Manufacture Kute Knit Inc. v. Agence du revenu du Québec, 2024 QCCA 408

The taxpayer (Kute Knit), which was acknowledged by the ARQ to be engaged in SR&ED, had claimed percentages (ranging from 15% to 75%) of the salaries incurred during its 2011 and 2012 taxation years for 13 management and supervisory employees as being the times that they were directly supervising the prosecution of SR&ED within the meaning of Reg. 230R1(b) pursuant to the Taxation Act (similar to Reg. 2900(2)(b) under the ITA). These same percentages had been used for the managers and supervisors since 2006.

Before dismissing the taxpayer’s appeal, the Court of Appeal stated (at para. 20):

The only evidence the appellant submitted was a table in which it listed the names of the employees in the two groups and attributed to each of them a percentage of the total time it stated had been spent on the SR&ED projects. Other than this table, the appellant did not file supporting documents regarding the percentages set out therein, be they time sheets, SR&ED progress reports, correspondence, minutes of meetings, internal notes or emails related to these tasks, nor did it … call any of the employees from these two groups as witnesses to support these percentages … .

The Court went on to confirm the finding in the Court of Quebec find that the taxpayer had not “demolished” the basis for the assessments by demonstrating, “on a prima facie basis, that the respondent’s premise — i.e., that the appellant had not shown that the reported portions of each employee’s salary could reasonably be attributed to the prosecution of SR&ED — was false” (para. 25).

The taxpayer, which was acknowledged by the ARQ to be engaged in SR&ED, had claimed percentages (ranging from 15% to 75%) of the salaries incurred during its 2011 and 2012 taxation years for various management and supervisory employees as being the times that they were directly supervising the prosecution of SR&ED within the meaning of the Quebec equivalent of Reg. 2900(2)(b). These same percentages had been used for the managers and supervisors since 2006.

Before dismissing the taxpayer’s appeal of the full denial of taxpayer’s related claims, the Court of Appeal stated (at para. 20):

The only evidence the appellant submitted was a table in which it listed the names of the employees in the two groups and attributed to each of them a percentage of the total time it stated had been spent on the SR&ED projects. Other than this table, the appellant did not file supporting documents regarding the percentages set out therein, be they time sheets, SR&ED progress reports, correspondence, minutes of meetings, internal notes or emails related to these tasks, nor did it … call any of the employees from these two groups as witnesses to support these percentages … .

The Court found no reviewable error in the finding below that the taxpayer had thus failed to “demolish” the ARQ assessments by making out a prima facie case, that the ARQ’s premise — of the taxpayer not having shown that the reported portions of each employee’s salary could reasonably be attributed to the prosecution of SR&ED — was false.