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. ***
The second quarter of 2016 saw a few SR&ED updates, including updated guidelines and the launch of a new CRA service. This post will limit itself to changes that occurred between April and June 2016. It will address the following:
- Changes made to the Self-Assessment Learning Tool (SALT)
- New guidelines for resolving claimant’s concerns
- Launch of new Pre-Claim Consultation service
CRA Policy and Admin Updates
Updated: The SALT Tool
On May 18th, the Canadian Revenue Agency (CRA) updated their Self-Assessment and Learning Tool to accommodate the changes made in the 2012 budget. The tool is meant to help potential claimants understand the Scientific Research & Experimental Development (SR&ED) rules and their potential eligibility. By updating the SALT, the CRA makes more assistance available to claimants navigating the SR&ED program in the wake of the 2012 federal budget, which made substantial changes to claimable expenses. Read our full thoughts on the SALT here.
New Guidelines for Resolving SR&ED concerns
On May 30th, the CRA released its guidelines for resolving claimant’s SR&ED concerns. The guidelines set out clear procedures for dealing with concerns, ensuring the claim will be treated fairly and without further questions. Read our full opinion of the guidelines here.
New Service: Pre-Claim Consultation
In an attempt to provide even more help this quarter, on July 29th the CRA launched their new Pre-Claim Consultation, an opt-in advisory service meant to advise claimants on how much of their work will be considered eligible for SR&ED tax incentives. At the same time, the CRA retired the Pre-Claim Project Review and the Account Executive Services, leaving some to wonder whether Pre-Claim Consultation will be able to replace these services.
Relevant Judicial Proceedings
Novalia Power General Research Inc v. The Queen (2016-04-08)
The appellant sought to reverse the CRA’s decision to deny his application for SR&ED ITCs for the 2011 fiscal year, during which time he worked on a wind turbine prototype. The CRA found that there was “a lack of both uncertainty and technological advancement; no clear hypotheses, tests performed and results obtained were not properly recorded as the project progressed.” In essence, the response to all questions regarding eligibility set out by the CRA’s Eligibility of Work for SR&ED ITCs policy was negative. The application lacked sufficient documentation and metrics that would have otherwise supported the existence of technological advancement. The court upheld the CRA’s initial decision.
Use this court case as a lesson. By keeping detailed notes for the entirety of the project, claimants reduce CRA’s ability to argue that the evidence is insufficient. A claimant can ensure sufficiency not only by claiming work that adheres to each of the five questions in the Eligibility for Work policy but by maintaining detailed and organized records of their research.
AFD Petroleum Ltd. v. Canada (Attorney General) (2016-05-16)
The applicant is filing for a judiciary review of the CRA’s decision to deny its SR&ED application for the 2012 fiscal year. The applicant submitted their SR&ED application on the last day of its eligible application period and the CRA only received two of the seven pages of Part 2 of the T661 form. Consequently, the CRA declined the application on the grounds that a prescribed form (T661 part 2) was incomplete. The court ruled that the decision to not accept the applicant’s SR&ED application was “justifiable and defensible in respect of the facts and the law and clearly falls within the range of acceptable outcomes.
Claimants can learn two lessons here:
- Always be aware of SR&ED deadlines. Deadlines are not flexible, and filing early decreases the risk of being late.
- Pay attention to all forms in your tax filing. Review them as often as possible to ensure that all information is accurate, up-to-date, and sent with the rest of the tax forms to the CRA. The case above is avoidable by spending time double-checking one’s work.
Summary of SR&ED Updates in Q2
The CRA attempted to give claimants more assistance with SR&ED by updating SALT, creating guidelines for dealing with SR&ED concerns, and the launch of the new Pre-Claim Consultation tool. In addition to the updates, the court rulings provided SR&ED claimants a lesson in ensuring that all forms are filled out accurately, fully, and on time.