This post outlines SR&ED program updates from October to December 2019, 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 fourth quarter of 2019 brought some SR&ED news and information updates from CRA. While the program and policies remained constant, the CRA did release updated forms and a new web page highlighting SR&ED success stories, detailed below.
The CRA posted two updates, one on December 16, 2019 and one on December 19, 2019 on their “What’s New – SR&ED Program” website.
On December 16, 2019 the CRA released updated tax forms. Forms T2SCH31, Investment Tax Credit – Corporations, and T2SCH49, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Expenditure Limit, have been updated with the 2019 federal budget measure of removing the previous year taxable income from the calculation of the SR&ED expenditure limit for a CCPC.
The CRA released a new webage Scientific Research and Experimental Development – Success stories on December 19, 2019. This new page highlights examples of how the SR&ED tax incentive program benefits Canadian innovation. The page will be updated with more stories in the future.
In terms of judicial proceedings, Q4 was quiet with only one court ruling on the docket.
Kam-Press Metal Products Ltd. v. The Queen (2019)
Kam-Press Metal Products Ltd., the Appellant, is a company that is involved with the business of custom manufacturing and dealing primarily with metal. The appeal is for a reassessment of its 2009 and 2010 taxation years which disallowed their SR&ED investment tax credit claims.The project under dispute is “Large Volume Acrylic Memorial Niche Complex Development” which was to build a funeral urn memorial using curved and straight sections with a translucent front to make the urns appear as if they are floating. The Appellant encountered multiple obstacles in building this project primarily dealing with acrylic with which they did not have extensive experience. Neither the Appellant nor the Respondent produced an expert witness at the trial. The judge ruled that many of the difficulties the Appellant faced were resolved through trial and error. Additionally, the judge ruled that the Appellant applied standard procedures or routine engineering and did not resolve or attempt to resolve any technological uncertainty. The judge also stated that when the Appellant faced an issue with the acrylic they were able to subcontract it to an acrylic company that had more experience which showed that many of the issues the Appellant faced were due to lack of experience, not technological uncertainty. Finally, the judge ruled the Appellant did not demonstrate the scientific method and had an absence of documentation.The appeal was dismissed with costs.
For more details and analysis, you can view our complete analysis of Kam-Press Metal Products Ltd. v. The Queen (2019).
SREDucation spent the October-December fall 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 Q3 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 qualified personnel as key individuals in The importance of Key Individuals in SR&ED (Lines 260 & 261). Additionally, we discussed funding for SR&ED projects, we have outlined Lines 600-618: Distribution of the Sources of Funds. Next, we discussed working with other businesses for your SR&ED eligible work in Lines 218/220/221: Joint and Collaborative SR&ED Work. Finally, we discussed a topic which can often be confusing uncertainty in Line 242: Uncertain about Uncertainty? No problem.
To round out our blog posts for Q4 we took a closer look at the claims process for physicians and medical professionals which has its own unique set of nuances in SR&ED claim process for physicians & medical professionals. We also took a look at the 2019 Alberta Budget in 2019 Alberta Budget brings drastic cuts to tech funding including SR&ED. Finally, we took a deeper look at the implications of a recent software SR&ED legal ruling in Clevor Technologies Inc. v. The Queen: Implications for Software and SR&ED.
Summary of SR&ED Updates
As in the prior three months, we continued our educational mandate, writing seven 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.
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Note: The Legal Rulings Database is available to SR&ED Education and Resources Master Members.