RIS-Christie Ltd. v. Her Majesty the Queen (Respondent)

99 DTC 5087
Federal Court of Appeal
December 21, 1998

(Court File No. A-710 96.)

SRED deductions, additional research allowances, and investment tax credits (“ITCs”) — Corporate taxpayer investing in a project involving the research and development of a concrete forming medium for cast-in-situ concrete construction — Minister disallowing taxpayer’s SRED deduction, research allowance, and ITC claims made by it in respect of said project — In dismissing taxpayer’s appeal, Tax Court Judge finding that research involving testing and resulting in a technological advance having taken place, but that the underlying evidentiary records flawed, since such records incapable of ensuring the repeatability of the said testing — Whether Tax Court Judge having erred in imposing such an evidentiary burden — Income Tax Act, R.S.C. 1985 (5th Supp.), c.?1, as amended, ss.?37(1)(a), 37.1(1), 37.1(5)(e) and 127(9) — Income Tax Regulations, ss.?2900, 2901 and 2902.

Under an agreement executed as of December 1, 1982, O Inc. undertook to perform the research and development of a concrete forming medium for cast-in-situ concrete construction. The corporate taxpayer invested in the project, claiming in respect thereof a paragraph 37(1)(a) SRED deduction, a research allowance under subsection 37.1(1) of the Act, and an ITC under subsection 127(9) of the Act. The Minister disallowed the taxpayer’s SRED deduction, research allowance, and ITC claims made by it in respect of its 1983 taxation year (and not its 1982 taxation year as originally stated). In dismissing the taxpayer’s appeal as it related to the SRED issue (97 DTC 99), the Tax Court of Canada concluded: (a) that research involving experimentation and testing had been undertaken resulting in a new product and a technological advance in the construction industry; but (b) that there had been “substantial shortcomings” in the taxpayer’s documentary evidence, since such evidence was incapable of making the tests in issue repeatable. As a result, the Tax Court of Canada denied the taxpayer the SRED treatment claimed by it in respect of its investment in the said project. The taxpayer appealed to the Federal Court of Appeal.

Held: The taxpayer’s appeal was allowed. Once the Tax Court Judge had found that testing had taken place resulting in a technological advance, he erred in imposing the additional evidentiary burden of having to adduce documentary evidence relating to the repeatability of the testing data. Having reached the conclusion that a technological advance had taken place, there was a rebuttable inference that the testing in issue had been carried out in accordance with the SRED criteria in Regulation 2900. It was also to be noted that the role of expert witnesses is limited to providing the trial judge with technical evidence to assist the latter in determining whether or not SRED has taken actually place. Such determination, however, does not rest with the expert witnesses themselves, despite the all too frequent assumptions to the contrary by counsel for both the taxpayers and the Minister. In light of all of the foregoing, the taxpayer was entitled to the SRED deduction, the research allowance, and the ITC, which it had claimed. The Minister was ordered to reassess accordingly.

DOMINION TAX CASES
©2001, CCH INCORPORATED. All Rights Reserved.

Share