This post outlines SR&ED program updates from January-March 2020, including administrative, policy, tax law, and court cases. We have identified some key trends to watch in the SR&ED environment.
Administrative, Policy, and Legislative
The first quarter of 2020 brought some SR&ED news and information updates from CRA. While the program and policies remained constant, the CRA released and updated new web page for provincial and territorial SR&ED tax credits, as well as, a privacy impact assessment.
From January-March 2020 the CRA posted two updates, one on January 14, 2020, and one on February 5, 2020, on their “What’s New – SR&ED Program” website.
On January 14, 2020, the CRA released a new privacy impact assessment summary: Scientific Research and Experimental Development Program v 3.0. The summary assesses the impact of privacy and the SR&ED program forms. Additionally, the CRA has improved and simplified retention and disposition authorities. The summary states, “While this disposition authority replaces the previous 18 authorities, all retention schedules remain in force until further notice.”
On February 5, 2020, the CRA released a notice that the Summary of provincial and territorial research and development (R&D) tax credits page was last updated on December 31, 2019. This page provides a summary of all provincial SR&ED tax credits, as well as, links to the proper forms.
In terms of judicial proceedings, Q1 was quiet with only one court ruling on the docket. Two court cases were heard at the end of December and are included below.
CHR Investment Corporation v. The Queen (2020)
The Appellant requested that the Respondent produce six specific documents that were not produced because they deemed the request “is irrelevant and or constitutes a fishing expedition”. The appeal was for five reassessments for 2009, 2010, 2011, 2012, and 2013 taxation years. They are general anti-avoidance rule (GAAR) reassessments where the CRA denied the Appellant the ability to utilize tax attributes including a loss carryover amount and an SR&ED carryover amount which had been used to reduce its income for the five taxation years. The Appellant argued that the documents could help to damage the Respondent’s case. The Appellant also argued that it was the Respondent’s duty to establish that there had been a misuse of the GAAR rules. The judge ruled that the Respondent needed to produce all six documents. The judge also stated that a “…fishing expeditions, which are broad questions seeking to land any document that might swim by, as opposed to focused questions seeking production of a relatively well-defined document, should it exist.” The appeal was allowed, and costs were awarded to the Appellant in the amount of $3,750.
For more details and analysis, you can view our complete analysis of CHR Investment Corporation v. The Queen (2020).
Béton Mobile du Québec Inc. c. La Reine (2020)
The Appellant, Béton Mobile du Québec Inc. (BMQ), appealed the reassessments made by the CRA for their 2010, 2011, and 2012 taxation years. BMQ is a concrete supplier in a field of prepared and specialized concrete. BMQ supplies fresh concrete in mobile mixers, not drum mixers, which makes it unique in the field of concrete. BMQ owns the recipes for approximately 300 concretes and develops an additional 15-20 each year to meet the specifications of their customers. Fourteen projects were reviewed by the judge to determine their eligibility for SR&ED. The judge examined the presence of technological uncertainty, technological advancement, and the scientific method. The judge ruled that only six projects were eligible for SR&ED.
For more details and analysis, you can view our complete analysis of Béton Mobile du Québec Inc. c. La Reine (2020).
CO2 Solution Technologies Inc. vs. The Queen (2019)
CO2 Solutions Technologies Inc., the Appellant, claimed SR&ED expenditures stating it was a Canadian-controlled private corporation (CCPC) and, therefore, entitled to an increased investment tax credit (ITC) of 35% for the 2009 taxation year. Upon review of their application, the CRA determined that the Appellant was not a CCPC and, therefore, not entitled to an increased ITC. The judge first ruled that the status of a corporation as a CCPC must be determined each year. The Appellant was incorporated as a trust of a parent publicly owned company, CO2 Publique. The directors of the trust were also the directors of CO2 Publique. The judge ruled that CO2 Publique had de jure and de facto control over the Appellant, therefore, the Appellant was not considered a CCPC. The appeal was dismissed with costs.
For more details and analysis, you can view our complete analysis of CO2 Solution Technologies Inc. vs. The Queen (2019).
SREDucation spent the January-March winter months drilling down into the forms to explain the various key lines in our blog posts, in the interest of further de-demystifying the application process for researchers and claimants. We also took a closer look at a specific claim category, the Alberta budget, and a recent software legal ruling.
Following along the success of our Q4 blogs, we continued to focus on questions that our clients frequently ask during the course of the SR&ED claim process. These delve into topics of interest and serve to demystify the SR&ED application process for prospective claimants. We took a deep dive into the form T661 to provide some additional guidance and insight for future claimants.
To begin with, we explain the importance of listing what type of SR&ED you are claiming in Line 620 or Line 622? The Purpose of SR&ED Work. Additionally, we discussed another program designed to encourage research and development programs in Canada in The Strategic Aerospace and Defence Initiative (SADI) and SR&ED. Next, we discussed government assistance and your SR&ED claim in Can I Claim Government Assistance and SR&ED? (T661 Lines 429-432). We also discussed a topic that can often be confusing third-party and contract payments in SR&ED Third-Party Payments vs. Contracts (T661 Line 340, 345 and 370). Next, we looked at the importance of scientific or technological advancement in your claim in Getting Ahead: Scientific or Technological Advancement (Line 246). Finally, we looked at the importance of documentation and evidence in your claim in Line 270-282: Prove it! Supporting Evidence for SR&ED.
To round out our blog posts for Q4 we discussed the overwhelming claim review process in The CRA SR&ED Claim Review Process. Next, we took a deeper look at the ever-growing field of computer science, in Computer Science, Software Engineering, and Software Development in SR&ED. Additionally, we took a closer look at one of the biggest claim questions, proxy versus traditional method, in Proxy vs Traditional SR&ED Claim: Which Method to Choose?. Finally, we discussed at arm’s length contract agreements in Discussing “On Behalf Of” in SR&ED Contracts.
Summary of SR&ED Updates
SR&ED updates from January-March 2020 were busy. As in the prior three months, we continued our educational mandate, writing ten more informative blog posts to help our organizations with their questions. We also added one more example to our judicial summaries to illustrate what can happen during the appeals process. Check back for more updates as 2020 unfolds.