Important SR&ED Educational Materials now available on how the CRA expects its SR&ED policies to be interpreted and applied by their staff and claimants: Call for Community Guidance
May 12, 2015

++ Action Item: Companies currently claiming or planning to claim SR&ED tax credits should review the Briefing note and related videos below and then call CATA's Sr. VP, Advocacy, Russ Roberts, to have any subject matter issues or concerns clarified (email: roberts-bishop@sympatico.ca). The SR&ED session materials are based on a CMC-Ontario Conference (November 2014) in association with CATAAlliance.  You should also take five minutes to listen to a Call For Guidance Interview conducted recently with Dr. Roberts on the 2015 federal budget. Please go to:  https://youtu.be/2r9Jpx35lzI

This SR&ED session was developed in association with the CATAAlliance.

The session included a panel of leading program experts from Government and Industry who were assembled to provide an in-depth review of recent changes to the SR&ED (Scientific Research and Experimental Development) Tax Incentive Program. The SR&ED program is the largest single source of federal government support for industrial R&D. The program provides over $3 billion a year to claimants.

The panel included:

  • Brian Cookson, President and Managing Director of RDP Associates;
  • Hans Downer, President & CEO of SavvyDox, who outlined his experiences and thoughts as a user of the program;
  • Geoff MacDonald, Partner and Practice Leader, SR&ED, of KPMG was the Panel Moderator; and
  • Russ Roberts, Senior Vice President, Tax, Finance and Advocacy for the CATAAlliance.

The CRA (Canada Revenue Agency) was represented by: Elizabeth Koopman, Director of the Financial SR&ED and Film Division, SR&ED Directorate, Canada Revenue Agency; and Hélène Marquis, Director of the Science and Technology Division, SR&ED Directorate, Canada Revenue Agency.

Presentations

The session started with a detailed presentation by Elizabeth Koopman, CRA, on the legislative changes that have occurred. The presentation outlined some of the history and thinking around these changes. 

This presentation was followed by a detailed explanation by Hélène Marquis, CRA, of:

  • the recently issued CRA interpretive policies regarding eligibility, and the upcoming changes to expect based on feedback received on these policies from internal and external stakeholders.
  • the CRA's newest review guidance to the SR&ED program's reviewers that sets the CRA's expectations for the conduct of the reviewers, how the reviews themselves are conducted, and the content of the reports.

Notes for remarks, as additional briefing insights, can be viewed at: 

https://drive.google.com/file/d/0B__wzrAC_E12LWZlbWhreFdQWUE/view?usp=sharing

https://drive.google.com/file/d/0B__wzrAC_E12LVkxbXB0NEs0ZG8/view?usp=sharing


This presentation contains important observations on how the CRA expects the policies to be interpreted and applied by their staff and claimants. It covers the CRA's core 5 questions. For CRA reviewers, it does lay out some important expectations for the review process and how the CRA's conclusions are to be supported and explained. The two videos of the CRA presentation panel can be viewed at these URLs:  Video One: http://youtu.be/4edX2BhO0nw and Video Two: https://youtu.be/_jLtr-ponmE

Panel discussion

These formal presentations by the CRA were followed by the panel’s discussion that explored with the SR&ED program officials the CRA's efforts to improve the program's administration and the community's understanding of what these tax credits support. 

Specific questions submitted by the panel to the CRA ahead of the conference

Below are the questions that were submitted to the CRA in advance of the conference. The CRA officials provided detailed responses to these questions during the SR&ED session. CRA responses, as well as the follow-up commentary, are recorded in the videos.

  1. Key point – Can the CRA provide an example or model of an acceptable claim?

    "CRA supplies a substantial amount of information on the SRED program. CATA and our members appreciate this effort and the frequent seminars on SRED that are being provided for the public.

    Feedback we have received is that there is a tendency for reviewers to focus on what types of activities do not qualify for SRED as opposed to what kinds of information helps support eligibility and what kinds of information helps claimants support the inclusion of various types of work in the SR&ED project vs. what kinds of information contradict these conclusions on what constitutes the SR&ED project and why.

    This question focuses on both these issues.

    Can CRA outline in detail, say in an area of software or IT or Manufacturing, the elements of a SR&ED project model and how eligibility would be supported and how this project should be carved out of the actual business project in real life. In addition, could they explain how the various elements of this model could be documented with contemporaneous documentation and what the project description might look like? "

  2. Key point – Are there plans to extend the FTCAS workshop approach to first time applicants and is this related to a “pre-claim review process” that we have heard talk of?

    "The CRA has explained in the past that first time claimant compliance is very low. We understand the FTCAS meetings are a new approach to educating first time claimants. While the SR&ED program is well explained during these meetings there has been little discussion directly relating to the eligibility of the claimant’s projects and sample documentation is not reviewed.

    Is there room, while at the claimant’s premises, to make it more of a working session and dig deeper into what specific projects they’re working on that might be eligible and what types of specific details should be kept in their documentation and what should not be included and why?

    Are there any aspects or insights that can be taken from the Pre Claim Review Process ( PCPR), that CRA is testing, where a more in depth review of specific projects is taken, that could be employed in the FTCAS meetings?

    As an aside, can CRA comment on the PCPR pilot project and provide any insights or comments to date?"

  3. Key point – Do reviewers have too much power?

    "The general view among startups and many other claimants, is that the SR&ED review process is unpredictable and uncertain. The belief, as we have heard or experienced, is that CRA technical reviewers have significant latitude to assess claims.

    If you get the wrong technical reviewer who may not agree with your “scientific approach” or your interpretation of “scientific uncertainty”, your claim could be in serious trouble. In one particular case, where a company had been receiving their SRED tax incentives annually for several years, it was proposed that a recent claim be cut by 75%. It took over 15 months to resolve.

    Perhaps CRA could comment on the internal review process of SRED claims where in depth claimant reviews are carried out?

    Statistically speaking, it appears that once the RTA forms an initial opinion of SRED claim, there is little practical and timely recourse for claimants to change or debate that opinion. What is the role of the CRA manager in this dispute process?

    The way that the SRED program is perceived by those companies that participate is important, and it is felt by many in wide array of industries that CRA technical reviewers have too much individual power. Could CRA comment on this and how companies can better work through these challenges when they occur?"

  4. Key point – What’s being done to reduce time and effort in the in depth, on site review process prior to receiving the Notice of Assessment?

    "I fully believe that the SR&ED program could play a significant role in promoting and assisting with overall R&D and innovation in Canada. It is our understanding that something like 25,000 claims are being filed annually and that SR&ED represents a $3 billion plus annual expenditure in support of business innovation.

    Nonetheless, the cost of these unpredictable setbacks to the firms that make the claims and get into hassles can be extreme. We have seen firms pushed over the edge and the reputations of excellent practitioners damaged.

    A key challenge and a real frustration is that one cannot predict which claims will raise the challenges nor the cost of defending the claims that are reviewed. We often hear about the uncertainty over what kinds of information are needed by the CRA to resolve issues.

    Does the CRA have a mechanism in place or are they considering an improved process to unlock these costly stalemates in order to get a quick 3rd party, objective cross-check or second opinion during a review? The current system does not seem to be consistently effective.

    The key point and question here is what can be done, or is anything being done, to help reduce the time and effort spent on an in depth on-site review prior to receiving the Notice of Assessment?"

  5. Key point – What is documentation required for an in depth onsite review, can CRA provide an outline or framework/standard?

    "Over the past 3 years there seems to be considerable feedback from companies that the process in which the CRA carries out reviews of SR&ED claims is unbalanced. While the majority of all claims are processed without in-depth reviews, many companies encountering in-depth reviews find that the documentation requirements are too onerous and that definition as to what constitutes SRED seems to be narrowing to the point where companies are now unsure what projects qualify as SR&ED.

    While the CRA is very good in tracking its service record on processing of claims and meeting the standards, there are few statistics on what happens and why, once a claim enters an in-depth review. Does CRA see this as an area of concern and what is being done to address the conundrum created by the fact that contemporaneous documentation is often found to be insufficient support for claims filed with the best of intentions? Is CRA working on any internal review to address these issues, including the concerns regarding documentation?

    In specific, can the CRA provide us with a outline or standard framework for documentation required for an in depth / on-site review?"

  6. Key point – Can the appeals process be simplified, but also can we gets stats?

    "This question relates to the redress process associated with disputed claims. In some cases which I have followed, the technical reviewer can be immovable on certain points which leaves the applicant thinking their only redress will be a formal appeal. Unfortunately, these appeals can take a long time to be resolved, and the decisions on most appeal cases are not in favor of the applicant. Anecdotally, I have heard that the number of appeals are growing substantially, but I can’t find any details to support that view. It is a source of significant concern for everyone submitting SR&ED claims and unless we can shed some further light on this topic, the concern will continue to fester within the SR&ED community. Can you share with us the number of claims that are processed each year; the number of claims that result in a formal appeal; and the number of formal appeals that result in the original decision being overturned.

    What can CRA do to simplify and speed up the appeal process? What kinds of issues are resulting in the greatest number of appeals? In which sectors are you seeing the greatest number of appeals? Are there any common problems that are at the core of the appeals?"

  7. Key point – Are there any major changes coming down the road?

    "We understand that CRA has extensive information on the results of their program and their review process, e.g. what is being processed annually, intake and annual growth, how long the processing is taking, levels of allowance, and what areas ae proving difficult.

    Could CRA share some of their results on intake, processing, allowance and the various level of review etc? What work is going on or planned with the department of Finance to understand the effectiveness of the program and the changes that are just coming fully into effect, as well the cost of the program to users?"

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