Some claims just aren’t that strong. Claims may be weak for a wide number of reasons – lack of clear technological uncertainty or technological advancements being sought, lack of evidence (or even a strong case) for experimental development, or even financial costs not commensurate with the core science. Whatever the weaknesses, it is also true that some of these marginal claims will have been prepared with the help of SR&ED consultants. Perhaps the consultants are just “taking their best shot” on behalf of a client. The question is: was this flawed or marginal claim submitted with the explicit expectation that smaller claims receive less scrutiny than larger claims by large corporations?
I believe it’s true that smaller claims have received less scrutiny in the past. I also believe that the Canada Revenue Agency (CRA) often pays greater attention to larger claims, on the grounds of “materiality”, which is accounting-speak for the fact that big numbers are often more important than little ones. There may be a degree of relativity in the way that the technical criteria have been weighed, between small to medium businesses (SMBs) and larger corporations. Large corporations can afford the most expert help, and they file large claims, and so the corporation is expected to demonstrate a more stringent standard than may be demanded of an SMB that is perhaps just getting introduced to the SR&ED program. I think there has always been a certain latitude or variability in the application of such standards. What is “routine” for one company may well be rocket science to another. The Science Reviewers try to sort it all out while trying to remain conscious of the fact that SR&ED is a tax-incentive program, designed to encourage technical innovation and the growth of technical know-how.
“Access” to the SR&ED program could easily become skewed heavily in favour of large corporations if such technical standards are too rigidly applied. On the other hand, how should we expect the CRA to behave if it were to become apparent that an entire segment of the SR&ED “industry” had grown up around the creation and filing of “marginal” claims, and with the explicit assumption that such claims would always fly under the radar? Might this not be perceived as an abuse of the latitudes previously granted? Might such an abuse not come to be perceived as “material” in its own way?
I think that such perceptions may well be a part of the CRA’s imminent introduction of a manual for SR&ED review. If that is a part of the unspoken story, and I believe it is, then small claimants (and the consultants who support them), should prepare themselves for a bumpy ride over the next few years. (The best approach to a truly marginal claim is probably to resist filing it in the first place, and that is a message for small and large claimants alike.) The push for greater granularity and more consistent scrutiny of claims will end up being more painful for smaller businesses than it is for large corporations, who can better absorb the overhead.
The entire SR&ED program hangs on a framework of inter-locking tolerances – technical and financial, human and legislative, legal and political. All of us who benefit from this program, and it is the best in the world, need to be sensitive to the rules and expectations under which we operate.