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While most people don’t often think about what’s happening at the Tax Court of Canada, taking the time to read through their website can yield some gold nuggets of useful information.

Throughout the SR&ED Education and Resources Gold Nugget series, I’ll dig up some of the most informative hearings and judgments from the Tax Court of Canada—especially in terms of how not to apply to the SR&ED program.

Today, I bring you Part 1 of my personal favourite portions from the Logitek Technology Ltd. v. The Queen (2008, T.C.C.). In this appeal, Logitek were claiming additional investment tax credits to the tune of $106,557.

Hire Expert Council

This appeal could have been thrown out due to a procedural point—namely, one of the points being debated was not raised in the original notice of appeal.

[19]         Before discussing whether the evidence supports this, I first wish to comment about a procedural point and that is that this issue was not raised in Logitek’s notice of appeal. In fact to the contrary, the notice of appeal suggests that Logitek accepts the Minister’s determination of what activities qualify for SR&ED. Logitek should not be changing the fundamental nature of its argument at the hearing without giving the Crown notice of this so that the Crown could prepare its case.

In this instance, the Appellant was fortunate as the Respondent allowed them to make their argument:

Nevertheless counsel for the respondent graciously allowed Logitek to make this argument so that there could be a decision on the merits of the case rather than a procedural point.

Something as small as overlooking a procedural point could have led to Logitek losing their day in court. To avoid mistakes such as this, be sure to have expert council on hand to assist and guide the preparation of any court documents, should you choose to represent yourself.

Provide Enough Information

As detailed below, the Court is willing to apply the Income Tax Act in a liberal manner in their judgment —providing that sufficiently detailed evidence is provided. In this instance, the information provided is clearly identified as being insufficient.

[5]              It is important to note that the statute provides a detailed definition of what SR&ED is. Essentially it requires that there be a technological problem where the resolution is not reasonably predictable using standard procedures. What are standard procedures? They have been described by the Chief Justice of this Court as being procedures that are generally accessible to competent professionals in the field.

[6]              In this case, I find that the evidence is not sufficiently detailed for me to conclude that this requirement is satisfied.

Answer the Questions in Your Original Technical Narrative

A key issue in the Logitek case was the lack of supporting evidence with regards to the scientific research performed. As outlined in the second point [22], non-specific statements were made regarding the research that was conducted. Based on what Logitek had provided, the Judge could not render a verdict in their favour.

[21]         There was very little evidence presented by Logitek on this issue but during argument Mr. Qureshi referred me to a document that was in the material presented by the Crown. That document was Logitek’s submission to the CRA and Mr. Qureshi submitted that it provides sufficient evidence for me to conclude that the L’eBiz project fundamentally was an SR&ED project.

[22]         I am not able to agree with this. The Logitek submission to the CRA does provide considerable detail as to the technological problems that Logitek was tackling, but there was very little detail as to the nature of the research that was undertaken to solve these problems. For example, the submission states that research was conducted but it does not provide detail as to what that research entailed. Further, in some cases the submission states that the research involved testing existing software programs. I am not satisfied that such testing goes beyond the application of standard procedures and that is what is necessary for work to be SR&ED.

[23]         For these reasons, I conclude that Logitek has not established that any of the work undertaken on the L’eBiz project qualifies as SR&ED activities beyond the activities that the Minister has already accepted.

That’s all for this first installment of the Gold Nugget series. Make sure to read part 2 of Logitek Technology Ltd. and Her Majesty the Queen.

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This article is presented only for informational purposes and does not constitute legal advice. You should retain legal counsel if you require legal advice regarding your individual situation.