Latest ruling could curtail oral testimony as alternative to documentation...
On June 8, 2015, Justice Randall S. Bocock of the Tax Court of Canada in Edmonton upheld CRA assessments whereby software as service provider Highweb & Page Group Inc. was denied SR&ED ITCs on R&D expenditures of $25K in TY2007 and $38K in TY2008.
Bad News for SR&ED Claimers with Government Loans
In November 2014 Immunovaccine Technologies Inc. made application to the Supreme Court of Canada for leave to appeal decisions against it by the Tax Court of Canada and the Federal Court of Appeal...
Court seeks impartiality of CRA staff who act as expert witnesses
In January 2015 the Tax Court of Canada in Ottawa began to hear an appeal by HLP Solutions Inc. concerning CRA’s denial of SR&ED ITCs on two software development projects.
Tax Court Canada says “Maybe”
In this bulletin we review two TCC cases – Armada in 2007 and Val-Harmon in 1995 – both of which address the issue of whether fees charged by tax preparers and other SR&ED consultants can be claimed as SR&ED. The answer from these cases is a firm “maybe”.
Software developer had contract for health records system in Belize
The Tax Court of Canada has awarded generous (95%) legal costs to a software developer who successfully appealed a denied SR&ED claim to the Tax Court of Canada and subsequently filed a motion to the court for increased costs. Such cost awards are often less than 50%; awards in the range of 80% are seen if there have been settlement offers; 95% is almost unheard of.
As a result of changes to the Income Tax Act and Tax Court Canada Act being introduced through the 2013 federal budget process, the limit on tax court appeals of income tax matters made under the informal procedure will shortly increase from $12,000 to $25,000.
CRA seeks your views in new on-line survey – closes Nov 30th
Ottawa recently announced a new survey to learn your views on how the SR&ED tax credit system can be improved.
Finance Committee Heeds Pre-Budget Recommendations
On December 7 the House of Commons Standing Committee on Finance tabled its pre-budget report for 2006 entitled “Canada: Competing to Win”. It contained several notable recommendations on R&D funding.
In Canada, tax is paid at both federal and provincial (i.e. state) levels of government.
Both the federal government and most provincial governments provide funding for scientific and technological R&D through a system of tax credits.
The official title of this system of R&D tax credits is the Scientific Research & Experimental Development tax credit abbreviated SR&ED.
The SR&ED program is administrated by the Canada Revenue Agency abbreviated CRA.
All taxpayers anywhere in Canada are eligible to receive R&D tax credits at the federal level. Eligibility for R&D tax credits at the provincial level is predicated on two considerations; First the province must have an R&D credit and second, you must be a taxpayer in that province.
In addition to being done by a Canadian taxpayer, the R&D work must be done in Canada.
Latest ruling could curtail oral testimony as alternative to documentation...
On June 8, 2015, Justice Randall S. Bocock of the Tax Court of Canada in Edmonton upheld CRA assessments whereby software as service provider Highweb & Page Group Inc. was denied SR&ED ITCs on R&D expenditures of $25K in TY2007 and $38K in TY2008.
Bad News for SR&ED Claimers with Government Loans
In November 2014 Immunovaccine Technologies Inc. made application to the Supreme Court of Canada for leave to appeal decisions against it by the Tax Court of Canada and the Federal Court of Appeal...
Court seeks impartiality of CRA staff who act as expert witnesses
In January 2015 the Tax Court of Canada in Ottawa began to hear an appeal by HLP Solutions Inc. concerning CRA’s denial of SR&ED ITCs on two software development projects.
Tax Court Canada says “Maybe”
In this bulletin we review two TCC cases – Armada in 2007 and Val-Harmon in 1995 – both of which address the issue of whether fees charged by tax preparers and other SR&ED consultants can be claimed as SR&ED. The answer from these cases is a firm “maybe”.
Software developer had contract for health records system in Belize
The Tax Court of Canada has awarded generous (95%) legal costs to a software developer who successfully appealed a denied SR&ED claim to the Tax Court of Canada and subsequently filed a motion to the court for increased costs. Such cost awards are often less than 50%; awards in the range of 80% are seen if there have been settlement offers; 95% is almost unheard of.
As a result of changes to the Income Tax Act and Tax Court Canada Act being introduced through the 2013 federal budget process, the limit on tax court appeals of income tax matters made under the informal procedure will shortly increase from $12,000 to $25,000.
CRA seeks your views in new on-line survey – closes Nov 30th
Ottawa recently announced a new survey to learn your views on how the SR&ED tax credit system can be improved.
Finance Committee Heeds Pre-Budget Recommendations
On December 7 the House of Commons Standing Committee on Finance tabled its pre-budget report for 2006 entitled “Canada: Competing to Win”. It contained several notable recommendations on R&D funding.
In Canada, tax is paid at both federal and provincial (i.e. state) levels of government.
Both the federal government and most provincial governments provide funding for scientific and technological R&D through a system of tax credits.
The official title of this system of R&D tax credits is the Scientific Research & Experimental Development tax credit abbreviated SR&ED.
The SR&ED program is administrated by the Canada Revenue Agency abbreviated CRA.
All taxpayers anywhere in Canada are eligible to receive R&D tax credits at the federal level. Eligibility for R&D tax credits at the provincial level is predicated on two considerations; First the province must have an R&D credit and second, you must be a taxpayer in that province.
In addition to being done by a Canadian taxpayer, the R&D work must be done in Canada.
Taxpayer win highlights value of expert testimony on technological advancement and uncertainty …
A new ruling by the Tax Court of Canada shows that with the aid of properly presented evidence on facts, taxpayers can win back SR&ED claims that CRA has rejected on scientific grounds.
Similar to Bulletin #58 - New TCC Ruling Defines Key SR&ED Terms (20)
Filing requirements bolstered, loopholes closed
On September 16, 2016 the Canadian Department of Finance released a package of draft technical amendments to the Income Tax Act (ITA).
Included in the 33 pages of technical changes are four amendments to existing legislation governing SR&ED tax deductions and credits.
In Canada R&D tax credits are provided at both the federal and provincial (state) levels.
Today the Canadian province of Ontario tabled its 2016 – 2017 budget which included cuts in two of the province’s three R&D tax credits...
Cuts to Canada's federal SR&ED tax credits make provincial credits more vital than ever
In Canada, R&D tax credits are offered by both federal and provincial governments. However, it's all too easy to lose sight of what comes from where.
If CRA has entirely or partially denied your SR&ED claim, there are two steps you can take to have their decision reviewed and potentially overturned. These two steps are the same whether the issue is "technical" or "expenditure" related, i.e. CRA has ruled that an R&D activity does not qualify as SR&ED, or that an amount claimed in respect of such activity does not attract an SR&ED benefit.
New Minimum Claim Threshold | Accelerated Benefits Eliminated on Some Transaction Types
In Canada R&D tax credits are provided at both the national (Canada) level and by the individual provinces (states).
SR&ED-Related Notice of Objection Filings Increased by Factor of 25 Since 2007
Government statistics obtained by Scitax via Canada’s “Access to Information” process indicate that the number of Notice of Objection filings taxpayers made to the Canada Revenue Agency on SR&ED tax credits has skyrocketed over the last seven years.
The SR&ED units located in Toronto West (Mississauga) and Hamilton will be amalgamated and both will report to an Assistant Director located in Hamilton, who will in turn report to the Director of the Hamilton TSO.
Cuts to SR&ED program less than expected . . . . .
Canada’s 2012 Federal budget tabled on March 29th 2012 proposes the following changes to Canada’s SR&ED tax credit program.
Substantial changes to SR&ED tax credits on the horizon . . . . . .
(17-Oct-2011) A six-member panel, appointed by the Canadian Federal Government, released its report on the efficacy of various economic-stimulus programs intended to increase private sector R&D and technological innovation.
The Mowat Institute at the University of Toronto’s School of Public Policy has issued a new economic policy report entitled Canada’s Innovation Underperformance: Whose Policy Problem Is It? authored by Tijs Creutzberg.
Deadline 18-Feb-2011
Back in October 2010 the Canadian Federal Government announced the formation of an “Expert Panel” headed by Open Text Chairman Tom Jenkins. Deadline for industry input to this panel is 18-Feb-2011
Ontario and U.S. Programs offer different approaches to help fund innovation in medical technology
In this bulletin, we highlight two new government funding incentive programs for private
companies in the biotech / medical-device sectors.
> 2009 Ontario Budget Delivers a Substantial Increase
> Maximum Benefit Rate Increased to 40%
> Good News for Game Developers, Electronic Publishers and Makers of PDA Software
No Strings Attached – 10% Cash Refund Benefit to all Companies
Most Canadian provinces have their own R&D tax credit schemes that augment the federal SR&ED benefit. Despite its booming economy, Alberta has been one of the few Canadian provinces – along with tiny Prince Edward Island – that didn't.
Both with significant changes of interest to technology business
> Higher cash refunds as Provinces match increase in federal SR&ED expenditure limits
> Multi-Media and e-business get increased tax credits
> Ontario Tax Holiday for companies that commercialize University R&D
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Bulletin #58 - New TCC Ruling Defines Key SR&ED Terms
1. NUMBER 58 | FEBRUARY 19, 2015
New TCC Ruling Defines Key SR&ED Terms
• Meaning of para (i) in SR&ED Definition: "Commercial Work" Excluded from SR&ED
• Meaning of "In Respect of" SR&ED
On February 6th 2015, Justice Judith Woods in Tax Court Canada, Calgary Alberta, issued a ruling in
the case of Feedlot Health Management Services Ltd. (FHMS).
FHMS is a private corporation located in Alberta that is engaged in providing consulting services in
the veterinary science field.
This ruling makes two recent Tax Court Canada cases (the other being "Abeilles" in October 2014) in
which the courts have made substantial reversals in CRA SR&ED assessments. What is even more
intriguing here is the guidance that the court provided to the parties in resolving the issue. See item
[31].
In FY 2010, FHMS made SR&ED claims that included a payment of $1.6M to G.K. Jim Farms (JF),
for providing access to cattle for use as test subjects in experiments. Jim Farms (JF) is owned by an
individual who also owns 42.5% of FHMS through a holding company. The claims were made under
the proxy method.
It appears that the cattle were not actually "purchased" by FHMS and were not therefore claimed as a
"material"; rather FHMS paid JF for access and to "husband" the cattle according to a prescribed
technical protocol, and to provide FHMS with access to those cattle as when required for R&D
purposes. Presumably FHMS applied experimental therapeutic procedures to the cattle and
measured the results.
Although all the R&D activity of the SR&ED claims was allowed as eligible (i.e. all projects were ruled
as "science" eligible), CRA denied $1.6M payment made by FHMS to JF for providing the cattle to its
researchers.
DIRECTORS:
David R. Hearn, Managing Director
Michael C. Cadesky, FCPA FCA CA BSc MBA
2. NUMBER 58 | FEBRUARY 19, 2015 SCITAX BULLETIN | PAGE 2
Key points in this ruling are:
LOSE: COMMERCIAL PRODUCTION:
This is one of the only cases (perhaps the only) that deals with para (i) of the definition of SR&ED in
subsection 248(1) of the Income Tax Act, which excludes "commercial" activity from SR&ED. Until
now there has been no solid definition of what constitutes "commercial activity". In short the court
ruled that the para (i) exclusion applied because the cattle (although experimented upon with vitamins
and vaccines) were ultimately sold on to a packing house in essentially the same way as any other
cattle raised by JF for commercial purposes; therefore no activity associated with those cattle could
be SR&ED "work" as set out in paragraphs a), b), c) or d) of the definition of SR&ED in subsection
248(1) of the Act.
This was significant to the ruling in that it sets the stage for the court’s ruling on "in respect of"
described below. See items [53] to [55] of the ruling for details of this.
LOSE: LEASING:
FHMS further argued that they "leased" the cattle and as such the $1.6M should attract SR&ED as a
lease expense. The court rejected this on grounds that FHMS did not ever physically take possession
of the cattle or have care of them; they simply accessed them. Given that capital is now excluded
from attracting SR&ED benefits, this point is somewhat moot.
WIN: "IN RESPECT OF":
The TCC disagreed with the CRA’s denial of the $1.6M of expenditures and ruled that this amount –
although not in itself "SR&ED work" – was an expenditure "in respect" of SR&ED and hence eligible
under Clause (II) of s. 37(8)(a)(ii)(B) of the Act. In short, the court ruled that an expenditure need only
be for something necessary for the conduct of SR&ED, but that there is no need for that "something"
itself to meet the criteria of SR&ED.
The term "in respect of" appears in many areas of SR&ED legislation but is poorly (if at all) defined in
law. In this case TCC ruled that the term "in respect of" means something that is broadly in aid of
SR&ED versus being something that is itself an SR&ED activity. The court has ruled that "in respect
of" is to be given broad interpretation – probably broader than anything CRA has ever considered in
the past. This has implications both with respect to the scope of eligible scientific activity (especially
para "d") AND various financial issues.
In particular it likely expands the scope of what can be claimed for "supporting" or "linked" activity to
be much broader than what has been seen in CRA's recent assessments, especially vis-à-vis
"engineering" activities (e.g. skilled trades, computer programming, construction of experimental
prototypes) that are "linked" to the core work.
3. NUMBER 58 | FEBRUARY 19, 2015 SCITAX BULLETIN | PAGE 3
Learn More
Read the ruling here:
http://www.scitax.com/pdf/Dckt_2012-1292-IT-G_06-Feb-2015.pdf
Abeilles ruling in Tax Court Canada Oct 2014 (with English translation by Google Translate)
http://www.scitax.com/pdf/Dckt_2011-2054-IT-G_23-Oct-2014_Google_Translated.pdf
Scitax Bulletin #57 Abeilles New TCC Ruling Favours Taxpayer on "Shop Floor" SR&ED
http://www.scitax.com/pdf/Bulletin.57.Abeilles.in.TCC.8-Dec-2014.pdf
Scitax Bulletin #51 Appealing an SR&ED Claim
http://www.scitax.com/pdf/Bulletin.51-Appealing.SRED.Claims.05-Jun-2012.pdf