CRA SR&ED Claim Audit: an opportunity or a threat

Written by Raj Phalpher.

CRA audits of SR&ED claims should not be confused with the traditional CRA audits that a number of us dread.  We should welcome these audits.  Here, the objective is not to ensure that you have paid your fair share of the taxes, but to guide the claimants on filing of future claims.  Like its other accountabilities, CRA wants SR&ED claims to be self-administered.

In an ideal world, CRA would like to receive the claim that meets the eligibility requirements spelled out in subsection 248(1) of the Income Tax Act, ensure that pertinent costs have been captured accurately, and the submission has been filed on a timely basis. CRA auditors want to simplify their task and would like to approve claims with a cursory desk review.  In order to achieve this goal, they want to train claimants on the SR&ED claim eligibility criteria and accurate capturing of costs.  Training claimants is one of the key objectives of the audit.

So, the SR&ED audit should not be viewed as a threat, but an opportunity to learn and get valuable insight into CRA’s perspective.  For a consulting firm like Resultel, it is a continuous learning experience, highlighting the pitfalls to avoid, and provides a better understanding of the kind of development activities that are likely to qualify for SR&ED claims.  Every audit underscores how to structure and frame one’s subsequent submissions. 

We at Resultel find, compared to 15 years ago,  a lot more clarity about the intent of the program and how CRA administers it.  In addition, there is far more consistent application of the program, and more uniformity across various auditors and offices.

Maximizing shareholders value

Written by Raj Phalpher.

Our consulting assistance has contributed to organizations maximizing their shareholders’ value through:

Acquisition by other corporations:

  • ACCTel by AT&T Canada [1999]
  • Triversity by SAP [2005]
  • ClinSaver by Medisolv [2006]
  • FCI Broadband by Rogers [2007]
  • Virtual Blocks by Cincinnati Bell Technology Solutions [2009]
  • ScanCode by Descartes Systems Group [2009]
  • Virtual Dispatch by Prophesy Transportation Solutions [2010]
  • edCetra Training partnered with Metrix Group [2011]
  • Tenet’s VAR business by Groupe Access and ISV business by Techmien Corp. [2016]
  • Nightingale Informatix [IPO in 2005] and acquisition by Telus Health [2016]
  • Simply AudioBooks by Recorded Books [2017]
  • Infradog by iVedha [2018]


What Constitutes Scientific Research and Experimental Development?

Written by Raj Phalpher.

The Tax Court of Canada recently ruled in favour of Les Abeilles with respect to a SR&ED claim denied by CRA. We thought the decision was worth highlighting, and expect that this ruling will impact how CRA will test SR&ED eligibility going forward.


The case came to trial in July 2013 after CRA rejected the claim on grounds that none of the claimed work met the definition of SR&ED eligibility: the work undertaken was standard practice and/or routine engineering with no technological uncertainty, no technological advancement nor any systematic investigation. CRA also cited a lack of contemporaneous documentation to corroborate the claimed work.

On October 23, 2014, Justice Gaston Jorré allowed an appeal to the Tax Court of Canada (TCC) made by Abeilles Service de Conditionnement Inc.  Abeilles is located in the east end of Montreal and is 49% owned by General Electric. The company manufactures electric motors and other component subassemblies such as heating elements, control panels etc. used in household appliances.

The following three rulings by the judge are contrary to the usual stance taken by CRA to reject a claim.

Technological Advancement:  The Court ruled that research does not have to lead to technological progress for it to be SR&ED. Work undertaken in the interest of technological progress, even if it fails, can still qualify. Additionally, increasing the productivity and flexibility of a process can constitute technological advancement.  In determining whether there has been experimental development, the Court stated that one must consider the project as a whole rather than looking at each individual test or step separately. This ruling contrasts with the approach taken by CRA.

Technological Uncertainty: Criteria of technological uncertainty can be met by the taxpayer not knowing how to achieve some goal that is very specific to its situation. This is a clear distinction from the statement "Technological uncertainties may arise from shortcomings or limitations of the current state of technology that prevent a new or improved capability from being developed.  It is the "no shortcomings or limitations of the current state of technology" reasoning that CRA auditors all too frequently cite in their assessments.

Other findings of note with respect to eligibility are as follows:

1. Increases in productivity rate and flexibility of the process are acknowledged to constitute a "technological advancement".

2. Projects should be assessed as a whole and across multiple years, not "de-constructed" until no eligibility remains.

3. A diligent search by the taxpayer that shows a lack of information public domain with respect to how to achieve the outcome sought in the project, is adequate evidence of "technical uncertainty".

4. The need to develop a commercially viable (i.e. cost effective solution) can be a factor of technological uncertainty with respect to SR&ED eligibility.

5. Adjusting a manufacturing process can constitute "systematic investigation".

6. Technological progress in the manufacturing process equates to "advancement”.

7. The requirement to develop a cost effective solution was a practical factor with respect to the criteria of technological advancement and technological uncertainty.

8. While contemporaneous documents are needed to corroborate the occurrence of SR&ED, those documents need not have special content relating to SR&ED; it is sufficient to be able to cross link the work claimed to the timeframe of the claims.

 The last part of the ruling would be interest to claimants familiar with the SR&ED audit process.   CRA often uses internal staff as expert witnesses in court, including using the same staff members who denied the claim in question. In this case, the Court ruled that the CRA staff member appeared to be guided by CRA guidelines, including certain standards for proving facts which were not appropriate in his role as expert witness. The court found that the Crown’s expert (a CRA employee) was not sufficiently impartial after the taxpayer objected that the he was not "independent". The court observed the expert’s "confusion" between his duty to uphold the very CRA administrative policies that formed the basis of the original assessment and his role at court which is to "clarify" technical evidence so that the court can make its decision. 

Anti-Spam Legislation: an opportunity for software development organizations

Written by Raj Phalpher.


Canada’s new anti-spam legislation that comes into effect on July 1st will better protect Canadians while ensuring that businesses can continue to compete in the global marketplace.  The legislation covers all forms of electronic communication: email, messaging, texting, tweeting, Linked-In, What’s App or whatever else surfaces in the future. 

In order to comply with Canada's anti-spam legislation, three simple rules to remember when sending a commercial electronic message (CEM) are as follows:

   Consent: The sender must have expressed or implied consent to send a message.

   Identification: The sender must clearly and simply identify itself and anyone else on whose behalf the message is sent.

  Unsubscribe mechanism: Every message must provide a way for recipients to unsubscribe from receiving messages in the future.

Some may see this legislation as a threat to establishments that solicit business electronically.  I see it as a tremendous opportunity for software development organizations to develop tools and systems to ensure compliance with the law, and help these establishments leverage electronic communication technology for furthering their business interests.


Summary of Changes to the SR&ED program

Written by Raj Phalpher.

This blog summarizes the technical and financial changes made to the SR&ED program as of Jan 2014.


For project descriptions, CRA wants project descriptions to include the following five elements:

1.   What were we trying to achieve and what technological (not technical) challenges we encountered?  Why technology sought exceeds prior limitations?

2.   What hypothesis was formulated to address the technological challenge?  How does a new idea close the gap?

3.   What scientific work was done to prove / disprove the hypothesis?  How this work advances the technology sought?

4.   Did the work result in scientific advancement?

5.    Clearly demonstrate the planned approach including:

                      o  The experiments and/oranalysisconducted,

                      o  The results obtained, their interpretation, and

                      o  The conclusions.

A good example illustrating these aspects is as follows:



Smartphones GPS unable to retrieve the location information indoors



Is it feasible to use LLA (Latitude-Longitude-Altitude) markers, which once scanned could possibly provide accurate location coordinates?


Work Done

Developed code, hardware, etc. to use LLA markers;
tested LLA markers in various conditions



LLA markers did not work because……brief explanation,  or
LLA markers worked and we have successfully developed the ability to make GPS work indoors



These stringent new requirements are coupled with a reduction in tax credits.  These reductions are more significant for larger corporations; for small, private corporations (CCPC’S), the following are reduced:

  • Proxy from 60% to 55%
  • Contract work from 100% to 80%
  • Capital from 40% to Zero

Who did it? For how much?

Written by Raj Phalpher.

Scientific Research and Experimental Development (SR&ED) Expenditures Claim Form T661 has been revised to include a new section: Part 9 – Claim preparer information.  This section requires the following information:

    • Name of claim preparer;
    • Claim preparer business number;
    • Billing arrangement and rate: contingency percentage, hourly/daily rate, flat fee or other billing arrangements, e.g. shares in the corporation
    • Total fee paid, payable or expected to be paid.

If any of the information in Part 9 is missing, incomplete, or inaccurate, a $1,000 penalty may be applied.   The claim preparer(s) and the claimant will both be liable if any of the information is missing, incomplete, or inaccurate.  If a claim preparer has concerns about the confidentiality of the information requested in Part 9 of Form T661 (13), Part 9 can be filed separately. CRA provides detailed process for filing separately at

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