Update on Measures Proposed by Federal Government to Abolish Certain Tax Planning Using Private Corporations, Tax Reductions Announced for SMEs and Other Measures

On October 16, 2017, the federal government issued a release in which it signaled its intention to simplify the measures proposed on July 18, 2017 to counter family income splitting. Furthermore, the government confirms that it will not be adopting the measures proposed for restricting access to the lifetime capital gains exemption (LCGE). In a new release issued October 19, 2017, the Finance Minister of Canada added that the measures relating to the conversion of income into capital gains will not be implemented. Concurrently with these announcements, the government communicated its intention to reduce the tax rate for SMEs as of 2018.

Lastly, in its October 24, 2017 Economic Statement, the federal government reiterated all of the recent days announcements, adding two measures for families and low-income individuals, i.e. indexation of the Canada Child Benefit as of 2018 and enhancement of the Working Income Tax Benefit.

Here is a brief summary of the tax measures announced by the federal government since October 16, 2017.

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Does your SR&ED project qualify for claims?

Here is a second caselaw analysis.

We published the first article in the April edition of Strangely Techie in which we analyzed an SR&ED case at the Tax Court of Canada. Here is a second one dealing with a slightly different issue: Flavor Net Inc. v. The Queen, recently settled in September 2017.

Two SR&ED projects rejected

In this case, the taxpayer contested the CRA’s rejection of two of its projects.

Project #1 consisted in the development of an energy drink containing 800 milligrams of plant sterols uniformly dispersed in a 2-oz. volume, while existing commercial products do not exceed one eighth of this concentration. The challenge lay in the fact that plant sterols are hydrophobic substances that do not mix well in a water-based solution.

Project #2 had been described in the T661 form as the development of a procedure for filling a dual-chambered bottle. However, during the hearing, this project was instead presented as the development of a partial hot-fill system in which only the active component is pasteurized and later diluted in the sterile, distilled water.

Non-eligible SR&ED project: causes for rejection

The Judge rejected the eligibility of Project #1 on the basis of five currently used criteria. In particular, he rendered his decision on the absence of technological uncertainty, because the business contented itself to use a combination of solutions and methods that are well established in the food industry: intensive mixing devices, heat, emulsifiers and dispersion ingredients. The Judge’s ruling was therefore that this was a project completed by “routine engineering”. The purpose of the project was obtained using well-known techniques, with a reasonably predictable result. The development of a new product does not necessarily require the resolution of technological uncertainty. The fact that a product does not exist on the market is not sufficient to demonstrate the presence of SR&ED.

The Judge also commented on the fact that the taxpayer had not shown that he had established the state of knowledge currently accessible at the beginning of the project. In other words, an evaluation of the technological status (search for existing patents, overview of the technical documents) must be performed before starting, and all evidence kept.

While the previous element was enough to dispose of the appeal with Project #1, the decision identified other faults, in particular, the failure to follow a scientific method, which includes the formulation of hypotheses and the realization of trials to verify these hypotheses. A hypothesis must be specific and not simply the rewording of the project’s objective as a question. “Trial and error” work is not considered respecting the scientific process; it is an approach that can be defined as a series of trials performed without following a clear, iterative logical process.

Furthermore, the Judge examined the last criteria, which was documentation, and concluded that it was very thorough. He also mentioned that while documentation was not compulsory, it assists the taxpayer in establishing that his activities do qualify as SR&ED.


As for Project #2, the Judge confirmed his rejection on the basis of confusion and inconsistency in the case. First, the project content described during the hearing and during the CRA’s review, does not correspond to what had been submitted in the T661 form. Second, the documentation did not substantiate whether the work was performed in the year in which it is being claimed. This inconsistency and absence of corroboration contributed to the project being rejected.

To be noted

In short, the lessons we can learn from this case are as follows:

  • An SR&ED project should stand out from routine engineering even if the work is long and complex. Routine engineering is defined as the use of current techniques that yield a “reasonably predictable” result. However, according to previous decisions, if the result of non-trivial combinations of standard practices cannot be predicted by experts in the field, we may be in the presence of SR&ED.
  • The state of technological knowledge must be well established before starting the project, and must be documented.
  • SR&ED project experiments must be justified based on scientific and novel hypotheses. The reasons behind each trial are what separate systematic investigation from trial and error.
  • It is important to file clear, thorough and convincing claims. In some cases, this can be difficult when you have a maximum of 1,400 words for the technical description of a project. Furthermore, information provided should be consistent with the documentation available.

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We’re pleased to invite you to update your knowledge on developments of the International Accounting Standards Board (IASB), the IFRS Interpretations Committee and other regulators over the past year by joining us at this webinar. This is a quick, simple and easy way to navigate through complexities.

We will be providing an overview of the following, among others:

  • Newly published or amended International Financial Reporting Standards (IFRS);
  • The IASB’s work plan;
  • Regulatory developments.

Our speakers: Gilles Henley, CPA, CA, Partner – Risk Management and Accounting Research, Diane Joly, CPA, CA, Senior Manager – Risk Management and Accounting Research, Brian Toman, CPA, CA, Senior Manager – Risk Management and Accounting Research and Caroline Lessard, CPA, CA, Manager – Risk Management and Accounting Research at Raymond Chabot Grant Thornton.

Each participant who attends the webinar will be able to take a test at the end of the session. A training certificate, which applies for training hours recognized by the Quebec CPA Order (OCPAQ), will be given to each participant who passes the test.

This information session is offered free of charge by Raymond Chabot Grant Thornton (in French only).

Register today! (Password: rcgt112301)

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General Partners of a Limited Partnership and GST/HST

Are the General Partners of a Limited Partnership Required to Collect GST/HST on Payments or Distributions Received from Their Partnerships?

On September 8, 2017, the Minister of Finance presented new legislative proposals regarding limited partnerships. Under these new measures, certain distributions made by limited partnerships to general partners will henceforth be subject to the GST/HST.

Partnerships are covered by specific rules prescribed by the Excise Tax Act. The practical effect of these rules is that services provided by a partner to its partnership in his/her capacity as partner are not considered as being provided by the partner but rather by the partnership in connection with its activities.  The partner would therefore not be considered as having provided a service and would not have to collect any GST/HST in this regard.

In order to apply these rules, the critical question is to determine whether or not a service is rendered “as a partner of the partnership”. The answer to this question needs to be determined based on particular facts, such as the partnership agreement, the nature of the services rendered and their relation to the partnership’s activities and the partner’s normal activities and remuneration, as applicable.