The Canada Revenue Agency (CRA) occasionally speaks about SR&ED claimants achieving a state which CRA calls “self-compliant”. On the surface, it seems like a reasonable goal – a claimant should have reached a level of sophistication, about the SR&ED program, which enables them to claim only what should be claimed, and presumably, never to claim what shouldn’t be.
It sounds like a happy situation, doesn’t it? No arguments with science reviewers or financial auditors about the eligibility or the scope of one’s claims. Perhaps, a level of frequent or at least open consultation to see if everybody still agrees with everybody else? Is this beginning to sound like “they all lived happily ever after”?
I’m in favour of self-compliance, as a goal, but there may be other goals that need to be recognized, such as the desire to maximize what is properly claimable. Does maximizing a claim sometimes entail crowding the edge of what is acceptable to claim? And if you do that, and the CRA pushes back, for science or financial reasons, have you stopped being self-compliant and become, suddenly, less trustworthy?
Myself, I don’t think trust really enters into it. I suspect that self-compliance is a matter of observable fact, and that it is probably also an historical observation, based on a pattern of claims filed over time, but without much predictive validity. (Unless or until, that is, a company reaches the level of process review with CRA, which does seem to imply a level of negotiated trust, not in the claims themselves, but in the processes that lead to them.) Perhaps, in an ideal sense, self-compliance means that we claim what we should, don’t claim what we shouldn’t, and then consult with CRA, in an open and receptive way, about the borderline bits?
This approach may result in a bit of under-claiming, from time to time, but you would have to think that such a working relationship would be healthier, in the long run, than ratcheting up the scrutiny, and even potentially triggering an audit, every time a claim is filed. So maybe self-compliance isn’t such a bad objective. I happen to think it’s a great idea, and more efficient, all round.
One thing, though. The law that governs SR&ED is defined by the House of Commons, as a part of the Income Tax Act. The final say about the interpretation of that law rests with the Tax Court of Canada (TCC); the CRA administers the law, but they don’t own it. The CRA itself has processes for unhappy claimants to follow in pursuing their concerns, which may ultimately arrive at the TCC. It has even happened, occasionally, that the TCC disagrees with CRA about CRA’s interpretation or administration of the law.
Therefore, it is important to remember that self-compliant, as a term, refers to being self-compliant with the law, and not merely self-compliant with respect to CRA guidance documents, policies, or expressed opinions, nor even, potentially, with the as-yet-unpublished claim review manual. The day may come when a claimant and the CRA disagree to the extent that the Tax Court of Canada must ultimately decide the matter: that is a claimant’s right, and the pursuit of self-compliance should not be seen or understood in any sense to alter that.