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SR&ED Updates: Q1 2017 (January to March)

Attention: Policies May Have Been Updated 

*** Some of the policies referenced were updated 2021-08-13. We are working to update this article and others. *** 

April 2015 eligibility of work for SRED SR&ED Updates: Q1 2017 (January to March)What’s new in SR&ED in Q1 2017?


Things picked up a bit on the SR&ED front in the first quarter of 2017. The biggest news is that the federal budget announced yet another review of the SR&ED program and some minor tweaks would be made to it. There were also three federal tax court decisions that ruled on what qualified as SR&ED work, what information needs to be filled out and the importance of having good documentation on hand when making an SR&ED claim.

CRA Policy and Administrative Updates for Q1 2017

The 2017 Federal Budget

The budget announced a few tweaks to the SR&ED program and unveiled a new innovation agenda. A piece of legislation was proposed as well that could impact SR&ED program eligibility.

Pre-Claim Consultations

As of March 2017, the CRA has made it much easier to ask for a pre-claim consultation. These consultations will let you know if you have any SR&ED work on your project before sending in a claim. Not only has the CRA updated the online request form, but they’ve simplified the requirements to qualify for a pre-claim consultation.

Relevant Judicial Proceedings during Q1 2017

Joel Theatrical Rigging Contractors (1980) Ltd. v. The Queen (2017-01-17)

This case is interesting in that it’s about SR&ED as applied in the arts world. While the SR&ED tax credit exempts the arts and humanities from claims, Joel Theatrical Rigging Contractors (the Appellant) claimed that it had devised two systems for lowering types of theatre curtains in two separate taxation years. The CRA found that “systematic investigation or research was not performed” in the case of the first project, a fire curtain that would lower without counterweights. The other project involved the ability to lower a theatre curtain at its proper orientation that was more economical than what was on the market. The court ruled that this project fell within the realm of “routine engineering”.

The court was also disappointed that no technical witnesses, such as engineers, were called to the stand to argue in favour of these projects as SR&ED work. Essentially, this case is important because it shows that anyone appealing a CRA decision on their SR&ED tax credit claim has to show how the project resolves any scientific or technological uncertainty. Simply coming up with a new procedure for doing things based on existing technologies is not enough to warrant obtaining an SR&ED tax credit.

Westsource Group Holdings Inc. v. The Queen (2017-01-24)

This tax court ruling is a cautionary tale about not filling in information properly when amending an earlier tax return. Westsource Group Holdings (the Appellant) is a privately held corporation based in Saskatchewan whose principal service is to provide management services to its subsidiary companies. When it filed its tax return in 2011, it did not include any SR&ED activity in the return. In 2013, the company sought to claim two projects as being SR&ED for the 2011 tax year.

When the Appellant filed its amendment, it failed to include project information in Part 2 of the T661 form in lines 240, 242 and 244 for project one. The information that would go in those boxes are as follows:

  • Line 240 (which no longer exists on the T611 form) is where the Appellant would describe the technological advancements it was trying to achieve.
  • Line 242 is where the Appellant would describe the technological obstacles or uncertainties it had to overcome to achieve the technological advancements.
  • Line 244 is where the Appellant would describe the work performed (the systematic investigation) in the tax year to overcome the technological obstacles or uncertainties in line 242.

Meanwhile, project two’s T661 form was otherwise complete and lines 240, 242 and 244 were filled in. The CRA wound up granting an SR&ED tax credit for project two, but declined to grant a credit for project one as it was incomplete.

Besides the baffling fact that the Appellant filled out one T661 properly and did not fill out another correctly, the company felt that the questions asked in lines 240, 242 and 244 were “immaterial.” As the CRA’s lawyer pointed out, the information required in these lines “goes to the heart of whether the claim made is SR&ED.” Naturally, the judge ruled in favour of the CRA.

This ruling illustrates that the T661 needs to be filled out completely — regardless of whether or not you feel the questions being asked are not relevant. Otherwise, the CRA will reject your claim.

Life Choice Ltd. v. The Queen (2017-01-31)

In this case, Life Choice (the Appellant) is an Alberta company that developed three natural health products. The company’s new products helped in such areas as the treatment of cancer and the removal of arterial plaque in vascular disease. While the court judge found that there was scientific uncertainty around whether these natural health products could mimic pharmaceuticals already on the market, and noted that the Appellant had a sufficient hypothesis to work from, what was fatal to the appeal was the fact that the appellant did not have sufficient records around the testing of the products or hypothesis. The judge wasn’t concerned that there was a lack of clinical trials testing. It was the absence of any testing at all that was the cause of consternation.

Therefore, this case should act as a cautionary tale for anyone submitting a SR&ED claim: always keep detailed records of your testing and be able to present them to the CRA (or a higher court) when needed. Otherwise, you will not have any ground to stand on in the submission of your claim. Systematic testing, and proof of that, is required in making an SR&ED claim.

Summary of Q1 2017 Updates

As noted, the big news was the 2017 federal budget. It remains to be seen, however, what major changes will be made to the SR&ED program just yet, or if the program will even cease to exist. It’s worth keeping an eye on the federal Liberal government’s next moves to see just how substantial any changes may be.

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