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“What do you mean it’s not eligible?” Disputing CRA Assessments – Part 3: Higher Authorities

SR&ED Elgibility

In the previous posts, we discussed the Rights and Responsibilities of the Claimant / CRA staff and identified 3 key resources for review (Part 1) and then identified the next steps to take at the Local Tax Services Office (Part 2).  After exhausting those options and receiving your Notice of Assessment, if you still feel that you have not received a fair assessment, there are other steps that can be taken. This post outlines some of these steps and the commentary surrounding them.

Appeals Process – Filing a Notice of Objection

The Application Policy SR&ED 2000-02R Guidelines for Resolving Claimants’ SR&ED Concerns document details the next steps should you be unable to resolve your disagreement at the local level:

Once the SR&ED technical and financial reviews are completed, and the SR&ED report is finalized, the claimant will be sent a Notice of Assessment. The Notice of Assessment will summarize the SR&ED investment tax credits allowed or disallowed based on the findings of the reviews.

If the claimant does not agree with the Notice of Assessment, regardless  of whether they received an Administrative Second Review, the claimant has the option of filing an objection within 90 days of the date of the Notice of Assessment. This process is handled by the Appeals Branch of the CRA.

From the section The Appeals Process of the recently issued Issues of service and fairness within the Scientific Research and Experimental Development Tax Incentive Program:

According to the CRA:

The mandate of the Appeals Branch is to provide a fair and impartial process to resolve disputes, service complaints and requests for relief arising from decisions made under the legislation and programs administered, and services provided, by the Canada Revenue Agency.

Claimants are entitled to object to either the scientific findings or the financial determination of the claim, or both. The CRA’s appeals process provides taxpayers with a review of whether the assessing position is correct and supportable. In other words, upon receiving a Notice of Objection, the Appeals Branch will review the correctness of the NOA/NOR and whether it is supported by the facts and law.

If only the financial aspects of the NOA/NOR are being appealed, the Appeals Officer assigned to the file will handle the review in the same way as any other taxpayer Objection, by assessing all the relevant facts, legislation, jurisprudence, policies and any new information provided at the objection stage relating to the issue.

If the scientific aspects of the decision are being appealed, the Appeals Officer does not undertake the review. While the Appeals Branch is responsible for the resolution of the objection, it relies on the scientific expertise within the CPB [“Compliance Programs Branch”]. The Appeals Officer refers that portion of the objection to the Notices of Objection Section (NOOS) within the CPB, and the review is carried out by a distinct group of Research and Technology Policy Advisors (RTPA) who are not involved in making any original scientific determinations on SR&ED claims. This is done because the Appeals Branch does not have in-house personnel qualified to evaluate the scientific aspects of an SR&ED objection. The CRA notes that because NOOS Advisors are located within CPB this helps NOOS Officers to remain current about current issues related to the SR&ED program policies and procedures.

The NOOS provides advice to the Appeals Branch Headquarters (Tax and Charities Appeals Directorate). This Directorate reviews the recommendation provided by the NOOS on the science issues, identifies the financial issues to be reviewed, considers the risks involved and provides its own recommendation to the Appeals Officer regarding the resolution of the objection.

In some situations, due to the complexity of the science issues and significant risk involved, the Tax and Charities Appeals Directorate may request the services of an external consultant to review the science issues in dispute. This may involve a more detailed review, including site visits of the claimant’s activities to determine which activities qualify as SR&ED.

The final decision on the objection is communicated to the claimant by the Appeals Officer.

In their article The Appeals Process in the Scientific Research and Development Context (Tax Litigation. 2010. Volume XVII, No. 3), Michele Anderson and Couzin Taylor do an excellent job of discussing the appeals process and some of the pros/cons. It’s in an academic journal, so be prepared to reread it a few times. That said, they provide excellent insights into the challenges you will face if/when you reach this stage of a dispute.

How & When To File A Notice of Objection

In most circumstances, the deadline to file a Notice of Objection is 90 days after the date of your Notice of Assessment. Specifically, use the date printed on the assessment, and not when it is received.

There are ways to request an extension, but they are difficult and go beyond the scope of this post. To learn more about how to file a Notice of Objection, please visit this CRA website.

There is no charge for this review, and many people with an objection do not hire a lawyer at this stage; however, a lawyer, accountant, or other professional who is experienced in dealing with the CRA will be able to help you prepare and present your position effectively.

Criticism & Commentary on the Notice of Objection (Appeals) Approach

During the review process for the report Innovation Nation: A Call To Action [October 2011], many individuals submitted their reviews of the current SR&ED system. This excerpt is from A. A. Fyfe B.Sc., P.Eng., President of FCS Ltd., specifically regarding the Appeals process. [Please note: No attempt was made to verify the accuracy of these statements – please contact the author of this article should you have any questions or concerns.]

A claimant whose SR&ED claim has been rejected may file a Notice of Objection (NoO) i.e., an ‘Appeal’, with the Appeal Division of CRA. SR&ED Appeals which constitute approximately 0.5% of the Appeal Division’s total case load are overwhelmingly concerned with [Scientific / Technical] eligibility. Since the Division has no ST professional capability these cases are sent to the TSO which previously delivered the disputed eligibility decision (for comment ?). If the TSO does not change its previous disputed project ST eligibility decision, the Appeal Division sends the case to the SR&ED Directorate to be resolved. About half of all ST Appeals are settled in full or in part. The current NoO process, as practiced by the Appeal Division of CRA, does not satisfy the basic principles of Natural Justice, as below.

    • it is not independent of CRA
    • it is not transparent
    • it does not provide a peer hearing for the claimant
    • it is not timely (currently it requires 2 years, minimum)
    • outcomes from appeals are not communicated to RTAs and RTMs (no feedback)

This topic was also covered recently in the excellent CA Magazine June/July 2011 Edition:

Why not resolve your SR&ED dispute through notice of objection? Negotiating with the CRA in relation to a notice of objection remains a useful route for expenditures issues in an otherwise eligible claim. However, based on our experience, it is now taking 24 to 36 months for an appeals officer even to be assigned to an SR&ED objection, and that is only the first step in the review process. Perhaps more significantly, appeals officers, who consider and decide the objection, are CRA employees, and in a choice between the agency’s administrative policy and the legislation, they will not typically overturn an assessment decision that is consistent with administrative policy.

Hearn, David A.,  A. Christina Tari and Peter M. Weissman. Appealing an SR&ED claim. CA Magazine. June/July 2011.

The full article and its many insights / opinions is available here. We would encourage you to read through it to glean even more insights into the appeals process.

Most recently, here are the insights from the Taxpayers Ombusdman’s Report Issues of service and fairness within the Scientific Research and Experimental Development Tax Incentive Programpublished in October of 2011:

Some claimants believe, wrongly, that the appeals process is only a review of whether due process was respected and not whether correct determinations were made. Some believe that there is no point in asking the CRA for a formal review of a CRA decision. Many members of the SR&ED community have said they would like the appeals process to involve a full second scientific review, essentially a second full eligibility determination exercise.

The appeals process within the legal system may be helpful in understanding the CRA appeals process. Legal appeals do not constitute a new trial. They are an examination of whether appropriate procedure was followed and whether the decision is legally correct. An appeals court typically reviews the grounds for appeal, the pleading of the parties, a transcript of the proceedings, and the evidence exhibits produced at trial. It rarely hears witnesses. If the appeals court finds that the trial was unfair or finds errors in the decision, it can quash or vary the original decision or order a new trial.

At the end of this section, there are two prevailing views: the view from two independent stakeholders who – through direct experience – believe that there is little value to the process, and the conflicting statement from the Taxpayers Ombudsman – a third-party organization recently accused of being “toothless” and often declining to address issues as they fall “outside their mandate” –  that indicates that it is a lack of understanding on the part of taxpayers which means filing a NoO is an ineffective route.

Escalating Further: Tax Court of Canada

Appealing to the Courts (Tax Court of Canada)

If you are not satisfied with the results of filing your NoO (or have not received a response in a timely manner), you can appeal the decision to the courts (Tax Court of Canada). Decisions of the Tax Court of Canada can be further appealed to the Federal Court of Appeal. Decisions of the Federal Court of Appeal can be appealed to the Supreme Court of Canada, but only with the Supreme Court’s permission.

Remember, before the Tax Court of Canada process can begin, you will need to file your Notice of Objection. If the CRA has not responded within 90 days of the NoO being served indicating it has made a decision, you may proceed with filing an appeal. Note: It is well known that right now there is such a high volume of SR&ED-related NoOs being filed that the CRA’s Appeals Division is unlikely be able to respond in the 90-day time period.

Be Prepared To Wait

As with all things that go through the Canadian courts, it takes considerable time to go to trial and there are many steps that can help ensure an earlier resolution. Most SMEs can relate to Small Claims Court, where there is a settlement meeting presided over by a judge of the court. This is also possible in the case of SR&ED-related disputes by either (a) informally requesting the Department of Justice counsel assigned to to hold one or (b) formally requesting that the Tax Court of Canada schedule a settlement conference. Note: As with all settlement meetings, the opposing party (in this case, the CRA) is required to attend with its counsel. Since trials cost the taxpayers a considerable amount of money, all courts – the Tax Court of Canada included – are committed to working towards a settlement outside of a trial whenever possible. Many SR&ED-related cases have been settled in this fashion.


If you are frustrated with your treatment by the Canada Revenue Agency (CRA) with regards to your SR&ED claim, just remember: you are not alone. The internet is rife with horror stories of SR&ED gone awry and unfair treatment by CRA reviewers. This must always be taken with a grain of salt, as those who are wronged often complain louder than those who have received excellent treatment at the hands of the CRA. In short, if you are frustrated with your assessment, it’s best to speak with a professional. One of the advantages is that they have likely seen this before and know where things have gone awry.


Do you have questions about SR&ED history, or current trends? Leave a note below or join our group on LinkedIn


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