When a SR&ED claim is denied and negotiations with CRA (Canada Revenue Agency) are unsatisfactory, the taxpayer may appeal under the “informal procedure” or the “formal procedure” to the Tax Court of Canada (TCC). In this post, I would like to present this ultimate redress measure, though the need to appeal is rare.

In the article “Appealing an SR&ED Claim,” authors (Hearn, Tari, & Weissman, 2011) see it as the best option for resolving SR&ED disputes, especially if they relate to scientific or technological eligibility. However, in May 2011, the TCC dismissed the appeal of Jentel Manufacturing Ltd. of Calgary for its SR&ED claim for tax year 2005. David Hearn analyzed the decision of the TCC and highlighted the disadvantages of appealing to TCC for an SR&ED claim. He believes that Jentel probably chose this option for economic purposes. Unfortunately, appeal to the TCC does not necessarily represent the least costly solution, though, it has three distinct advantages over the use of the notice of opposition available in the process of assessing an SR&ED tax credit claim:

First – A notice of objection involves a lot of funds and time with NO CHANCE to recover these expenses other than in the form of deductions of normal running expenses. Comparatively, the TCC ruling require that one party reimburses the costs to another. The taxpayer has a potential benefit to easily demonstrate that these costs are “additional” to the proceedings.

Second – TCC allows you to exempt yourself from most of the CRA’s administrative policies because it relies more on the law and the existing jurisprudence. The definition of SR&ED is in the Income Tax Act (Canada), while the jurisprudence rules more in taxpayers’ favor than CRA’s moving administrative definition of what is eligible.

Third – In most urban areas, the assignment of an SR&ED objection to an appeals officer may take 24 to 36 months. However, this period may extend to 5 or 6 years if the SR&ED program was reduced or disappeared.

In short, with a competent legal representation, TCC is typically the quickest solution, especially if a settlement is made amicably.