REASONS
FOR JUDGMENT
V.A. Miller J.
Overview
[1]
When WestSource Group Holdings Inc. (the
“Appellant”) filed its income tax return for the 2011 taxation year, it did not
include any information concerning Scientific Research and Experimental
Development (“SR&ED”). On June 28, 2013, it requested permission to amend
its 2011 return to report SR&ED expenditures and to claim the corresponding
Refundable Investment Tax Credit (“RITC”) amounts with respect to these
SR&ED expenditures.
[2]
In its amended return, the Appellant reported SR&ED
expenditures for two projects. However, on Schedule 60 of Form T661, it failed
to provide project information in boxes 240, 242 and 244 for Project 1. These
boxes were completed for Project 2.
[3]
Project 2 was accepted as filed without a review
and the Appellant was granted the RITC for this Project. Project 1 was not
accepted.
[4]
The question before the Court was whether the
information required in boxes 240, 242 and 244 of Schedule 60 was “prescribed information” for the purposes of
subsection 37(11) of the Income Tax Act (the “Act”).
[5]
It is my view that this question must be
answered in the affirmative.
Facts
[6]
There were no witnesses at the hearing of this
appeal. The hearing proceeded on the basis of admissions made by the Appellant,
a joint book of documents and argument by the parties.
[7]
The Appellant is a privately held corporation
based in Saskatchewan. Its principal service is to provide management services
to its subsidiary companies.
[8]
The Appellant has a December 31 year end and it
was initially assessed for its 2011 taxation year by notice dated July 11,
2012. On June 28, 2013, it filed an amended return for its 2011 taxation year
in which it reported SR&ED expenditures for two projects which were
described as follows:
Project 1: WSG P01 Multiple Aspect Wind Turbine
Development (“Project 1”)
Project 2: 50kW Asynchronous, Winched Tower Wind
Turbine Development (“Project 2”)
[9]
The RITC claimed was as follows:
Project
1 $29,504
Project
2 $26,894
[10]
The Minister of National Revenue (the
“Minister”) determined that the Appellant had filed the relevant prescribed
forms in respect of its SR&ED and RITC claims with its amended return.
Those forms were T661 and T2 SCH31. The T661 form addressed the SR&ED
expenditures and the T2 SCH31 form addressed the corporation’s claim for a
RITC.
[11]
The prescribed forms were filed in a timely
manner. They were filed on June 28, 2013 and the Appellant’s deadline was June
30, 2013.
[12]
However, the Appellant failed to complete boxes
240, 242 and 244 for Project 1 in Schedule 60 of Form T661. As a result,
Project 1 was not accepted and the Minister determined that the Appellant was
entitled to a RITC of $26,894 for Project 2 only.
[13]
In its Answer to the Reply and answers to
discovery questions concerning the Amended Reply, the Appellant admitted all of
the assumptions of fact made by the Minister. Those assumptions included the
preceding facts and the following:
g) line
240 of Schedule 60 is to describe the technological advancements the claimant
is trying to achieve;
h) line
242 of Schedule 60 is to describe the technological obstacles or uncertainties
the claimant had to overcome to achieve the technological advancements;
i) line
244 of Schedule 60 is to describe the work performed (the systemic
investigation) in the tax year to overcome the technological obstacles or
uncertainties in line 242;
j) the
Minister did not complete a detailed technical review or financial review of
Project 1;
k) the
Appellant did not describe any technological advancements that it was trying to
achieve with respect to Project 1;
l) the
Appellant did not identify any technological obstacles or uncertainties
encountered with respect to Project 1;
m) the
Appellant did not demonstrate that it undertook a systemic investigation or
search to overcome any technological obstacles or uncertainties with respect to
Project 1; and
n) the
Appellant did not substantiate the Project 1 work as eligible SR&ED
activity.
[14]
Although the Appellant admitted the facts at
paragraphs 13(m) and (n), it wrote that the assumptions made at paragraphs
13(m) and (n) were “immaterial and were not made
because the Minister never asked the appellant to substantiate eligibility”.
Issue
[15]
The issue is whether the information required in
boxes 240, 242 and 244 of Schedule 60 is “prescribed
information”.
Legislative Provisions
[16]
The definition of SR&ED is contained in
subsection 248(1) of the Act as follows:
scientific
research and experimental development means systematic investigation or
search that is carried out in a field of science or technology by means of
experiment or analysis and that is
(a) basic
research, namely, work undertaken for the advancement of scientific knowledge
without a specific practical application in view,
(b) applied
research, namely, work undertaken for the advancement of scientific knowledge
with a specific practical application in view, or
(c) experimental
development, namely, work undertaken for the purpose of achieving technological
advancement for the purpose of creating new, or improving existing, materials,
devices, products or processes, including incremental improvements thereto,
and, in applying
this definition in respect of a taxpayer, includes
(d) work
undertaken by or on behalf of the taxpayer with respect to engineering, design,
operations research, mathematical analysis, computer programming, data
collection, testing or psychological research, where the work is commensurate
with the needs, and directly in support, of work described in paragraph (a),
(b), or (c) that is undertaken in Canada by or on behalf of the taxpayer,
but does not
include work with respect to
(e) market
research or sales promotion,
(f) quality
control or routine testing of materials, devices, products or processes,
(g) research in
the social sciences or the humanities,
(h) prospecting,
exploring or drilling for, or producing, minerals, petroleum or natural gas,
(i) the
commercial production of a new or improved material, device or product or the
commercial use of a new or improved process,
(j) style
changes, or
(k) routine data
collection; (activités de recherche scientifique et de développement
expérimental)
[17]
Subsection 37(11) of the Act requires
that a taxpayer, making an SR&ED claim under subsection 37(1), must file a
prescribed form containing prescribed information in respect of the
expenditure. It also creates the filing deadline for the SR&ED claim. It reads:
37(11) Subject to
subsection 37(12), no amount in respect of an expenditure that would be
incurred by a taxpayer in a taxation year that begins after 1995 if this Act
were read without reference to subsection 78(4) may be deducted under
subsection 37(1) unless the taxpayer files with the Minister a prescribed
form containing prescribed information in respect of the expenditure on or
before the day that is 12 months after the taxpayer’s filing-due date for the
year. (emphasis added)
[18]
If the taxpayer does not file the prescribed
form with the prescribed information within the deadline given in subsection
37(11), the expenditures do not qualify as SR&ED expenditures. Subsection
37(12) reads:
37(12) If a
taxpayer has not filed a prescribed form in respect of an expenditure in
accordance with subsection 37(11), for the purposes of this Act, the
expenditure is deemed not to be an expenditure on or in respect of scientific
research and experimental development.
[19]
The filing requirements for a RITC are similar
to those provided in section 37. Subsection 127.1(1) reads:
127.1 (1) Where a
taxpayer (other than a person exempt from tax under section 149) files
(a) with the
taxpayer’s return of income (other than a return of income filed under
subsection 70(2) or 104(23), paragraph 128(2)(f) or subsection 150(4)) for a
taxation year, or
(b) with a
prescribed form amending a return referred to in paragraph 127.1(1)(a)
a prescribed form
containing prescribed information, the taxpayer is deemed to have paid on the
taxpayer’s balance-due day for the year an amount on account of the taxpayer’s
tax payable under this Part for the year equal to the lesser of
(c) the
taxpayer’s refundable investment tax credit for the year, and
(d) the amount
designated by the taxpayer in the prescribed form.
[20]
Paragraph (m) of the definition of “investment tax credit” in subsection 127(9) also
contains a filing deadline similar to subsection 37(12). It reads:
127(9)
except that no
amount shall be included in the total determined under any of paragraphs (a) to
(e.2) in respect of an outlay, expense or expenditure that would, if this Act
were read without reference to subsections 127(26) and 78(4), be made or
incurred by the taxpayer in the course of earning income in a particular
taxation year, and no amount shall be added under paragraph (b) in computing
the taxpayer’s investment tax credit at the end of a particular taxation year
in respect of an outlay, expense or expenditure made or incurred by a trust or
a partnership in the course of earning income, if …
…
(m) the taxpayer
does not file with the Minister a prescribed form containing prescribed
information in respect of the amount on or before the day that is one year
after the taxpayer’s filing-due date for the particular year;
[21]
Although the Minister has the discretion to
waive the requirement to provide prescribed information in certain
circumstances, that discretion does not extend to the prescribed information
required for the purposes of subsection 37(11) or paragraph 127(9)(m).
Subsections 220(2.1) and (2.2) read as follows:
Waiver of filing
of documents
(2.1) Where any
provision of this Act or a regulation requires a person to file a prescribed form,
receipt or other document, or to provide prescribed information, the Minister
may waive the requirement, but the person shall provide the document or
information at the Minister’s request.
Marginal note:
Exception
(2.2) Subsection
(2.1) does not apply in respect of a prescribed form, receipt or document, or
prescribed information, that is filed with the Minister on or after the day
specified, in respect of the form, receipt, document or information, in
subsection 37(11) or paragraph (m) of the definition investment tax credit in
subsection 127(9).
[22]
The term “prescried”
is defined, in part, in subsection 248(1) to mean:
(a) in the case
of a form, the information to be given on a form or the manner of filing a
form, authorized by the Minister,
The Appellant’s Position
[23]
Counsel for the Appellant argued that the
failure to include information in boxes 240, 242 and 244 in Schedule 60 should
not disqualify it from receiving the RITC for Project 1. Counsel argued that
the Minister’s position was overly simplistic and frustrated Parliament’s
intent in enacting the SR&ED program.
[24]
Counsel submitted that there is no definition of
the term “prescribed” as it may apply to “prescribed information” for the purposes of
subsection 37(11) or 127(9). He concluded that because there are no regulations
or rules prescribed by regulation with respect to the phrase “prescribed information”, there was no “prescribed information” for the purposes of
subsection 37(11) and 127(9).
The Respondent’s Position
[25]
Counsel for the Respondent submitted that the
information requested in boxes 240, 242 and 244 in Schedule 60 was “prescribed information”. She stated that the
information required in these boxes “goes to the heart
of whether the claim made is SR&ED”. As a result, the failure to
provide this information was fatal to the Appellant’s claim as it did not
substantiate that Project 1 was an eligible SR&ED activity.
Analysis
[26]
It is my view that, in accordance with the definition
of the term “prescribed” in section 248 of the Act,
the information to be given on a prescribed form is “prescribed
information”. Therefore the information required in boxes 240, 242 and
244 of Form T661 is “prescribed information”.
[27]
The instructions on Form T661 also clearly state
that the information given on the form is “prescribed
information”. They read, in part:
“The information
requested in this form and documents supporting your expenditures are
prescribed information.”
[28]
Failure to provide the “prescribed
information” required in boxes 240, 242 and 244 of Form T661 means that
the Appellant did not meet the requirements of subsection 37(11) of the Act
and the Minister properly determined that Project 1 did not qualify for the
SR&ED program in its 2011 taxation year.
[29]
Counsel for the Appellant also argued that the
purpose for the tax incentives offered for doing SR&ED work is to allow
Canadian businesses to make advancements in science and technology. As a
result, the phrase “prescribed information”
should be interpreted liberally.
[30]
With respect, counsel’s interpretation of “prescribed information” would have me ignore the term
altogether. However, the rule against tautology makes it clear that all words
in a statute must be given meaning: Canada (Canadian Human Rights
Commission) v Canada (Attorney General), 2011 SCC 53 at paragraph 38.
[31]
Moreover, a taxpayer must establish that its
project satisfies the following three criteria before its project will be
accepted as a SR&ED activity:
1. There is
scientific or technological uncertainty;
2. The
taxpayer has carried out a systematic investigation in a field of technology by
means of experiment or analysis;
3. The work
was undertaken for the purposes of achieving a technological advancement for
the purpose of creating new, or improving existing, materials, devices,
products or processes, including incremental.
(6379249
Canada Inc. v R, 2015 TCC 77 at paragraph 59)
[32]
The information requested in boxes 240, 242 and
244 specifically addresses these criteria. As stated by counsel for the
Respondent, the information in these boxes “goes to the
heart of whether the claim made is SR&ED”. Because there was no
information submitted in these boxes, the Minister was correct in determining
that the Appellant did not establish that its work on Project 1 was an eligible
SR&ED activity.
[33]
Furthermore, subsection 220(2.2) has removed the
Minister’s authority to waive the requirement to provide the prescribed
information mandated by subsection 37(11) of the Act.
[34]
At the hearing, counsel for the Appellant stated
that the Appellant and WestSource Solutions Inc. had collaborated on Project 1.
Counsel argued that the Minister could have found the missing prescribed
information for the Appellant if he had looked at the Form T661 which had been
filed on behalf of WestSource Solutions Inc.
[35]
It is my view that subsection 37(11) is clear.
The taxpayer seeking to claim an SR&ED expenditure must file the prescribed
information with the Minister. The Minister is not required to look into
another taxpayer’s file to ascertain the prescribed information for the Appellant:
Easy Way Cattle Oilers Ltd v The Queen, 2016 FCA 301.
[36]
The appeal is dismissed with costs to the
Respondent.
Signed at Ottawa, Canada, this 24th day of January 2017.
“V.A. Miller”
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