Tax legislation contains only a few paragraphs regarding SR&ED tax credits. Over the years, case law has completed the legislation by interpreting particular cases where the taxpayer opposed the Crown.

One of the greatest cases in the history of SR&ED is Northwest Hydraulic Consultants Limited v. The Queen, in 1997. One of the arguments bore on what did or did not constitute an eligible SR&ED project. Justice Bowman rendered a decision based on the three criteria (five-question approach) defining SR&ED activity:  scientific/technological uncertainty, scientific/technological advancement and the presence of a systematic investigation. This definition of SR&ED, subsequently reused and reconfirmed, has become a cornerstone of the program. Not all cases however have had as much impact as the Northwest Hydraulics case.

Further cases have recently enabled the tax authorities to clarify or confirm certain aspects of the scientific/technological point. We will take a brief look at one of these cases to illustrate the lessons to be learned from case law:

Joel Theatrical Rigging (JTR) Contractors (1980) Ltd. v. The Queen


In this case settled in July 2016, the company contested the CRA’s refusal of its SR&ED projects on the basis that the claims did not meet the scientific eligibility criteria.

One of the projects involved the development of a device comprising a motor that would activate a hydraulic system to control the rate of descent of a theatre’s fire curtain. Current practice in the field consisted in using counterweights to achieve the same function.

The Judge agreed with the CRA’s decision, which stated that the problems involved in attaining the objectives could be resolved by “routine engineering”; the term typically “describes techniques, procedures and data that are generally accessible to competent professionals in the field”.

When analyzing a case, the reasoning and the process used by the Judge are just as important as the ruling itself. From the arguments of this ruling, the following points should be taken into consideration when determining the eligibility of SR&ED activities:

  • It was not clear whether the project was carried out by competent professionals in the field: the employees who worked on this project did not have a technical diploma or experience in mechanical or hydraulic design. They also did not have recourse to specialized external resources. “(…) the research teams did not include any professional engineers or researchers who held a university degree in engineering, and as none of the researchers with limited engineering training were called as witnesses (…)”.
  • There was no correct formulation of hypotheses on the basis of several tests in the process. The Judge provided a number of definitions taken from various sources and retained a simple one stating that a hypothesis should be formulated as a statement to be tested: “In other words, a hypothesis is a statement to be tested by an experiment or a trial.”
  • There was a lack of thoroughness in the experimental process. For example, during trials, the rate of the curtain’s descent was not measured: “It seems to me that, if the scientific method had been used (i.e., if there had been systematic observation, measurement and experiment), Mr. Marineau and his colleagues would have determined the precise weight used in the experiments and would have precisely measured the duration of the descent in each experiment so that they could determine whether, as they moved from one experiment to the next, the duration of the descent was increasing or decreasing.”

With regard to Point 2, it could be assumed that these hypotheses could be implicit for each design iteration, but it is still possible to be able to reconstitute them from the facts and they must be specific and innovative. A good hypothesis at the basis of a trial is what mainly distinguishes a systematic investigation from a “trial and error” process.

Point 3 is an argument rarely used in case law to refute the presence of SR&ED. Note however that, in this particular case, the Judge does not set the bar very high in terms of scientific thoroughness.

Nonetheless, there is a positive aspect resulting from the comments of this ruling: the Judge reiterates that contemporaneous documentation, while beneficial, is not essential for demonstrating the existence of SR&ED: “Although Northwest Hydraulic indicated that one of the criteria of SR&ED is a detailed record of hypotheses, tests and results, some cases have suggested that this particular criterion may not be absolutely essential.”

This case constitutes another situation where SR&ED projects in applied mechanics are difficult to defend. The current practice in this field is quite vague and arguments must be convincing. Also, work must be performed by personnel at the cutting-edge of technology and a thorough development process must be adopted.

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Hélène Robitaille
Senior Manager | CPA, CA, LL.M. Fisc. | Tax

Further to the March 26, 2015 budget, Bill 112, adopted February 8, 2017, implements the Finance Minister’s intention to extend the obligation to produce a disclosure form for tax credits that exceed $25,000.

This disclosure must be made if one of the following conditions is met:

  • Remuneration is conditional (this is the condition most likely to apply);
  • Taxpayers sign a confidentiality agreement;
  • Taxpayers receive contractual protection.

Deadline for filing the disclosure

In the case of refundable tax credits, the deadline is the same as the one granted to submit the prescribed form. For corporations, this corresponds to 18 months after year end. In other cases, when the transaction is realized after this deadline, it is extended to the transaction realization date.

Revenu Québec grants a 60-day period, up to April 9, to file missing returns. As for refundable credits, it’s not necessary to file a disclosure for fiscal years ended before January 1, 2014.


The penalty is $10,000 plus $1,000 per day, as of the second day, up to a maximum of $100,000. Furthermore, the prescription period has been extended. At the symposium, La RS & DE et autres mesures incitatives à l’innovation, presented on February 23 and 24, 2017 by the Association de planification fiscale et financière, Revenu Québec specified that the penalty would not be automatic. However, given the amounts in question, better safe than sorry!

27 Mar 2017  |  Written by :

Ms. Robitaille is a senior manager at RCGT. She is your expert in taxation for the Montreal office....

See the profile

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We hear about nations spying on each other, of geeks hacking large corporations just for fun; how can I know if my company is at risk?

We are all at risk. The questions really are: “How much are we at risk?” and “To what kind of risk are we exposed?” As you have enumerated already, there are many potential attackers, and understanding what our highest value information is will help us answer who could be after us. To keep it simple, let us use Marc Théberge’s, Chief Cyber Security Operations at Arc4dia, categories of attackers: The Gangster and The Traitor.

The Gangster will contemplate exploiting you for a quick win, quick profit, while the Traitor looks at exploiting you for long-term profit.

Ransomware being the superstar for the Gangster has been recently affecting all of us. Either in direct fiscal losses of $1B in 2016 or in mission critical information such as police loss of nine years of evidence, the range impact on business has led to some business closures. Thankfully, you can protect yourself from it by making sure you have at least two (2) backups at all time. And remember, only verified working backups are valid backups.

The Botnet is still around in the Gangster category, making damage by exploiting more and more Internet of Things (IoT) and home routers. This one is a bit trickier as many of the IoT devices simply cannot be updated or patched to protect them against known exploitation vectors.

The best mitigation strategy at the moment is to keep them isolated from direct external Internet access. There are a few technologies worth looking into lately such as the Google Wi-Fi router as well as the F-Secure Sense, both offering some level of protection for our very vulnerable home IoT devices.

As if the Gangster was not problems enough, here comes the most dangerous threat against your company: the Traitor.

The Traitor will go to a great extent to either cause high profile reputable damage or stay hidden to steal as much as possible from you for profit in the long run.

We have seen all sorts of very creative hacking to reach such goals by criminals or state-sponsored acting in the best interest of their local industry. Defending against such actors is the subject of long studies and professional work, but let us try to isolate some ideas for a better understanding of the problem.

The Traitor will seek to breach your privacy by breaching your security in order to target your most valuable information. To preserve your privacy, the first step is to take time to identify what is your high-value information and high-value reputation.

For example, we know of attackers targeting the core systems to gain access to:

  • Intellectual property,
  • Critical infrastructure,
  • International strategies,
  • Acquisition plans,
  • Quotes,
  • Know-how,
  • Etc.

Some of our clients need to bid internationally to acquire some resources. Hackers have targeted the executives in charge of performing such a bidding process with the intent of outbidding them at lowest overhead costs as possible. Such mission critical information losses have been the cause of large companies foreclosing in the last 10 years and even more.

Others are suffering from privacy information leaks. It is very common for companies with very sensitive information in hands to have to pay a ransom in exchange for privacy otherwise they would lose the trust of their clients. These ransom payments are happening behind closed doors and do not make it to the public knowledge, but they are good examples of where to look to identify where we are at risk. The information on ransom paid is very limited, but we can go as far back as the year 2000 when the FBI released information that more than 40 companies had paid ransoms over $100,000 to avoid information release within the last year.

To summarize, if you run a successful business, you are at important risk, especially nowadays with such a rise in criminal hacking.

We see nothing, but we hear about the “hacking battle”; how have threats evolved in the last few years?

True enough, hacking battles are happening, in fact some security vendors like to outline that some of their clients have had almost all the strains of possible advanced malware out there and that they look there when they suspect something is going on.

The threats certainly have evolved. The advanced malware has lowered the number of targeted hosts in exchange for value to optimize the return on investment in their technology against the infosec community after suffering more and more exposure in the recent years.

The rise of ransomware, now possible because of cryptocurrencies such as Bitcoin, has brought a new type of malware in the sense that it is not trying to hide. It is simply acting in a brute force and fast matter.

At the opposite end of the spectrum where stealth is critical for the malware success, we are seeing a rise in fileless malware. This malware avoids touching the system disks in favour of living in memory, only making it much harder to detect.

We heard of the “hunting malware” type of defence, what is it?

Traditionally, the anti-virus was attempting to keep your computers clean of any viruses. This method was very effective at finding the known malware or the already seen before malware. This was an effective way of stopping the viruses because spreading methods were much slower, especially before the Internet days.

Fast forwarding to 2017, these techniques are applying machine defence mechanism fighting against a very dynamic threat controlled by humans. The “old” approach is effectively a machine vs human fight and the machines, in this case, are losing radically.

Malware hunting is bringing the fight at the human vs human level by being dynamic and continuously connected to the protected hosts. Malware hunters are performing live forensic analysis on computers with suspicious alerts without interrupting them.

So what is the best protection strategy, considering the costs involved?

One of my favourite guides is that from the Australian Signal Directorates:

Start with their top 4 recommendations and add an Endpoint Detection and Response platform supported by quality malware hunting managed service. Dedicated malware hunting services are part of defensive strategies to free up time in favour of hardening the environment instead of running around trying to stop potential hackers inefficiently.

Let the old techniques cycle out. We have many high-profile clients letting go of expansive SEIM and IDS/IPS services in favour of cheaper ones or even simpler and more effective techniques as mentioned before.

For small businesses, I would add to this to make sure you have a very simple VPN service on all devices that are going out of your premises. Services such as Freedome by F-Secure are simply too cheap, easy and efficient to pass on. They will protect users from several local attack types while at the local café or the airport.

Pierre Roberge: An 11-year veteran of the Communication Security Establishment (CSE), Pierre led advanced technical teams tasked with protecting Canada’s national interests in cyberspace. While the majority of Pierre’s projects remain classified, Pierre established a strong reputation among ‘5- Eyes’ nations as a leading expert and innovator in cyber intelligence operations.

His declassified awards include the CSE Excellency Award and the Chief of the Defence Staff Commendation. While working alongside British and American counterparts, Pierre lead teams of 100+ members to combat the most advanced cyber threats originating from both state and non-state actors.

Pierre is experienced in working within a complex, enterprise-level networking environment using the most advanced technologies. His technical experience ranges from securing low-level infrastructure and endpoint systems to interfacing with dynamic and cross-functional networks.

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Federal Minister of Finance, Bill Morneau, presented his budget on March 22, 2017. The government is continuing with its planned focus on building a strong middle class through innovation, skills, partnership and fairness. Budget 2017 focuses on giving talented people the skills they need to drive our most successful industries and high-growth companies forward, while investing in Canadians’ well-being through a focus on mental health, home care and indigenous health care.

Forecasted deficits

As widely anticipated, the budget projects significant deficits over the next several years. The government forecasts a deficit of $23 billion for 2016–17 and $28.5 million in 2017–18. Over the next four years, deficits are expected to decline gradually from $27.4 billion in 2018–19 to $18.8 billion in 2021–22.

Canada continues to have the lowest total government net debt-to-GDP ratio of all G7 countries. The federal debt-to-GDP ratio is projected to decline gradually after 2018–19 reaching 30.9 percent in 2021–22.

Investing in priorities

The government is committed to making smart, necessary investments in the economy to ensure a thriving middle class, and remains committed to a responsible approach to fiscal management.

The government will initiate three new expenditure management initiatives:

  • A comprehensive review of at least three federal departments (to be determined), with the aim to eliminate poorly targeted and inefficient programs, wasteful spending and inefficient programs, and ineffective and obsolete government initiatives.
  • Initiate a three-year review of federal fixed assets to identify ways to enhance or generate greater value from government assets.
  • Initiate a review of all federal innovation and clean technology programs across all departments, as federal programs are dispersed to simplify programming and better align resources to improve the effectiveness of innovation programs.

The government will report on the progress of these reviews in Budget 2018.

The government will also introduce legislative changes to improve the organization and efficiency of government operations, as needed.