The SR&ED Program in 2008 vs. 2014
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In 2005, I retired from the CRA. For many years, I had enjoyed my role as a Research and Technology Advisor (RTA) at the CRA. As I was part of the original team hired in 1986, I had seen how the program had evolved and, put bluntly, started to devolve. Many of the companies I had previously worked with asked me to assist them. Sometimes I could help, sometimes I advised against pursuing the funding.
Predictions for the SR&ED Program
In 2008, I declined to put forward an SR&ED claim on behalf of a group and wrote the below email supporting my arguments. Rereading it almost six years later, I find the predictions uncanny and accurate. How do you think it measures up?
Concerns About SR&ED Eligibility
Original Message:
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From: Gil Lance
Date: Sat, 14 Jun 2008 16:19:02 -0400
To: [REDACTED]
Subject: To claim or not to claim
Summary: The short answer to your answer is a definite ‘NO’. In essence, the bar for eligibility has been raised and the claim would currently not meet the criteria as interpreted in Ottawa and by certain staff.
In my professional opinion, the ROI (return on investment) in the current is just not there for pursuing this claim given the current climate at CRA and the weakness of technical proof at [COMPANY NAME REMOVED]. The professional and financial risks are also too great. The odds of success are very low.
Background Reasons: In the past year, the approach to review of these claims has changed dramatically in the following seven ways. This has been noted across the country by myself and other SR&ED specialists. This was expressed and documented on the Department of Finance website relative to the public consultations on the program. No significant changes in
CRA’s approach have come from this nor are they likely to without significant political pressure.
- Program focus – A change to a more scientific approach to interpretation of the legislation with a focus on experiments even in industrial R&D.
- Approach to reviews – A change from a top down client-centric Incentive Program, to a bottom-recovery oriented Compliance Audit. Carve-out of activities has increased.
- Documentation – A change from accepting verbal and indirect evidence to demanding documented proof of the activities and their contribution to the core SR&ED.
- Granularity – A change to carve-out of all but the core R&D activities and advances within a project. The granularity of the evidence to support a claim has increased dramatically.
- Biases against certain domains – A change back to a historic bias against Financial Institutions claims resulting in FI claims getting even greater scrutiny.
- Supporting activities – A change in the degree to which the activities must directly support the core advance.
- Year by year qualification – A change from accepting that projects are multi-year to a year by year requirement to qualify on a technical level much like expenditures have always been.
Additional Risks: There are also some downside risks that could result in loss of gains made in prior years.
- Review and reassessment of prior claims: Ottawa could reopen the prior claims for review and deny them. I am aware of only one lower court case for SR&ED that resulted in a claw back of previously accepted incentives but that possibility was what [REVIEWER NAME] was hinting at in his conversation.
- Third party penalties: The CRA SR&ED group is still looking for situations to apply professional penalties to accounting houses and this is an expensive proposition to defend against even it one wins.
In summary, I would recommend not pursuing the claim at this stage.
Program Changes – A Necessary Evil?
All programs go through changes. Sometimes these changes improve the program, and sometimes they only seem to befuddle and increase the amount of red tape.
