Taxpayer’s Ombudsman Report on SR&ED (Part 2 – Gil Lance’s Criticism) (2012)

February 17, 2012 Gilbert Lance

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Note: In 2020, the CRA updated the term “Ombudsman” to “Ombudsperson”.

Gil Lance’s view: the Ombudsman’s report does not make the cut.

On February 10, 2012, The Office of the Taxpayer’s Ombudsman (OTO) released an Observation Paper addressing issues of service and fairness in the SR&ED tax incentive program.¹ Gil Lance worked within the CRA SR&ED division for 19 years before co-founding The InGenuity Group. In this post, Lance provides his own feedback regarding the Ombudsman’s report, and why he finds it lacking in many respects. You can also see our earlier post for a general overview of the report.

Gil Lance’s Observations on the Ombudsman’s Report

Personally, I think the Ombudsman should have held off and released the report on April 1, 2012.

Obviously, someone got to the organization and for whatever reason, which may be related to plans to revamp the R&D infrastructure within Canada, the office seemed obligated to ignore and rewrite reality.

Based on what I saw of people in the organization and their competence, they cannot possibly feel good about what they wrote. It seems that no matter what the issue, unless presented in a very particular fashion with incontrovertible evidence, the complaints were not considered. This seems odd as, traditionally, auditors dig vigorously to prove or disprove anomalies during their investigation, and this is what I would have expected. Would it be unfair to suggest that some might see this as a conflict of interest in the manner in which the review was conducted? After all, what would happen to the individuals in the office if they had been critical of the CRA?

If one gave the office the benefit of the doubt and accepted the proposition that only two complaints of merit occurred in 27 months, wouldn’t someone have questioned why? Particularly when the Internet and business associations’ communications were alive with horror stories of technical audits and statements.

Additionally, one of the comments made in the report is that the CRA believes that non-CRA personnel do not understand the program. Given that many of the consultants and taxpayers have been involved with the SR&ED program for many years and have in fact participated in the development and implementation of the program, why is it that they suddenly don’t understand the program? Why is it that the recommendations for increased communication only go one way to patronizingly tell the non-CRA world what the program is all about?

Additional Recommendations

If the program remains within the CRA (there is still discussion and speculation internally and externally around this) I see a couple of simple changes that could improve the processing speed, accuracy, and questions around the facts. These include:

1. Annotating the Technical Write-ups

Currently, the RTA creates a separate report, independent of the submitted technical report. I recommend allowing both sides to mark up the report and send these direct questions back and forth between the claimant and the CRA. This would create a greater focus on the issues within the context of the submission and allow for better communication. It has been tried and it works. This does, however, mean setting up a secure system of e-mail or drop boxes to address security concerns.

2. Recording All Sessions/Meetings

All meetings between the CRA and claimant should be recorded and shared with one another. This would connect both parties and allow management to do proper quality assurance. The purpose is not to find fault but to improve the process.

If the program moves elsewhere (e.g. IRIC, as suggested in the Jenkins Report), the actual objectives and measurement of the program ought to be sent out ahead of time as to the purpose, characteristics, and nature of incentives. While many of the policy documents and processes may be re-purposed to a new organization, all aspects should be reviewed quickly and processes/appropriate staff incorporated into the new organization.

Conclusion

There will always be some sort of direct relationship between any new organization and the CRA because of the taxation aspects of the program, but perhaps this new, focused organization can concentrate on what they do best.

Integrity is supposed to be a core value within the CRA. I wonder how many saw integrity within that report.