SR&ED Update -- July 2007
July 16, 2007

SR&ED Update -- July 2007

-- Overview
-- Taking the Pulse for Administrative Action
-- Meeting with CRA Officials
-- Position of CATA Board of Directors
-- Next Phase Web Consultation: Action Requested


-- Overview:

Since the announcement of the upcoming review of the SR&ED program by the Minister of Finance, CATA President, John Reid and Senior, Tax Director, Russ Roberts have been actively discussing the review with officials in the Department of Finance and the CRA. The review is to be led by the Department of Finance who have stressed that the government is committed to improving the credits, not getting rid of them, and that both legislative and administrative improvements will be explored. Previous pre-budget discussions suggest that changes will likely be tempered by a need to reasonably maintain fiscal balance with other support to business.

Specifically, in our pre-budget discussion in the fall about the need for improvements, Finance officials noted that the costs of the program were approaching $ 3.1 billion and they explicitly asked us what trade-offs could be considered in achieving improvements. We understand that the cost has likely gone up again, significantly.

-- Taking the Pulse for Administrative Action:

As of the team’s last meeting with Finance this spring, it was unclear how Finance intends to consult on what is needed to improve the program. We will be following up on this over the next month. In the meantime, we are proceeding to further explore how CATA’s clientele see the workings of the current program and their priorities for improvements. Specifically, CATA is conducting a series of on-line web consultations this summer.

The first on-line web consultation, Taking the Pulse for Administrative Action: Policy Application and Consistency, was posted at the end of May on the CATA web site. This first step in the web consultations is focused on understanding the recent experiences of the community with the program from an administrative perspective. It specifically focuses on how well CRA’s policies are being applied.

If you wish to contribute, please go to

The overall aim of the consultations is to set the stage for exploring whether administrative improvements are needed and where the focus should be placed.

A key element is the consistency and predictability of how claims are being treated by reviewers from both the technical and financial perspectives.

Over 80% of participants in the web consultations use or have used the program. Following is a summary of the responses. All percentages are based on the number of respondents who expressed opinions.

With respect to consistency of reviews:

· 34% believed consistency for the technical reviews was deteriorating;
· 31% thought it remained the same; and
· 21% believed it was improving.

On the financial side of the story:

· 40% believed the consistency of the reviews was deteriorating;
· 39% believed they remained at the status quo; and
· only 17% believed they were improving.

The commentary that was received highlighted a lack of consistency from reviewer to reviewer both on the financial and technical sides. An inconsistency from office to office is also mentioned. Advisors from one office were seen to be more encouraging than advisors from other offices.

Opinions about the reasonableness of CRA’s requirements for support for the claims varied:

· 35% believed it was reasonable;
· 34% believed that it was unreasonable; and
· 18% believed it was neither reasonable nor unreasonable.

Some of the issues brought up in the commentary reflected a strong objection to the amount and nature of the documentation required as support for a claim. Also, the commentary highlighted a lack of consistency in terms of the application of CRA’s SR&ED policy, guidelines and criteria on this subject.

In terms of CRA’s grasp and application of the CRA policies regarding eligibility and associated issues:

· 38% were of the opinion it was deteriorating;
· 37% thought it remained the same; and
· only15% thought it was improving.

Some survey participants noted that there can be a significant gap between the CRA guidelines and the actual implementation of them by the CRA reviewers.

Suggestions regarding how to improve the SR&ED program included:

· more or better training by CRA for reviewers; and
· more work by CRA to establish, monitor and maintain consistency both from the financial and the technical perspectives.

-- Meeting with CRA officials:

Recently, the CATA SRED team was invited to meet and discuss the program with Hélène Dompierre and Peter Armstrong. Ms. Dompierre is the Director General responsible for the program in CRA. The focus was an update on where CRA was at in terms of:

· developing new and/or clearer policy and guidance; and
· CRA’s approach to consultations with the community.

The following are some observations arising from the discussions and directly reflect the input of the CRA.

From the discussion, it appears that a great deal of CRA's current focus is on the small business community. They reported that they are:

· developing a simplified claim form and guide;
· creating a self-assessment tool to help claimants determine potential eligibility; and
· clarifying the documentation requirements for claimants.

They mentioned that this focus stems from the recommendations of the Minister's Action Task Force on Small Business Issues, and from their own recent consultations with CRA staff and small business claimants. Peter Armstrong stressed that the simplification of the form and guide are not to be a rewrite or reflect a change in the fundamental policies, a rumor that we had heard.

They also noted that CRA will be continuing to directly consult with individuals and specific user groups, putting a specific focus on the above three deliverables.

They indicated that they will be looking to the input from CATA in these consultations.

Mr. Roberts did note that in CATA's web consultations, companies that seemed to be primarily from manufacturing sectors are concerned with the need for more clarity on the CRA's expectations for documentation and the need for clarity on how to determine the nature and length of trials re EP vs. CP policy.

Ms. Dompierre suggested setting up discussion groups comprised of 5 to 10 companies and technical people from the CRA to review the situation and come up with solutions to clarify the EP issue and documentation issue.

-- Position and Commitment of CATA’s Board of Directors:

The work of CATA on the SR&ED campaign was recently reviewed with the Board of Directors who re-established the priority that they give to obtaining improvements to the program. The SR&ED campaign was seen to complement CATA’s work on commercialization with its Innovation Nation Campaign.

A number of Board members offered to assist in the development of a position paper that would explore how to effectively leverage the successes of the SR&ED program into sales and additional employment for Canadians.

Next Phase Web Consultations -- Taking the Pulse for Administrative Action: Redress for claimants when reviews go awry

There are two distinct redress processes available to claimants:

· during the actual review, a process that allows claimants to directly seek the assistance of reviewers’ managers and/or a second opinion through the Assistant Director of the Co-ordinating Tax Services Office responsible for the review. For more details, please refer to Section 3.1 of “Guidelines for resolving claimants' SR&ED concerns”

· after the review is complete and an assessment has been issued, a process that allows claimants to formally appeal decisions of the reviewers.

The success of both processes depends on their objectivity and timeliness.

++ Action Requested: Please provide your input on this important issue by completing the web consultation form at:

It will only take a few minutes.