WRD Borger Construction Ltd. v. The Queen (2021)

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WRD Borger Construction Ltd. v. The Queen (2021)

 Key Lessons / Points

  • To be eligible for scientific research & experimental development (SR&ED) Investment Tax Credits (ITCs), work must be approached through a systematic investigation where hypotheses formed using the existing knowledge base are tested through experimentation and analysis. Hypotheses are tested and the results are analyzed to determine what can be learned to improve future attempts. This process seeks to address an uncertainty to achieve scientific and technological advancement.
  • The difference between the systematic search required for SR&ED eligibility and the CRA construct of “trial and error” is the recording and analysis of results with each iterative step of hypothesis testing.

    Fiscal Years in Question 


    Court Heard In 

    Tax Court of Canada (Calgary, Alberta)

    Dates Heard 

    September 3, 2020

    Length of Process

    6 years

    Neutral Citation 

    2021 TCC 40



    Amount Under Dispute 

    Not Specified


    [25] The appeal is dismissed, without costs.


    The Appellant, WRD Borger Construction Ltd., sought to appeal the decision made by the Minister of National Revenue stating that the Appellant’s SR&ED project completed in the 2015 taxation year did not meet the definition of SR&ED and therefore the related expenditures were disallowed.

    The claimed expenditures were incurred by the Appellant in connection with a construction project involving its activities/efforts to block water flow in a large underground box culvert. The judge used the definition of SR&ED as written in the Income Tax Act and the five questions developed in the Northwest Hydraulic Consultants Limited v. The Queen (1998) to evaluate the eligibility of the Appellants’ SR&ED ITC application. The Judge noted there was uncertainty within the project, however that uncertainty did not reach the level of a technological risk or uncertainty which could not be removed by routine engineering or standard procedures. The judge also noted that the Appellant’s approach was trial and error. As there were no formulated hypotheses, no detailed record-keeping or contemporaneous documentation, and no systematic testing the Judge concluded that the work performed did not meet the eligibility requirements for SR&ED and dismissed the Appellants’ appeal.

    Key Excerpts 

    [1] The issue in this appeal is whether the appellant engaged in scientific research and experimental development (“SRED”) with respect to its activities/efforts to block water flow in a large underground box culvert in 2015.

    [2] The appellant claimed two SRED projects that year, one entitled “Improved sealing between submerged, rough cast surfaces” and the other entitled “Pressure activated removable plugs for large box culverts.”

    [5] Based on Mr. Kalaf’s testimony, I would describe the larger-scale three-year construction project as the creation of a series/network of box culverts by installing new culverts and tying them in with existing ones. The interiors of both the existing and new culverts were below water level. In 2015, the specific task before the appellant (and the subject of this appeal) was blocking the water flow through a 500 metre long, 2.4 metre x 2.4 metre (i.e. 7.8 feet x 7.8 feet) box culvert so that the appellant’s workers could work inside it and install the necessary tie-ins. Ordinarily, storm water collects at one end of the culvert and flows along a 0.28% downward slope into a catchment pond, resulting in the interior of the culvert being below the normal water level of the catchment pond.

    [6] Mr. Kalaf testified that culverts are generally installed above water level so in this instance, it was a particular challenge that the invert (i.e. the bottom of the interior) of the box culvert was approximately 4 metres below the pond’s surface. He explained that the pond water would exert a head pressure (i.e. pressure caused by its weight) on any blocking device they might use. Therefore, the blocking device would have to be able to withstand 4 metres (i.e. 13 feet) of head pressure. He also stated that draining the pond was not an option in this instance because they were not permitted to disturb its vegetation. He added that the base of the pond was also uneven because there was a layer of riprap, which is a rock product used to protect the pond’s inlets and outlets from erosion.

    [7] Another physical consideration was hoop stress, which Mr. Kalaf explained to be the stress exerted on a cylindrical device (i.e. in this case, the culvert itself and the inflatable bladder dam discussed below). For the purposes of this appeal, it is relevant that hoop stress is affected by the amount of pressure on the cylinder, the width of the cylinder, and the thickness of the cylinder wall; for example, thickening the cylinder wall lowers the hoop stress.

    [8] Mr. Kalaf stated that the appellant made inquiries within their industry as to how/whether others had encountered this situation, as well as conducted internet research. He testified that both lines of inquiry yielded minimal information, and that the appellant ultimately tried both a water-filled inflatable bladder dam (also known as an inflatable or portable cofferdam) as well as a rigid cap as blockage devices.

    [9] Mr. Kalaf testified that in 2014, the appellant tried a rigid steel cap over the culvert face (i.e. the opening) which itself was slanted and opened into the pond; however, the steel cap buckled under the water head pressure. In 2015, the appellant purchased a bladder dam/portable cofferdam from a company called Dam-It Dams in Michigan.

    [10] The purchase invoice from Dam-It Dams shows the dam was 8 feet x 50 feet and the seller added a notation that the 8-foot dam would control a maximum of 6 feet of still water including settling. The invoice includes a worksite assessment sheet that asks whether there are objects present which could potentially damage the dam interface; the answer “no” is circled in response and the assessment sheet is signed by someone on the appellant’s behalf.

    [12] The appellant anchored the uninflated bladder dam at ground level and then threaded it through a 1.2 metre wide manhole above the culvert with the intention of inflating the dam lengthwise when it was inside the culvert. Mr. Kalaf testified that their plan was stymied by the square shape of the culvert and the existing water head pressure; the inflatable dam could not take a shape which would completely seal the culvert and the head pressure prevented them from being able to fully inflate the dam. He also stated that friction (or lack thereof) caused two problems, i.e. the wet interior surface of the culvert caused the dam to slide back and forth while uneven or rough parts of the culvert’s interior surface caused tears in the dam.

    [13] He testified that the appellant then tried a rigid concrete cap which held up to the head pressure but did not fully seal the culvert face. He stated that they ultimately sealed the gaps by deploying divers to insert small objects (such as pieces of wood) in the voids to physically block the leakage; the appellant then used pumps to remove any remaining/ongoing seepage. In the end, the appellant used the combination of a concrete cap, small objects such as pieces of wood, and pumps to dewater the square culvert.

    [14] With respect to the appellant’s procedure and recordkeeping, Mr. Kalaf agreed in cross-examination that its process was one of trial and error and that its ongoing records consisted of time cards and field observations entered into a daily system used for monitoring all its construction projects.

    [15] Mr. Kalaf testified that he has a Bachelor of Science degree earned in 2007 and acknowledged that he is not a civil engineer. He began working for the Borger Group of Companies first as a labourer and after obtaining his degree, he worked as an estimator, a project manager, a chief estimator, and an operations manager for the appellant before becoming its general manager.

    [16] For the purposes of this appeal, SRED means:

    systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is

    (c) experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto,…

    [19] I do not believe that the appellant’s activities meet the five SRED criteria. I would describe the appellant’s efforts as resourceful in light of the time and monetary constraints before it, but they were not innovative.

    [20] It is clear that there was uncertainty as to how the appellant might resolve the problem before it. However, that uncertainty did not reach the level of a technological risk or uncertainty which could not be removed by routine engineering or standard procedures. The appellant tried existing dewatering procedures in terms of the inflatable bladder dam and a rigid cap. The appellant ultimately used the concrete cap, inserted physical objects to block any remaining gaps, and controlled ongoing seepage by using pumps. I would consider the use of physical objects and pumps in this manner to be within the scope of their standard usages.

    [21] The appellant’s approach to this situation was more akin to problem-solving by trial and error than formulating hypotheses and systematically testing them to reduce or eliminate a technological uncertainty. Its efforts were systematic in the sense that the appellant could only try one option at a time and fully committed to each option as it was being tried. Mr. Kalaf was a very credible witness and the fact that he agreed in cross-examination that the appellant’s process was one of trial and error is not a consideration.

    [23] The fact that the appellant’s recordkeeping was limited to time cards and daily field observations entered into its routine monitoring system, supports the conclusion that the appellant was not engaged in experimental development to achieve technological advancement by creating something new or improving something already in existence. It was unnecessary to track progress as one would in a scientific experiment because there was no hypothesis.

    [24] In this case, the appellant successfully solved a problem within the time and monetary constraints before it and by Mr. Kalaf’s testimony, the appellant showed itself to be resourceful and committed. However, there was no advancement in the field of civil engineering for the purposes of the SRED provisions.

    Link to Full Ruling 

    View the full report here.

    Related Ruling


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