The taxpayer (ML), carried on a business of the custom designing and making of injection molding including for the automotive industry. CRA disallowed all of ML’s claims for scientific research and educational development (SR&ED) expenditures and corresponding investment tax credits, which were for eight out of its over-300 projects for its 2016 and 2017 taxation years.
Russell J dismissed the appeal, finding the first four of the five criteria for SR&ED, as listed in National R&D (and repeated at para. 8), were not satisfied:
- Was there a technological risk or uncertainty which could not be removed by routine engineering or standard procedures?
- Did the person claiming to be doing SRED formulate hypotheses specifically aimed at reducing or eliminating that technological uncertainty?
- Did the procedure adopted accord with the total discipline of the scientific method including the formulation, testing and modification of hypotheses?
- Did the process result in a technological advancement?
- Was a detailed record of the hypotheses tested, and results kept as the work progressed?
In this regard, Russell J stated (at paras. 6, 65):
[The president’s] testimony for the eight projects generally reflect that ML’s success or advancement as to those projects involved a routine engineering and standard practices approach, using methodology familiar to ML. [His] …answers did not reveal or identify technological uncertainties being addressed in a scientific manner. …
ML’s favoured approach … was to basically try various options, anticipating that one likely would work. For me that is indicative of routine engineering or standard procedures. …