Taxpayer’s Ombudsman’s Report on SR&ED
The Ombudsman’s Report on SR&ED, released today, and was late in coming. That’s because, they had nothing to say. The Office of the Taxpayer’s Ombudsman (OTO) says that this is because it had nothing to investigate, no complaints. Read more
Taxpayer’s Ombudsman’s Report on SR&ED
Commentary about Taxpayer’s Ombudsman’s Report on SR&ED by David Kaplan, President and Founder of SREDable.com and Revenue Services Group
The Ombudsman’s Report on SR&ED, released today, and was late in coming. That’s because, they had nothing to say. The Office of the Taxpayer’s Ombudsman (OTO) says that this is because it had nothing to investigate, no complaints. As a result the report is just a summary of CRA policy and publicly available documentation. It is not a report on whether policy is being followed and fairly applied, as it was intended to be.
Here’s why, “For the OTO, addressing criticisms of the CRA’s service and fairness in the administration of some aspects of the SR&ED program, and assessing the merit of those criticisms, was difficult in the absence of complaints on most of the issues the Ombudsman is mandated to address.”
In other words, because they had nothing to investigate, they have no substantive findings.
The OTO is also disappointed with this result, "We originally saw this investigation as an opportunity to address issues of service and fairness in the CRA’s administration of the SR&ED program and make recommendations aimed at helping the CRA improve the service experience for taxpayers.
Now all that is left is to “hope that our investigation and reported observations will be informative and foster productive dialogue between the CRA and claimants, for the benefit of the entire SR&ED community.” It won’t.
Coming on the tails of the Jenkins Report’s substantive recommendations on SR&ED it was hoped that the OTO would weigh in on the value of SR&ED to Canada, what should be protected and what changed. Unfortunately they did not consider this their mandate. We think it is a missed opportunity.
If you’re interested in reading the Report we have appended below a summary of findings or for the full report visit the OTO’s website at www.oto-boc.gc.ca/menu-eng.html
Summary of Findings by the Office of the Ombudsman regarding the Issues of service and fairness within the Scientific Research and Experimental Development Tax Incentive Program
Our examination of the level of service and fairness provided by the CRA to taxpayers within the SR&ED program focused on whether taxpayer service rights were being respected in the following contexts:
· Regional Comparisons
· Preliminary Eligibility Discussion
· Rationale Provided for Ineligible Claims
· Administrative Second Review
· Appeals Process Findings
Although our Office heard criticisms and comments through consultations with claimants about the perception of regional discrepancies, we did not receive any actual complaints that we could substantiate. On one hand, there may indeed be some inconsistencies in the way the program is administered. On the other hand, there are, as noted, a number of reasons why such discrepancies might appear to exist without that actually being the case. In the absence of complaints, were unable to determine whether there actually are discrepancies in the application of the SR&ED program from one region of Canada to another.
Preliminary Eligibility Discussion
Some claimants or their representatives did file complaints claiming that some RTAs were either not communicating their eligibility concerns or decisions, or not doing so soon enough in the review process.
Taxpayers have a right to complete, accurate, clear, and timely information from the CRA (Article 6). They also have the right to expect the CRA to be accountable (Article 11), which means they have the right to expect the CRA to explain its decisions. Furthermore, taxpayers have a right to procedural fairness, which includes the right to be advised of the case they have to meet. The CRA currently has a policy in place that provides for timely preliminary eligibility discussions within the SR&ED program, and claimants will benefit as long as this policy is applied consistently.
The CRA offers a pre-claim project review process that allows SR&ED claimants to submit proposed claims for pre-approval. The CRA has also begun development of an enhanced online tool to assist SR&ED claimants with the claim process. We understand that the CRA will announce more details on these new initiatives in the coming months. We therefore encourage the CRA to continue to take whatever steps are necessary to keep taxpayers adequately informed about their SR&ED claims, and maximize its accountability to claimants.
Rationale Provided for Ineligible Claims
Our Office received two complaints from taxpayers alleging that they had not been provided with an adequate explanation of why their SR&ED claims were determined to be ineligible.
The Taxpayer Bill of Rights entitles taxpayers to complete, accurate, clear, and timely information. It also provides that taxpayers can expect the CRA to be accountable, and as the Ombudsman reported in The Right to Know, [Footnote 9] that means that the CRA has an obligation to explain its decisions.
A Technical Review Report that does not contain a sufficient explanation of the reasons for the decision on ineligibility infringes upon the claimant’s taxpayer service rights. The absence of an adequate explanation about why a claim is ineligible is unfair to the claimant, who is then not in a position to contest the finding. It also diminishes CRA accountability. The failure to provide adequate reasons for decisions creates doubt about the RTA’s decisions and the integrity of the SR&ED program as a whole.
RTMs are considered the last line of quality control before the eligibility decision is presented to the claimant in the form of the Technical Review Report. Seeing an opportunity to ensure quality by expanding RTM oversight of the work done by RTAs, one Tax Services Office in the Ontario region has implemented a peer review process for Technical Review Reports within the CRA. If feasible, the CRA may do well to consider implementing this practice nationally.
Administrative Second Review
There appears to be considerable confusion within the SR&ED community about the ASR process.
An ASR is not a second technical review and it is not part of the appeals process. It is simply an administrative review of the relevant information within the coordinating Tax Services Office to ensure that the claimant was given due process and that the SR&ED technical and financial reviews were carried out in a manner consistent with the relevant legislation, policies, and guidance documents.
It is apparent that SR&ED claimants would benefit from a better understanding of the ASR; namely, what it is, when it is granted and what it involves. Taxpayers would benefit from enhanced communication and outreach from CRA aimed at raising awareness and understanding of this important step in the claim review process.
The OTO has not received any formal complaints from SR&ED claimants about the fairness of the CRA’s process for handling Notices of Objection. However, our discussions with SR&ED stakeholders have revealed a lack of understanding of the CRA’s Appeals Process.
Confidence in the CRA appeals process would be greatly enhanced if SR&ED claimants and their representatives had a better understanding of the procedure.
The office received anecdotal evidence that the CRA is demanding levels of documentation beyond that which would be naturally generated during the course of business. The CRA, on the other hand, tells us that the documentation it requests should be produced in the course of business if the scientific method is being properly applied.
Without any specific complaints on this issue to investigate, we are unable to comment on whether or not the CRA’s documentation requirements in support of SR&ED claims are fair, adequately communicated to claimants, and consistent with the Taxpayer Bill of Rights.
About David Kaplan
Prior to founding SREDable.com and Revenue Services Group, David Kaplan was a senior M&A executive with Ernst and Young and founded Barzelan an innovative, benchmark steel wire producer. He has an MBA and an MIA from Columbia University.
SREDable is a web-based software application designed to improve the preparation of scientific research and experimental development (SR&ED) claims for Canadian organizations. SREDable’s online wizard ensures that SR&ED claims meet the Canadian Revenue Agency (CRA) requirements for SR&ED tax credits and cash refunds. View overview video. View sales presentation. Subscribe to SRED TIME.
About Revenue Services Group
Revenue Services Group ;(RSG) is Western Canada’s largest professional advisory specializing in R&D tax credits (SR&ED) and zero-interest loans. Its mission is to deliver products that significantly improve company profits. Revenue Services Group advises most mid-tier accounting firms on SR&ED and is a member of the Canadian Tax Foundation.
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