Ottawa SR&ED Stakeholders Meeting Dec 13, 2011 Part 1: Summary and Comments
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On Tuesday, December 13th, key stakeholders from the science and technology industries sat down for a meeting with the CRA to discuss the changes that have been taking place regarding SR&ED. It was, in a word, enlightening.
For those who are not aware, the CRA is currently consolidating and rewriting the policies that govern the SR&ED program through a project titled: SR&ED Policy Review Project.
This is part of the initiative announced in 2010 and continuing through to 2012. We’ve talked about the changes previously on this site–for those who missed it, the posts are here and here. Additionally, a copy of our submission to the CRA regarding scientific/technical eligibility can be seen here. Phase 4 of the public consultations has been completed, and the next phase begins December 22, 2011 with the release of additional documents on the CRA website for review.
The SR&ED stakeholders meeting marks a historic event in Ottawa; it is the first stakeholders meeting that has been held in the nation’s capital in regards to changes to the SR&ED program. In attendance were representatives from the following:
- the Big 4 audit firms (E&Y, KPMG, PWC, Deloitte);
- SR&ED consulting firms (The InGenuity Group, Macalis, SRED Solutions);
- Associations (BIOTECanada, Canada Pharma, Canadian Manufacturers & Exporters, Canadian Printing Industries Association, Forest Products Association of Canada, Information Technology Association of Canada, Canadian Federation of Independent Business, Saskatchewan Retail Petroleum Contractors Association);
- Industry, Assistant Directors from the CRA (Laval, Ottawa, Toronto, etc.), and various CRA SR&ED staff.
Key Points/Constructs for Understanding this Article
Before launching into the presentation summary summary, it’s important to note a few key points:
The Department of Finance and the Canada Revenue Agency (CRA) have two different roles and responsibilities: the Department of Finance develops the policies, while the CRA administers these policies through different programs, such as the SR&ED program.
The CRA controls the administration of the policy through the administration of the SR&ED (i.e., assessing who is eligible to receive the refunds). Consequently, the intention when re-writing SR&ED policy documents is not to change the policies themselves, just the documents that taxpayers have access to in order to help them understand the program and the procedures/protocols surrounding it. (Clear as mud? You can read more articles on policy vs. programs in this article. My opinion on this will follow in a follow-up post.)
SR&ED Stakeholder’s Meeting – Presentation Summaries
There were four main presentations followed by short discussions, plus a brief ’round table’. The presentations were as follows:
|Update and next steps
Financial: Summary of public feedback/comments of web consultations
|Eligibility Documents: Summary of public feedback/comments of web consultations||James Muir|
|Sector specific information: Issues and examples||Shankar Narayan|
|ESAT (Eligibility Self-Assessment Tool)||Siri Siriwardena|
For those who are truly curious, the full agenda can be seen here. A summary of the points follows.
Introduction, Update and Next Steps
This section of the presentation provided explanations on why the CRA are going through this review process:
Overall Goal: organize the program in a more logical order, make results more predictable, and reduce the program’s complexity to increase accessibility.
Currently, it is primarily consultants that know where to find relevant SR&ED information, as it is spread across various locations. For a claimant, it is very difficult to track down this information–especially if they are a SME with limited time and resources (see the Cutting Red Tape and Freeing Businesses to Grow report).
Finance Goal: Simplify and follow the format of the T661, since people who are interested in the program are interested because of the tax break it provides.
Currently, the CRA has over 70 documents on its SR&ED website, many of which deal with the same topics in different ways. At one point, salary information was scattered across 25 different documents, but has now been consolidated.
Science (/Technology) Goal: consolidate all the information used by CRA reviewers, including that which judges use when there is a dispute.
This project is about:
- updating based on court rulings that have since been issued
Anything that was a change in the policy or law was not considered.
Pros: This was an excellent framing section of the presentation. The intentions–to simplify and make the program more accessible–would be extremely welcome.
Cons: At times, this introduction felt more like an attempt to justify the changes rather than explain the changes, with particular points receiving an inordinate amount of emphasis.
“Everyone was happy to have the opportunity to provide feedback.”
Sixteen financial documents went up for review for a period of 60 days. During that time, the CRA received a total of 91 Submission (40 from consultants, 33 from accounting firms, with the remainder originating internally).
This presentation was quite short, and focused primarily on the positive feedback that had been received. There was reference to”many specific comments, items that are duplicated and require editing, etc.”, and “requests for more examples to illustrate key points”. Areas specifically highlighted by the presentation were that positive feedback had been received regarding the clarification of “All or Substantially All (ASA)” definitions and the Lease Policy (which is scattered across various forms).
Ms. Tremblay also highlighted the feedback provided by comments on “how to improve the documents”, listing such things as offering .pdf documents with hyperlinks (the CRA acknowledges their limitations in this area), hyperlinks to reference documents, possibly having court cases on the website, as well as an overall need to simplify/streamline the website.
One of the most requested and highlighted requests was a consolidation of the different definitions in a comprehensive glossary format. Another useful suggestion received was to “change the names of the policies to reflect the comments.”
Pros: Two key points came out of this–the CRA have attempted to further clarify convoluted financial points, including providing examples, and they are aware that the technology (including file formats for downloads) needs updating.
Cons: In this presentation, very little was actually said . It often seemed more like a disingenuous pat on the back that left out negative but constructive commentary from the feedback. Where were the criticisms? How were these addressed? Further, at the end of this presentation, attendees were still not informed about what (if any) specific changes would appear in the next revision.
Note: The next versions of the financial documents up for public consultation will be the final versions.
A single document on SR&ED eligibility was released for review: Policy on the Eligibility of Work for SR&ED Investment Tax Credits. (This is no longer available on the web, but you can access a copy we saved here.) During the 45-day review period, the CRA received 27 submissions (5 from claimants, 4 from the Big 4, 13 from tax practitioners, and 5 from industry associations).
The feedback received typically fell into two categories:
- Constructive: How the document could be improved or changed, i.e., identification of apparent contradictions, ways to rewrite.
- Critical: Criticisms directed at the project, not necessarily towards creating a better document, i.e., “Evidence that the CRA is trying to change the program!”
In this presentation, the CRA focused on the critical feedback as it showed “how the document might be read and understood/misunderstood”:
Criticism 1: CRA has changed the policy and narrowed the definition.
Criticism 2: Draft Policy is heavily weighted towards Scientific Research as opposed to Experimental Development.
Criticism 3: Creates a greater burden for documentary evidence.
Criticism 4: Draft puts more weight on scientific and technical content.
Criticism 5: Too short, too high level and leaves room for misinterpretation.
As there was considerable overlap in the answers/responses to the criticism, a summary has been grouped below:
When we say we’re not changing the policy, while we might be changing some of the words, the overall understanding of the concepts has not changed.
The CRA seemed quite upset that individuals would quote a single line, as “it has to be understood within the larger context of the documents.” They stated that the document is intended to be used as “principle or guidance to help define the limits of SR&ED and the Act“.
Consolidation has resulted in some explanations being changed/modified, or that a different version of what is still considered policy is being used. The CRA believes that “some of this clarity may be leading the concerns that the program is narrowing”.
The CRA recognizes that the scientific method is not a hard and fast rule in SR&ED and we didn’t intend it to come across that way.
With regards to the concern that the shift is towards experimental development, the CRA indicated that the apparent lack of experimental development examples in the document arise from their attempt to explain systematic investigation–existing documents had previously treated this definition as background material. This version was therefore based on the IC86-4R3 and Bowman’s Interpretation of IC86-4R3 (Northwest Hydraulics Consultants Ltd. v The Queen  3 C.T.C. 2520, 98 D.T.C. 1839 (TCC)) To clarify, the CRA may add material related to this point that could parallel an engineering process to show the experimental developmental side.
Format [of supporting documentation] can be quite varied, as long as it supports the claim and the types of questions being asked.
Evidence has always been required to support a SR&ED claim, and documentation is integral to the SR&ED process. Upon re-reading, the CRA did recognize that there was a particular emphasis placed on documentation.
Important: this policy should not be used as a guide for what the claimant needs in order to defend a claim, nor is it a guide for what an RTA should look for when reviewing a claim. It is not an administrative guide.
There have always been three pillars of SR&ED eligibility criterion, and they still need to be presented in each claim. There is no intentional shift to technological content, as all three criterion (see IC86-4R3, points 2.10.1-2.10.3) carry equal weight and need to be assessed during the review.
With regards to this document being both too high-level (which could broaden the program) and too vague (which could lead to various interpretations), the CRA seemed to be “stuck” on how to solve this issue; they are uncertain about how to find the right balance, but “will consider this carefully in the next revision.”
Important note: the version that results from these notes will be the final version, and will go up on the CRA website when project is complete.
Pros: Overall, this portion of the presentation gave an excellent summary that acknowledged the CRA were aware of the issues outlined in taxpayer feedback. There have been clear attempts to address the issues that were brought forward, and an acknowledgment that as written, some of the intended messages were lost.
Cons: The approach and answers to the comments further served to illustrate that this session is about providing information regarding what the CRA is doing, rather than providing an opportunity for stakeholders to provide feedback.
The best is yet to come. Subscribe to our RSS feed to ensure you don’t miss our next installment, including the overall atmosphere at the meeting, key concerns expressed, and how the CRA is handling the next phase of the consultations.
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.
What are your thoughts on the comments made by the CRA during the first part of the presentation? Leave a comment below–key CRA individuals do read this website. Alternatively, start a discussion on our LinkedIn® group, or contact the experts at The InGenuity Group directly.
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.