National R & D Inc. v. His Majesty the King

(Federal) (Civil) (By Leave)


Taxation - Assessment, Income tax - Taxation — Income tax — Assessment — Scientific research and experimental development tax credits — Courts below disallowing claim for tax credits in relation to development of computer program to automate portions of filing claims with the Canada Revenue Agency — Whether, in accordance with the fundamental principle of fairness and this Court’s decision in Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, the burden of proof on a taxpayer is to demolish only those assumptions that were made by the Minister in the underlying tax assessment and not any assumptions the Minister later adds in its own pleadings — Whether the proper test for a taxpayer to be eligible for scientific research and experimental development tax credits is derived from the definition in the Income Tax Act, as used in certain tax court cases, rather than the five criteria questions that were first referenced in Northwest Hydraulic Consultants Ltd. v. The Queen, [1998] 3 C.T.C. 2520 (TCC) —Whether an incorrect application of the factors set out in R. v. Mohan, [1994] 2 S.C.R. 9, resulted in an unfair burden on the taxpayer for admissibility of a report prepared by an expert witness — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 248(1).



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The applicant, National R & D Inc (“National”), appealed the Minister of National Revenue’s assessment denying it tax credits claimed for scientific research and experimental development (“SR&ED”) under ss. 248(1) of the Income Tax Act. The Tax Court judge found that National had not shown on the balance of probabilities that its project qualified as SR&ED under ss. 248(1) as it did not meet four of the five criteria set out in Northwest Hydraulic Consultants Ltd. v. The Queen, [1998] 3 C.T.C. 2520 (TCC). The Federal Court of Appeal dismissed National’s contentions that the Tax Court judge made legal errors in her understanding of ss. 248(1), made palpable and overriding errors in the assessment of the evidence with respect to National’s project, misunderstood the burden of proof on the taxpayer in proceedings before the Tax Court or erred in ruling the expert report tendered by National to be inadmissible. Accordingly, it dismissed National’s appeal.