Complex SR&ED Disputes: Procedures in Tax Court
When participating in the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program, disputes with the Canada Revenue Agency (CRA) can sometimes arise. If your SR&ED claim is denied and a Notice of Objection does not resolve the issue, the next step is to consider an appeal to the Tax Court of Canada (TCC). The Tax Court offers two distinct avenues to resolve SR&ED disputes – the Informal Procedure and the General Procedure. Understanding these options is crucial in making an informed decision that best suits your situation.
Additionally, the TCC Registry is responsible for processing and all of the paperwork filed by both parties in an appeal. They can provide you with the proper forms to fill out and information on how to fill out the forms but they are not able to give the taxpayers legal advice. Additional information on what the TCC Registry can assist with and what it cannot can be found here on the TCC site.
SR&ED Dispute Options: The Informal Procedure and the General Procedure
The Informal Procedure
The Informal Procedure is designed for smaller claims, offering a streamlined and cost-effective way to resolve disputes. This procedure is less formal than the General Procedure and is ideal for taxpayers seeking a quicker resolution without extensive legal representation.
Key Features of the Informal Procedure:
- Eligibility: You can opt for the Informal Procedure if the disputed federal tax and penalties amount to $25,000 or less per assessment or reassessment. For disputed losses, the threshold is $50,000 or less. If your losses are over this threshold it is possible to agree to adhere to these limits in your Notice of Appeal.
- Cost-Effective: The simplified nature of this procedure generally means lower costs. There are no filing fees associated with this type of appeal. Taxpayers often represent themselves, further reducing expenses.
- Faster Resolution: The Informal Procedure is designed to expedite the resolution process, typically resulting in a quicker decision compared to the General Procedure.
- Binding Decisions: Decisions made under the Informal Procedure are final and cannot be appealed, though they may be reviewed by the Federal Court of Appeal on very limited grounds.
For more detailed information, visit the TCC’s page on the Informal Procedure.
The General Procedure
The General Procedure is the standard process for larger or more SR&ED disputes. This formal approach is appropriate for disputes involving amounts that exceed the limits set for the Informal Procedure.
Key Features of the General Procedure:
- Eligibility: The General Procedure has different levels of appeals and the fees vary depending on the level.
- Class A: The amount in dispute is less than $50,000 and disputed losses are less than $100,000. The filing fee is $250 at this level.
- Class B: The amount in dispute is between $50,000-$149,999 and disputed losses are between $100,000-$299,999. The filing fee is $400 at this level.
- Class C: The amount in dispute is $150,000 or more and disputed losses are $300,000 or more. The filing fee is $550 at this level.
- Comprehensive Process: This procedure allows for a thorough examination of the case, including detailed legal and factual arguments and the presentation of extensive evidence.
- Legal Representation: Given the procedural complexities and the higher stakes involved, taxpayers typically engage lawyers to represent them.
- Appealable Decisions: Unlike the Informal Procedure, decisions made under the General Procedure can be appealed to the Federal Court of Appeal, providing an additional layer of review.
For more information, refer to the Justice Law’s page on the General Procedure.
How to decide
Choosing between the Informal and General Procedures depends on several factors, including the amounts in dispute and your preference for legal representation. The Informal Procedure is suited for smaller, less complex cases where a faster, more cost-effective resolution is desired. Conversely, the General Procedure is better for larger claims that require a comprehensive review and allow for the possibility of appeal. At any time during the proceedings, it is possible to schedule a Settlement Conference outside of court to resolve the appeal.
Deadlines
Regardless of which method you choose to resolve your SR&ED dispute, the Income Tax Act establishes very clear deadlines for filing a Notice of Appeal. Taxpayers have 90 days starting from the day following the date of the issuance of the notice to file the notice of appeal. This means that the registry must receive the notice by the end of the 90 days. If filing electronically the notice must be filed by midnight according to the time of the regional office it is being filed. If filing in person, by mail, or by fax the deadline is before the office closes for the day.
A Word of Caution: Be Prepared To Wait
As you will note from our legal rulings summaries, depending on the procedure selected it can take a year to over a decade. It is preferable to resolve any SR&ED disputes at the lowest level possible, preferably during the review process. Engage assistance from an experienced consultant as soon as possible.
Final thoughts on SR&ED Disputes
Understanding your options and their implications can significantly impact the outcome of your SR&ED claim dispute. The goal of both SR&ED appeal options are to reach an agreement between the taxpayer and CRA as quickly as possible. Consulting with an SR&ED professional or legal advisor is advisable to ensure you make the most informed decision. A list of our recommend SR&ED consultants can be found here.
For more details on SR&ED appeals, visit the CRA’s SR&ED Program page.