Recent Tax Court Ruling a Cautionary Tale for SR&ED Review

By: BeneFACT Marketing in CRA Updates

April 26th, 2016

One of the major benefits of using a consultant to handle your SR&ED claim is they can properly prepare you for a review. A CRA reviewer will look to the tax payer for further documentation and answers to their questions, but a consultant can help you prepare the necessary materials and help you anticipate the questions that may arise during a review. A recent tax court ruling is one example of how claimants may be able to avoid such pitfalls and make sure their consultant is properly preparing them for their review.

The appellant claimed salaries paid to the president and sole shareholder. His salaries claimed were in relation to the invention of wind turbines, the manufacture of prototypes, and the evaluation of possible alternatives to generate the widest possible and patentable property. The expert witness called on behalf of the CRA pointed to the discrepancy between the description in the T661 and what the appellant asserted to be uncertainties on appeal. They further asserted that the appellant (who had a doctorate in music) misunderstood the technology and did not conduct any calculations of the work performed.

The judge thus concluded that no uncertainty could be faced and no advancement made, and the documentation was insufficient to substantiate systematic investigation. The informal procedure appeal was dismissed.

For those going through a review, here are some tips for getting your consultant to prepare you for the review:

BeneFACT is Canada’s largest independent SR&ED consulting firm. Call us at 1-855-TAX-BACK (829-2225) to start collecting R&D tax credits today.