The taxpayer, a veterinary consulting firm, undertook four research projects to test new diets, supplements, and vaccines on cattle, and paid feedlot operators to perform these protocols. The 7000 cattle used in testing by the operators were, apart from the test protocols, raised for commercial production on behalf of their owners. The Minister disallowed scientific research and experimental development credits respecting over $1.6 million paid by the taxpayer to one of the farms ("Jim Farms"), for costs incurred by Jim Farms for feeding the cattle, on the basis that Jim Farms was not engaged in SRED and none of the "proxy" provisions in s. 37(8)(a)(ii)(B) applied.
Woods J allowed the taxpayer's appeal, finding that the amounts paid to Jim Farms were "in respect of" the prosecution of research undertaken on the taxpayer's behalf, bringing them within s. 37(8)(a)(ii)(B)(II). Jim Farms' work was not SRED because it was performed "with respect to" the commercial use of a new process (i.e. the feeding protocols), and therefore was caught by the exclusion in para. (i) of s. 248(1) - "scientific research and experimental development," an exception which also applies to work by third parties (para. 80). However, although the work was not for SRED, the words "in respect of" also import the meaning "in relation to" (para. 62, citing Savage), and the work related to the taxpayer's own SRED.
Subclause (I) did not apply. The contracts between the taxpayer and Jim Farms gave the taxpayer considerable control over the cattle, including transporting and marketing decisions (so as to ensure that testing was not disrupted), but they were not "leases" of the cattle, as they did not confer an exclusive right of possession (paras. 43-44).
Woods J also rejected the taxpayer's argument that subclause (II) could apply even where there is no contract for third-party SRED (para. 68).