On March 31, 2015, the Tax Court of Canada (TCC) rendered a judgement concerning the eligibility of two SR&ED claims for projects aimed at improving the performance of a battery-powered wireless portable printer.

This ruling covers some important ground on SR&ED jurisprudence. I am going to dwell on the topic of the eligibility of the projects, and not on the form of the claim, which also constituted an issue.

1. Commercialization and System Uncertainties

This ruling confirms that product (or technology) commercialization does not necessarily imply that technological uncertainties no longer exist. See notes 68 and 94 of the ruling.

A technological advancement may be necessary to furthering the functional performance of an existing (or commercialized) product. This ruling is similar to the ruling rendered in a recent SR&ED case heard by the TCC: “Les Abeilles Service de Conditionment Inc.” See notes 102, 162 and 164 of the ruling.

2. System Uncertainties vs. Dividing SR&ED Projects into Subprojects:

Historically, RTAs at the Canada Revenue Agency (CRA) have typically discounted system level uncertainty for all but the most complex system topologies. RTAs divided claimed projects into subprojects to demonstrate that they are activities of a “current” nature. See notes 66 and 69 of the ruling.

Despite the “simplicity” of the printer, the ruling concluded that SR&ED projects aimed at reducing or eliminating uncertainties must be viewed as a whole and not “deconstructed” into fragments of “routine engineering.” See notes 38, 52, 95, 96 and 103 of the ruling.

3. Technological Advancement of the Product vs. Technology Advance

The ruling also concludes that the technological advancement, which satisfied the SR&ED criteria for experimental development eligibility was specific to the functionality of a commercial product.

This contradicts the existing CRA policy requiring that a technological advancement aimed at one of the specific fields of “fields of science or technology.” See notes 39, 102 and 162 to 164 of the ruling.

Here is a more extensive explanation of the ruling.