Did the process result in a technological advance,” the judge said, “that is to say an advancement in the general understanding?”

Additionally, the judge says the existence of a technological advance, if not generally known, is not a barrier to a claim’s acceptance.

“A technological advance in Canada does not cease to be one merely because there is a theoretical possibility that a researcher in, say, China, may have made the same advance but his or her work is not generally known,” the judge said.

Impact on SR&ED Today

The solidification of these important SR&ED definitions in this case led to the creation of the 5 questions, which lay out the criteria that can be used to prove the existence of SR&ED in a project. The 5 questions are as follows:

  1. Was there a technological risk or uncertainty which routine engineering or standard procedures could not remove?
  2. Did the person claiming to be doing SR&ED formulate hypotheses specifically aimed at reducing or eliminating that technological uncertainty?
  3. Did the procedure adopted accord with the total discipline of the scientific method including the formulationtesting, and modification of hypotheses?
  4. Did the process result in a technological advancement?
  5. Was a detailed record of the hypotheses tested, and results kept as the work progressed?

This ruling has been vital to SR&ED policy again recently, as the 5 questions were influential on the wording used in the new T661 form released by the CRA.

This article is based upon a legal ruling issued at the time: Northwest Hydraulic Consultants Ltd. v. The Queen.


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Elizabeth Lance

Elizabeth is known as the "SR&ED Maven" in the industry. With a love of documentation and the nuances of language, she is often engaged by multi-million dollar companies to help improve documentation and workflow processes. Her favourite sentence (which she hears regularly) is "Accepted as Filed". Find out more about her on LinkedIn.

One thought on “Landmark SR&ED Ruling: Northwest Hydraulic Consultants Ltd. v. The Queen (1998)

  • Hi,

    Taking the question #3 above: “Did the procedure adopted accord with the total discipline of the SCIENTIFIC METHOD including the formulation, testing, and modification of hypotheses?”

    Why mixing scientific method (Scientific Research – SR) with Experimental Development (ED)? Both are different, aren’t they? In other words, that 3rd question overlaps the “scientific method” with the Experimental Development. Is there a confusion here between SR and ED?

    The answer is YES but not understood by CRA. One needs to look deep into epistemological and methodological content to understand the difference for THERE ARE DIFFERENCES BETWEEN THE TWO OF THEM. So, why CRA does not make any difference between them? Why using the acronym SR&DE if there is no difference? It should have for there are many differences between Scientific Research and Experimental Development. This is insane for businesses as many have been disqualified for not having a “SCIENTIFIC METHOD” while doing Experimental Development (please also note the use of the singular “method” in the CRA documentation. Actually methodS in science are many).

    One must also notice that CRA is NOT a scientific agency but rather a revenue one. As one cannot improvise tax rules for the fiscal authority belongs to CRA, in the same manner and logic, CRA is NOT a valid authority in the field of research. That’s it. As simple as that. CRA does use knowledge about science but only a little part of it. In other words, when using fiscal and tax rules, one needs to interpret all of them at once during the same fiscal year. But, why not using the same logic when applying research rules, which it is NOT what CRA does? They only use partial rules to disqualify many valuable SR&ED projects. From a research view, this is insane and totally disrespectful of what true science and experimental development are all about.

    Shame on CRA to be so ignorant about science while claiming “scientific method” to discard SR&ED projects.

    (Actually, this is simple logic. In reality, other hidden forces are acting behind CRA like international pressure to perform regarding tax credits, how they recruit their pseudo-scientists that write reports, how the program itself has been build in the 80’s around engineers logic, why true reasons to disqualify SR&ED projects ARE NOT BASED ON SCIENTIFIC METHOD but rather on economic and political venues [but using scientific method argumentation], their quota to perform (a certain number of projects must not have a “yes”, and so on).


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