SR&ED Alert and Update - Release of new T661 and Guide - Effective for tax years ending after December 21, 2008
November 11, 2008

The Canada Revenue Agency (CRA) released its new “simplified” T661 Form and T4088 Guide to Form T661, today.  These documents, written in “plain language”, contain significant departures from previous forms and guides in terms of terminology, tone and content.  The Guide spells out much more clearly documentation requirements.  Project descriptions will be required to be filed for all projects claimed, not just for the top 20 projects.

 The CRA stresses that the changes in the Form and Guide do not affect the technical or policy requirements of the program.  Specifically, the CRA states: “The SR&ED legislation and the program’s application policies and other technical publications remain in force.  This means that the eligibility and expenditure requirements remain the same.”

 For details see: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/whtsnw-eng.html

 Some senior practitioners who have done an initial review of these CRA documents observed that the changes may be more significant in practice.

 For example, it is questioned whether the shift from the term “Technological Uncertainty” and the use of the less precise term “Technological Obstacles” and other definitional shifts may indicate a movement by the CRA away from the policy of what is a Technological Uncertainty as defined in paragraph 2.10.2 of Information Circular IC 86-4 R3.  Likewise, it is questioned whether the policy on how to consider the Business Context of a firm in applying the criteria as it is outlined in paragraph 2.11 of IC 86-4 R3 has been changed.  If so, the net change could be interpreted to be a shift to the more restrictive position of some CRA reviewers that was extensively commented on in the consultations for the last Budget.

 As well, at first reading, the documentation requirements appear to be more stringent, and most easily met by businesses that conduct dedicated SR&ED projects, and by businesses that manage and document their SR&ED projects in a way that is distinct from the way they document their overall development projects.  These are not particularly common practices in the Information Technology and Communication sector. 

 The requirements call for contemporaneous documentation of the experimental development process, preferably documentation that is dated and signed; and for the content of the key elements of project descriptions, e.g., Scientific Knowledge You Were Trying to Advance, to be extracted from this information.

 On the other hand, the CRA seems to be emphasizing that a project description should focus in one field of science or technology.  This may assist all parties in effectively getting at the base level and the improvements being sought.  It would appear to promote filing a project or groups of projects that focuses on explaining how a technology stream is advancing.  

++ Action Item:

Given the potential significance of the CRA’s changes to these documents, we are seeking your company’s views on:

        -- the significance of the changes- both positive and negative - that the CRA has made in the new Form and Guide; and,

        --how easily you can adjust to the new Forum and its associated documentation requirements as established in the new Guide.


Please send your observations to our team, led by CATA's Sr. VP, Tax and Finance, Russ Roberts at roberts-bishop@sympatico.ca

Please indicate the size of your firms in your comments and also confirm your interest in a Conference call update.

Note:  comments will be used to help us establish our priorities for next steps and in our dialogue with Government officials. They will not be ascribed to individuals or companies.