SR&ED & Criminal Investigations – Lessons from Gordon v. Canada (2023)

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SR&ED & Criminal Investigations – Lessons from Gordon v. Canada (2023)

A recent legal ruling brought to light the issue of what happens when the CRA utilizes information gleaned during an audit on Scientific Research and Experimental Development (SR&ED) tax credits toward a resulting criminal investigation. The CRA must respect the taxpayer’s Charter rights in its criminal investigation.

This post will look at lessons learned from this legal ruling for SR&ED claimants entering into the appeals process with the CRA. We will discuss how the Canadian Charter of Rights (The Charter) impacts legal proceedings and what rights claimants should be aware that they have in such a case. We will also provide a summary of the case itself.

Gordon v. Canada (2023)

In this case, the Appellant sought to appeal the decision of Justice Barnes’ of the Federal Court (the Judge), rendered on June 25, 2019, in which the Appellants’ actions in damages against the Government of Canada were dismissed.

The actions arose from the CRA’s criminal investigation against the Appellant beginning in 1995 which was focused on the Appellants’ use of backdating documents to claim SR&ED expenses, purportedly incurred in previous years. In some instances, the creation of a shell corporation and backdated contracts for the SR&ED through the created company were utilized to increase the Appellants SR&ED refund. Sometimes, the wages of employees allegedly involved in SR&ED work were calculated after the fact according to the Appellant’s assessment of the fair market value for the labour. The CRA’s investigation resulted in the indictment and prosecution of two of the key individuals on five counts of fraud, attempted fraud, and possession of the proceeds of crime. In 2006 the Appellant began to seek damages against the court on the basis of multiple causes of action, including negligent investigation, breach of their rights under the Canadian Charter of Rights and Freedoms, misfeasance in public office, malicious prosecution, and intentional interference with contractual relations. Justice Barnes’s decision in 2019 was that the CRA’s investigation was not carried out in a manner that could be characterized as negligent and was not motivated by malice or any other improper purpose.

In this case, the Appellants challenged Justice Barnes’ decision on the basis that the Judge misunderstood the legal requirements for a valid SR&ED tax credit claim, and contended that the procedures set out in the Taxation Operations Manual (TOM) 11 for CRA investigations were not properly followed. The Appellants further asserted that the CRA’s preferred method of valuing labour costs was flawed and the CRA’s investigation into suspected inflated wages was negligent. The Appellants believed that the Judge misunderstood these facts and the evidence supporting them, leading him to dismiss their arguments without substantive engagement.

The Judge in this case reviewed the findings made by Justice Barnes in 2019 and stated that they demonstrated a thorough and careful assessment of the evidentiary record before him. With respect to the argument in connection with the TOM 11 for CRA investigations, the Judge agreed with Justice Barnes’ statement in 2019 that the TOM 11 “is a set of guidelines that have no binding legal effect and their breach is not evidence per se of a wrongful prosecution or negligence”, and concluded that the CRA’s investigation was not carried out in a manner that could be characterized as negligent.

As the Appellant failed to demonstrate any palpable and overriding error on the part of Justice Barnes, the Judge determined that there was no reason to disturb his findings and dismissed the appeal with costs payable from the Appellant.

Lessons for SR&ED Claimants

  • The CRA must respect the Charter rights in CRA investigations: The Income Tax Act grants the Canada Revenue Agency (CRA) the authority to investigate criminal tax evasion or fraud.1 When such investigations occur, Charter-protected rights of taxpayers are triggered. It is essential for the CRA to respect these rights during the course of their investigations.
    • In this case, the Appellant believed that because the CRA investigators did not distinctly follow the procedures set out in the TOM 11, their rights under the Charter had been neglected. The judge determined this not to be true as the TOM 11 has no binding legal effect in a court of law.
  • Separation of Civil Tax Audit and Criminal Investigation: It’s crucial to understand that the CRA cannot use its civil tax audit powers to gather information for its criminal investigations, however, under the Income Tax Act (ITA) they are under obligation to share taxpayers information “for the purpose of ascertaining the circumstances in which an offence under the Criminal Code may have been committed“.2

An audit is the verification of information provided by taxpayers to the CRA. In a criminal investigation, the CRA investigators gather evidence to determine whether there has been tax evasion, tax fraud and other serious violations of tax laws.3

    • Taxpayers should be aware of this distinction and seek legal advice if they receive an audit notice. An audit and a criminal investigation are two separate occurrences, however, evidence of fraud or criminal activity discovered during a tax audit can lead to a criminal investigation. Consulting with a lawyer is highly recommended to minimize the risk of a potential criminal investigation.
  • The Consequences of Negligence and Misrepresentation: The case of Gordon v. Canada (2023) serves as a cautionary example. In this case, the taxpayer sought damages based on allegations of negligence in the investigation, breach of their Charter rights, and malicious prosecution by the CRA. The judge ultimately found the taxpayer’s methods to be indefensible and constituting misrepresentation, and while they noted minor missteps in the CRA’s criminal investigation process the Judge ultimately concluded that the CRA’s investigation was not carried out in a manner that could be characterized as negligent. This underscores the importance of accurate and transparent reporting when claiming SR&ED expenses.
  • Effective Communication is Key: Clear and respectful communication between the CRA and taxpayers is of paramount importance. This communication helps clarify expectations and contractual requirements, ultimately improving the likelihood of a successful SR&ED claim acceptance and reducing the chances of complications.


SR&ED claimants should be aware of their Charter rights, ensure the accuracy and transparency of their claims, seek legal advice if faced with an audit notice, and maintain effective communication with the CRA to enhance the likelihood of a successful claim process. For further details on this legal ruling and to review the unofficial translation you can sign up for our legal ruling database.  The original ruling can be found here.

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Show 3 footnotes

  1. Justice Laws Website. (November 30, 2023). Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)): Provision of information: Section 241 – Where taxpayer information may be disclosed. Retrieved December 14, 2023, from:
  2. Justice Laws Website. (November 30, 2023). Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)): Provision of information: Section 241 – Where taxpayer information may be disclosed. Retrieved December 18, 2023, from:
  3. Government of Canada. (November 29, 2023). Tax evasion, understanding the consequences: The difference between an audit and a criminal investigation. Retrieved December 14, 2023, from:

One thought on “SR&ED & Criminal Investigations – Lessons from Gordon v. Canada (2023)

  • I’ve been looking for information on this topic. This post was a lifesaver!


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