It is not unusual to have delays in releases of this nature. However, it would be interesting to know the cause of this delay, considering there is significant controversy surrounding its release.

Requesting an ASR has always been a conundrum for taxpayers and their representatives in that it requires that they must openly criticize the work of the RTA who reviewed their claim and likely will review it the next time around. Most taxpayers would like to keep a good relationship with their RTA but the policy requires that they criticize the RTA to the SR&ED Assistant Director in writing. It is assumed by most that the stronger the criticism the more likely the request will be allowed.

A process requiring an independent review should be available to claimants. Claimants should not have to criticize the work of the RTA. The issue here is an issue of whether the work undertaken by the claimant is SR&ED, not whether CRA’s policies and procedures were followed. Somewhere along the line we lost substance and replaced it with form in the review process.

The CRM was designed to be consistent with the eight steps in the current Guide to Conducting a Scientific Research and Experimental Development Review. However, the CRM extends the eight steps by providing RTAs with more detailed procedures and background information on: planning reviews; coordinating reviews with Financial Reviewers; conducting reviews and working with claimants during the review process; concluding and reporting on review results; and documenting reviews.

CRA is currently in the process of revising the Guide to Conducting a Scientific Research and Experimental Development Review. The revised guide will be a short version of the CRM and will be available for the public. A draft version of this Guide is to be posted later this month for stakeholder input. Co-incident with the release of the draft version of the Guide more details will be published about the CRM and the revised guide will be posted on the CRA Web site.

The CRM and the revised guide are being published at a time when there is significant criticism by stakeholders of the administration of the SR&ED program, particularly in relation to the conduct of some reviews by RTAs. The release of this document has a potential to stoke the flame of discontent. One of the most common criticisms of some RTAs is that they don’t follow CRA policy and procedures. The success of implementing the new procedures will depend largely on the consistency of RTA compliance with the policies and procedures.

1. starting with 2011, one-quarter of the credit for in-house R&D will be
   refundable;
2. starting with 2012, one-half of the credit for in-house R&D will be
   refundable.

Manitoba Interactive Digital Media Tax Credit

In the 2010 budget it was proposed that the Interactive Digital Media Tax
Credit, which is set to expire December 31, 2010, be extended to December
31, 2013.

The following changes were also proposed, effective for certificates of
eligibility and tax credit certificates issued after March 23, 2010:

1. tax credit certificates will be issued on a taxation-year basis instead of
   at the end of a project;
2. repaid or repayable government assistance will no longer reduce eligible
   labour costs; and
3. where a government or public authority is the purchaser of an interactive
   digital media product, the amount paid by the purchaser and the amount of
   the Interactive Digital Media Tax Credit cannot exceed 100% of the project’s
   costs.

Administrative Changes to the SR&ED Program

In the budget it was confirmed that CRA will post on its web site on a quarterly basis progress towards meeting its service standards. It also confirmed that the new technical review manual will be released in April 2010.

Through Braithwaite Technology Consultants Inc. I have gained a lot of experience with this credit in Ontario and Quebec. My advice to British Columbia based Digital Media Companies would be to start to design systems to capture the appropriate activities and costs from the budget date. My advice to the British Columbians government is to take the cost of compliance into account. Do not make it so expensive and onerous that only the largest companies can benefit from this credit.

The British Columbian Government also announced that they may use some of the 2010 Sports and Arts Legacy to enhance opportunities for all British Columbians though participation in digital media. One of the programs they may fund might involves the development of new arts or cultural product idea “incubators” in digital media. They indicated that they intend to generate economic benefits by integrating creative ideas in education and business so that with the appropriate nurturing, ideas could become commercialized within a specified time frame. The programs under the Legacy are still under development and eligibility criteria will be finalized in the coming weeks.

The use of the funding is unclear, and Digital Media may not ultimately be included. However, now is the time to come forward with suggestions to the politicians as to how this money could be put to good use in Digital Media.

$100 million in new climate action and clean energy development funding was announced to ensure further commercial development of new, clean energy technologies.

I expect a lot of activity in the Digital Media and Clean Energy industries as a result of this new funding.

At his time there is a lot of controversy surrounding the administration of the program. It is our understanding that the former Minister of National Revenue, Jean-Pierre Blackburn, had commissioned a study of the administration of the SR&ED tax credit program before he left that position. It is our understanding that this was initiated at least in part by taxpayer’s complaints about the consistency of decisions made by CRA.

The Office of the Taxpayer Ombudsman has also received a number of complaints about the SR&ED program and opened a systematic review of the program asking for public input. It is now wrapping up its review based on input from taxpayer’s received up to February 19th, 2010.

Recently Keith Ashfield replaced Jean-Pierre Blackburn as Minister of National Revenue. This follows the October 13, 2009 appointment of Mrs. Linda Lizotte-MacPherson as Commissioner and Chief Executive Officer of the Canada Revenue Agency. It is difficult to determine at this time how these changes might affect the administration of the SR&ED tax credit program or the response to the Minister’s and the Office of the Taxpayer’s Ombudsman’s reviews.

The timing of these administrative issues is not particularly good, considering the current fragile state of the economy. We are aware of more than a few companies that are not being reviewed consistently on a year to year basis that are suffering serious financial setbacks as a result.

Minister Blackburn’s January 13, 2010 Press Release

Scientific Research and Experimental Development: “Changes will be made to improve the program,” declares Minister Blackburn

Hamilton, Ontario, January 13, 2010… Today, while addressing the 13th Annual Tax Practitioner Information Session, the Honourable Jean-Pierre Blackburn, Minister of National Revenue and Minister of State (Agriculture and Agri-Food), announced improvements to the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program.

“Our Government understands the importance of research and innovation to our country’s present and future economic prosperity. By offering generous investment tax credits, we are encouraging Canadian corporations to invest in innovation and to develop new products, services, and technologies,” said Minister Blackburn.

“I am pleased to announce that the Canada Revenue Agency (CRA) will soon be implementing a number of improvements to the program. This July, the CRA will begin to report quarterly, through its Web site, on the time it takes to review an SR&ED claim from start to finish. It will improve on accuracy and on the mutual goal of achieving the timely resolution of a claim,” indicated Minister Blackburn.

“CRA officials will also spend more time better explaining the SR&ED program requirements, process, and decisions to the claimants and their representatives. The emphasis on working with claimants is reflected in the new manual, which will become effective on April 1, 2010.

In addition, I am pleased to announce that when, in the course of their review, CRA officials discover that a company has not claimed work that appears to be eligible for the credit, they will now inform the claimant of their finding so that companies can resubmit their claim if within the reporting deadline. This is also reflected in the SR&ED claim review manual and will be effective as of April 1, 2010.

The issue of consistency in our decisions has often been raised by claimants and tax practitioners. I want to assure you that I have listened carefully to these concerns, and I have asked CRA officials to continue working in this area and to propose additional solutions. I will be soon be announcing further enhancements to the SR&ED program as a result,” added Minister Blackburn.

Budget 2010 – Copy of Information Included in the Budget Papers

Following public consultations on the SR&ED Tax Incentive Program that were undertaken in 2007, Budget 2008 enhanced the support that this program provides for small and medium-sized businesses and extended the tax credit to certain expenditures incurred outside Canada. It also announced new funding for improvements to the administration of the SR&ED program in order to address challenges that were identified by stakeholders in the areas of accessibility, predictability and consistency. The Canada Revenue Agency (CRA) has taken steps to implement these measures. In November 2008, a new self-assessment tool and a new claim form and guide were introduced that are helping businesses determine the eligibility of their projects and making it easier for businesses to benefit from the SR&ED program. The CRA has also increased the number of technical reviewers who determine program eligibility and provide claimant services. The CRA is providing technical reviewers with more training and support, enhancing the quality assurance methodology, and reviewing the dispute resolution procedures.

In addition, as announced in January 2010, the CRA will begin to report quarterly, through its website, on the time it takes to review an SR&ED claim from start to finish. A new manual for CRA reviewers will become effective on April 1, 2010. This manual will emphasize how the CRA will work closely with claimants so that they may better understand the SR&ED program requirements and process.

The CRA continues to work with stakeholders to identify ways to improve the administration of the SR&ED program.

Final Comment

The SR&ED tax credit program is an excellent support for companies that are developing new products and creating new jobs in Canada. Our productivity is lagging our trading partners and at this time, perhaps more than any other time in our history, we need the support provided by the program to continue. I hope that the consistency problems are identified quickly and dealt with in an appropriate manner.

A conspiracy theorist might look at the wording of the announcement might conclude that the “until further notice” implies that there might be a new simpler form coming as a compromise and that on that form information must be provided on every project. They might also conclude the new form might be a check-the-box project description in the form of the SR&ED Eligibility Self Assessment Tool released on 17^th November, 2008.