Category Archives: SR&ED

Claiming Investment Tax Credits for SRED Expenditures – Sas Ansari

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Claiming Investment Tax Credits for SRED Expenditures

Easy Way Cattle Oilers Ltd v The Queen, 2016 FCA 301

This was an appeal from 2015 TCC 211 where the Tax Court of Canada dismissed an appeal because it concluded that the taxpayer had failed to comply with the requirements in Income Tax Act paragraph 127(9)(m), specifically filing the prescribed form (T2SCH31), and was, therefore, ineligible to claim Investment Tax Credits for certain of its Scientific Research and Experimental Development expenditures.

At issue was whether the prescribed form was the only way to claim investment tax credits for SRED expenditures.


The taxpayer did not file form T2SCH31 by the deadline but did file a completed T611 (supporting its claim for SRED expenditures) within the deadline set by the statute.  The Minister accepted the SRED expenditures but denied the claim for input tax credits.


The taxpayer’s argument was that, because the Minister had all of the prescribed information available by the deadline (form T611), the failure to file the prescribed form by the deadline is not fatal. The Minister had all of the information necessary to make the necessary calculations to determine the investment tax credit.

The taxpayer relied on section 32 of the Interpretation Act, which provides that:

32 Where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used.

The Federal Court of Appeal, however, held that reliance on section 32 was misguided (para 11).  The purpose of this provision is to (para 13):

penalizing a taxpayer who has complied substantively with a statutory provision which requires the filing of a prescribed form containing prescribed information. In other words, section 32 applies where the taxpayer has filed the prescribed information, but has not used the prescribed Form to do so. Nonetheless, the taxpayer has substantially complied with the requirements of the form by providing the Minister the information which the Minister needs in regard to the taxpayer’s claim.

The two prescribed forms – T661 and T2SCH31 – serve different purposes despite some overlap in information.  T611 provides technical information regarding SRED projects to calculate eligible expenditures.  The taxpayer had not filed any form or document that provided substantially all of the information on the other prescribed form (para 13).  If the taxpayer could rely only on T611 and the T2, the Minister would have to second guess the taxpayer’s intention regarding the Investment Tax Credit and make the calculations the  taxpayer should have made (para 15).  This approach is not right (para 15).

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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1726437 Ontario Inc v The Queen, 2012 TCC 376 (informal procedure)

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SR&ED expenses – What counts?

1726437 Ontario Inc v The Queen, 2012 TCC 376 (informal procedure)

The issue was whether expenses incurred to improve and test HVAC systems to develop one appropriate for the specific use qualified as SR&ED credits as defined in subsection 248(1) of the ITA.

The Court held that the factors were met and that the expenses qualified. However, since the taxpayer elected to proceed under the informal procedure, recovery was limited to $12,000 despite the $300,000+ expenditure.


The taxpayer had determined that existing HVAC systems were not suitable for installation in multi-level townhomes and spent significant amount of money developing and testing HVAC systems that were suitable. It claimed that these expenses were SR&ED expenses and eligible for ITCs.

The MNR reassessed and denied most of the amounts claimed on the basis that they were routine engineering expenses.


The FCA reviewed the definition in subsection 248(1), which reads:

“scientific research and experimental development” means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is

(a) basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view;

(b) applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view, or

(c) experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto,

and, in applying this definition in respect of a taxpayer, includes

(d) work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b), or (c) that is undertaken in Canada by or on behalf of the taxpayer,

but does not include work in respect to

(e) market research or sales promotion,

(f) quality control or routine testing of materials, devices, products or processes,

(g) research in the social sciences or the humanities,

(h) prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,

(i) the commercial production of a new or improved material, device or product or the commercial use of a new or improved process,

(j) style changes, or

(k) routine data collection;

[Emphasis original to judgment.]

The Court stated that this definition works on a “catch” (a wide initial definition) and “release” (subsequent exclusions) concept.  Relevant concepts in determining whether the definition of of SR&ED is met was found in Northwest Hydraulic Consultants Limited v. The Queen,98 DTC 1839, which asks:

(1)            Was there a technological risk or uncertainty which could not be removed by routine engineering or standard procedures?

(2)            Did the person claiming to be doing SR&ED formulate hypotheses specifically aimed at reducing or eliminating that technological uncertainty?

(3)            Did the procedures adopted accord with the established and objective principles of the scientific method, including the formulation, testing and modification of hypotheses?

(4)            Did the process result in a technological advancement?

(5)            Was a detailed record of the hypotheses, tests and results kept as the work progressed?