Canadian Tax Adviser
February 14, 2012
Ombudsman Finds Taxpayers Misunderstand SR&ED
GTA, Scientific Research and Experimental Development
The Taxpayers' Ombudsman recently released its long-awaited report on the SR&ED
program. The 24-page report follows the Ombudsman's investigation into
dissatisfaction with the SR&ED program from tax credit claimants and their
representatives. The Ombudsman finds that many claimants do not understand the
CRA's policies for administering the $3 billion SR&ED tax incentive program and
the CRA needs to enhance its communication with them.
The Taxpayers' Ombudsman is an independent and impartial officer appointed to
review service-related complaints about the CRA and uphold the
Bill of Rights. The Ombudsman's mandate is also to identify and investigate
systemic and emerging service-related issues that could have a negative impact
The government has also focused on the SR&ED program in the recent Jenkins
report (see KPMG's
TaxNewsFlash-Canada 2011-30, "Expert Panel
Recommends Changes to Federal R&D Funding Programs" ).
Few taxpayers willing to file formal complaints
The Ombudsman says that, while it heard numerous accounts of discontent with the
SR&ED program among claimants and other stakeholders, including tax advisers and
industry associations, it was unable to validate many of the criticisms due to a
lack of specific complaints to investigate. The report notes that the Ombudsman
encouraged taxpayers to file formal complaints so that it could fully
investigate them, but few people were prepared to come forward and detail their
issues on a file.
Despite being limited in its role because so few formal complaints were lodged,
the Ombudsman's office did undertake an informal review of the SR&ED program and
provides "observations" in its report rather than formal recommendations.
David Regan notes that, for the most part, the Ombudsman validates the CRA’s
administration of the SR&ED program and suggests that taxpayers misunderstand
the program's administration. The report does not suggest changing any CRA
processes. As such, nothing is likely to change in the program, as far as
taxpayers are concerned, as a result of this review.
Observations in the Ombudsman's report
The Ombudsman investigated the following taxpayer complaints and provides its
The CRA is being "too tight fisted" in administering the SR&ED program,
over-emphasizing its audit role and denying claims in a manner contrary to the
program's intended purpose — The Ombudsman notes that the CRA
claims it has struck the appropriate balance, while acknowledging that it has
concerns about the appropriateness and quality of a growing number of SR&ED
The CRA's requirements for documentation supporting SR&ED are too demanding
— The Ombudsman appears to agree with the CRA that better documentation is
needed and the CRA should do a better job of telling claimants why the higher
level of documentation is needed.
The CRA does not administer the program consistently between regions
— The Ombudsman says it does not see the CRA being inconsistent — the
complaints made seem to be based on differing facts as opposed to differing CRA
interpretations. According to the report, the CRA’s new Claim Review Manual and
other internal processes (e.g., peer reviews, training) are improving this area.
Science reviewers are not giving early enough eligibility conclusions or their
science reports do not provide enough basis for disallowing a project
— The Ombudsman said the CRA could do better in this area. Some of the
complaints filed during the process dealt with early comments on eligibility
during the field review.
Interestingly, the Ombudsman’s review of these complaints concludes the CRA did
give comments early enough and the taxpayers' complaints were
unfounded. However, taxpayers may benefit from the Ombudsman's comment on page
The CRA acknowledged to us that
simply referring to elements of the work as “standard practice,” ”knowledge
commonly available in the industry,” “routine testing,” “routine engineering,”
or making statements such as “the work does not contribute to an advancement in
a field of science or technology” without adequately explaining why the work has
been found to have those characteristics, would not be defensible should the
claimant decide to appeal the decision by filing a Notice of Objection.
The operation of the administrative second review process and the appeals
process is confusing
— The Ombudsman seems to conclude that nothing is wrong with these processes;
they are operating as designed and taxpayers and their representatives
misunderstand what these process are intended to do. The Ombudsman recommends
that the CRA do a better job of informing taxpayers and their representatives
about these processes.
The conclusion to the Ombudsman's report gives an overall snapshot of the
The observations we have made
speak to the need for the CRA to continue, and even enhance, its proactive
communication with SR&ED claimants and their representatives. There are reasons
why apparently similar claims can result in different eligibility determinations
in different parts of the country other than discrepancies or inconsistencies in
the application of policy, and these should be explained to claimants. Overall,
stakeholders would benefit from greater clarity with regard to the CRA’s
policies and procedures for this program. The CRA continues to review and refine
its policies for administering the program, and its efforts to improve
timeliness and consistency are noteworthy. Stakeholders will be well served by
improvements to policy and procedure as long as those changes are communicated
in a complete and timely manner.
For more information, contact your KPMG adviser.