Updated CRM For RTAs Part Nine: Standardized SR&ED Wording.

March 18, 2016 SRED

Reference Article (>5 Years Old)

Please note that the information herein may be outdated, links could be inactive, and policies discussed may have evolved. For the most current data, consult our latest publications. If you would like us to refresh this article as it is of interest to you, please contact us.

Though not legally binding, the written Scientific Research and Experimental Development (SR&ED) review plan is a formal document that uses the same standardized wording found in SR&ED program policy documents. While communications in SR&ED review plans and reports (discussed in more detail here) may often feature more informal/non-standardized language, summaries of the reviewed work – including determinations, conclusions, and decisions – must use the unaltered standardized wording outlined in the updated Claim Review Manual (CRM) for Research and Technology Advisors (RTAs).

In this post, we will address:

Formal statements to be used in the SR&ED review report;
Language to be avoided by the RTA during determinations.

Read the other articles in this series: Part One: Clarified Definitions; Part Two: First Time Claimant (FTC) Review vs. FTCAS; Part Three: ATIP and Information Requests; Part Four: Information Gathering by RTAs; Part Five: SR&ED Claim Review Process and Project Issues; Part Six: Written Review Plans; Part Seven: Supporting Evidence & Oral Information; and Part Eight: Risk Assessment vs. Evidence.

Formal Statements In SR&ED Review Plan Determinations

The updated CRM clearly states that the standardized wording used in SR&ED review report determinations must not be altered. Section 6.8.6.3 of the CRM for RTAs outlines the specific wording that must be used, as taught in the “SR&ED review report writing” RTA National Training course.

Concluding Statements

The most basic and common use of standardized wording for SR&ED claims comes in the form of concluding statements at the end of the SR&ED review report. This standardized language saves Research and Technology Managers from reading each summary in total detail to interpret an RTA’s concluding statements, thereby reducing the time required to review the hundreds and thousands of claim review reports each year.

The standardized wording is as follows (emphasis added):

AW determination statement: All work (AW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act

SW determination statement: Some work (SW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

NW determination statement: No work (NW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

UN conclusion statement: The claimant was unable to provide sufficient evidence to substantiate the claimed work and it is not possible to determine if the work in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act. Therefore, this work is unsubstantiated (UN).

AAF decision statement: The claimed work in project X is accepted as filed (AAF) without a review to determine if it meets the definition of SR&ED in subsection 248(1) of the Income Tax Act. The decision to AAF this project means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.¹

Joint Technical-Financial Issues

Often, claim reviews call for the involvement of multiple CRA personnel – RTAs on matters of technical eligibility and Financial Reviewers (FRs) on matters of finance. As such, the report must contain standardized wording for SR&ED claims that is interpreted identically by all branches of the CRA review staff. Section 6.8.6.3 of the CRM stipulates that wording used by RTAs and FRs must provide maximum detail with minimal word count (emphasis added):

Materials

The materials claimed in Project X were / were not raw materials, substances, or other items that compose the body of a thing at a given moment in the SR&ED process.

The materials claimed in Project X were / were not consumed / destroyed / rendered virtually valueless in the prosecution of SR&ED in Canada.

The materials claimed in Project X were / were not transformed in the prosecution of SR&ED in Canada, that is, the materials were / were not incorporated into other materials or products that have some value either to the claimant or to another party.

Contracts payments

The ZZZ contract claimed in Project X was / was not for SR&ED performed in Canada for or on behalf of the claimant.

ASA

Capital property YYY, claimed as an expenditure of a capital nature, was / was not intended to be used during all or substantially all (ASA) of its operating time in its expected useful life for the prosecution of SR&ED in Canada.

It was / was not intended that all or substantially all (ASA) of the value of capital property YYY, claimed as an expenditure of a capital nature, would be consumed in the prosecution of SR&ED in Canada.

To date the capital property has / has not been used during ASA of its operating time for the prosecution of SR&ED in Canada.

ASA of the value of capital property YYY has / has not been consumed in the prosecution of SR&ED in Canada.

Shared use equipment

Capital property YYY was available for use by the claimant on yyyy/mm/dd(1). Between yyyy/mm/dd(1) and yyyy/mm/dd(2), the capital property has / has not been used primarily for the prosecution of SR&ED in Canada.²

Language To Be Avoided By RTAs

There are words that SR&ED applicants should avoid using in their technical narrative. Similarly, RTAs must avoid certain language when preparing their SR&ED claim review reports. This helps to ensure that RTAs are communicating clearly, focusing only on the legal and logical bases for their decision regarding the SR&ED review (emphasis added):

RTAs should avoid citing or quoting from court decisions and must not interpret them. The results of court decisions are already part of the basis for SR&ED policies and guidelines. The definition of SR&ED in subsection 248(1) of the Act and relevant SR&ED policies and guidelines must be used as rationale for eligibility determinations and other technical decisions. RTAs should not use vague language, as it creates doubt or ambiguity. Some examples of vague language are:”does not seem/appear to be eligible”;

“the project has the potential for SR&ED but does not qualify”;

“hours claimed are not reasonable”;

“in my opinion”;

“the SR&ED is not eligible”; and

“the research is not SR&ED”.

Similarly, the RTAs should avoid using adjectives, adverbs, or comparatives, because they are not facts and do not strengthen the rationale for a determination. In addition, they could suggest that the RTA is rating or giving a value judgement of a company’s claim and this may lead to unproductive arguments. Some examples to avoid, and a possible context, are:

extremely (little documentation);

just (involved consultations with the suppliers);

only (the evaluation of an existing technology); and

merely (the application of known technology).

The RTA should not add unnecessary length to the report by quoting such things as:

all relevant paragraphs from the Act or relevant policies, as these are well-known and easily found; or

large sections of the claimant’s technical material; refer to the Form T661 project information if the description is consistent with the RTA’s observations or reference the relevant information together with an explanation of the RTA’s determination and rationale if some aspect of the information is at issue.

The RTA should not use judicial jargon, as it has specific and restricted legal meanings, as used by lawyers and judges. Some examples are:

“on the balance of probabilities”;

“beyond a reasonable doubt”;

“the preponderance of the evidence”;

“deemed”; and

“without prejudice”.³

Standardized SR&ED Wording: Summary

Understanding the standardized language for SR&ED claims used by RTAs is invaluable information to have if and when an application is selected for review. The CRA must provide access to pertinent sections of claim review reports and conclusions, but it is the applicant’s responsibility to seek out this information and become familiar with the standardized wording. Understanding the wording may allow applicants to identify shortcomings in their case or spot unfavourable conclusions resulting from miscommunication of available evidence.

Understanding the CRA’s philosophy surrounding certain wording and phrases – especially the phrases that CRA personnel are trained to use – will also tremendously help claimants in avoiding phrases that send up red flags during the review process. This will certainly come into play when appealing unfavourable conclusions, drafting requests for a sit-down with the RTM, or attempting to get a second objective review of the same work.

This article is based on CRA policy documents available at the date of publication. Please consult the CRA website for the most recent versions of these documents.