2 Cases Decided in 2015 under the informal procedure rules:

  1. High Web & Page Group Inc. (2015 TCC 137)

  2. Hypercube Inc. (2015 TCC 65)

…each had a completely different result than “Les Abeilles”. Thankfully they were decided under informal rules and technically don’t set any precedent – more later


ORIGINAL POST – January 2015

A recent court case Les Abeilles services de conditionnement inc v. The Queen suggests that contemporaneous documentation is not essential in establishing that eligible SR&ED was performed.

Contemporaneous documentation

Justice Jorré clearly indicated that, despite the CRA’s claims, contemporaneous documentation relating to SR&ED projects is not an essential condition to benefit from the program:

[Translation] “Whether or not contemporaneous documents exist and whether or not the documents contain certain information are relevant to the Court’s determination of a question of fact. However, the existence of contemporaneous documentation, or contemporaneous documents with specific content, is not a condition for the scientific research or experimental development to be recognized.

The judge explained his thinking by referring to the words of Justice Archambault in 116736 Canada Inc.:

[Translation] “In 116736 Canada inc. v. Canada, [1998] ACI No. 478 (QL), Justice Archambault explained that contemporary reports of any testing are potentially very important evidence but they are not mandatory. He says the following:[…] In my view, contemporary reports showing detailed records of each experiment attempted by a researcher could constitute evidence of a systematic investigation. Any taxpayer attempting to convince the Minister that he is entitled to deduct R & D expenditures without such evidence puts himself in a very precarious position. A taxpayer would be in a similar position when appearing before this Court to contest the Minister’s refusal to allow the deduction of his R & D expenditures.However, the Act and the Regulations do not require that such written reports be produced in order for a taxpayer to qualify for the deduction of such expenditures: it is possible to adduce evidence by way of oral testimony. Whether the Minister or a judge could conclude that the activities purported to have been carried out by the taxpayer were actually carried out then becomes a question of credibility.” (Emphasis added by the judge).

The judge’s legal reasoning that the CRA cannot ask more from a taxpayer than what the law requires has recently been applied in other decisions. For example, in a decision involving claims for input tax credits (GST), Justice Tardif of the TCC also pointed out that the CRA must abide by the law in assessing the available proof:

With respect, regarding this interpretation, I question this position given that this condition is not in the Regulations; moreover, in tax matters, taxpayers cannot be required to do more than the obligations the Act imposes on them.”

This decision confirms that, although contemporaneous documentation is recommended, it is not essential to qualify for the SR&ED credit.

So where does this decision leave claimants?

At law, companies may be able to prove that eligible SR&ED was performed without contemporaneous documentation. However they are unlikely to convince the CRA without it. That would mean going to court and producing some other kind of evidence that is persuasive.

At a recent Stakeholders’ session in Vancouver, Helene Marquis of CRA indicated that they do not view this as precedent setting since it relies so heavily on a reading of the facts.

Ms. Marquis suggested that they were more interested in the judge’s findings on the credibility of their expert witness:

The CRA’s expertise

The parties each submitted an expert’s report on the disputed activities. The CRA called Steven Kooi as an expert witness, a CRA employee who acted as scientific during the audit of the Corporation. Although Mr. Kooi’s qualifications as an expert were not questioned by the parties, the judge nonetheless decided to give his testimony very little weight[5]. According to the judge, the fact that Mr. Kooi was employed by the CRA was not enough in and of itself to reject Mr. Kooi as an expert[6]. However, the Court said that it questioned Mr. Kooi’s impartiality given the disproportionate emphasis he placed on the CRA guidelines compared to his own expertise:

[Translation] “During his testimony and in his report, there was confusion between his role as a scientific adviser during the audit and his role as an expert witness.As a scientific adviser at the audit stage, it is quite normal for Mr. Kooi to be guided by the Canada Revenue Agency’s guidelines regarding scientific research and experimental development, including certain standards relating to the proof of facts the taxpayer must establish to satisfy the Agency.However, his role as an expert witness is different since it involves his personal expertise on issues such as whether there is technological uncertainty. An expert may agree with a recognized authority in an area but it must nonetheless be his own opinion.During his testimony and in his report, there were times when Mr. Kooi often seemed to be guided more by the Canada Revenue Agency’s guidelines and policies than by his personal expertise.”

This decision should therefore encourage the CRA’s experts to base their opinion on their own expertise rather than referring to the guidelines and policies of their employer, the CRA, in determining what activities qualify for the SR&ED credit.

It will be interesting to see how the CRA will react to this finding.