August 8, 2012

Scientific Research & Experimental Development (SR&ED) consultation

The Department of Finance (Finance) has released a document entitled Consultation Regarding the Impact of Contingency Fees on the Effectiveness of the Scientific Research & Experimental Development Tax Incentive Program (the “SR&ED Document”). Finance has invited submissions related to SR&ED claims based on a contingency fee model. In particular, Finance is purportedly seeking to understand why small and medium sized businesses are attracted to this model, why service providers are attracted to this model and the quantum of fees charged.

The interesting portions of the SR&ED Document include:

There are currently no restrictions on the size of contingency fees being charged to prepare SR&ED claims. It has been reported that these fees are relatively high, and may represent 30 per cent or more of the total SR&ED benefit received by these firms. In these circumstances, it is reasonable to consider whether alternative billing practices might result in lower compliance costs without affecting the quality of service.

As the fee received by tax preparers charging on a contingency basis is related to the size and result of the claim, this billing practice has been criticized on the basis that it provides an incentive for tax preparers to encourage their clients to take aggressive positions that push the bounds of the law and its interpretation. If true, this practice would increase the costs for the Canada Revenue Agency to administer the SR&ED tax incentive program, in addition to increasing the overall fiscal risks associated with the SR&ED tax incentive program.

Insights

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Section 111 of the Income Tax Act (“ITA”) allows taxpayers to carry losses back and forward to offset income in different taxation years. However, subsection 111(5) restricts non-capital loss...

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We’re delighted to announce our newly updated chapter on Corporate Residence & Tax Disputes in Canada (2023), published by Thomson Reuters, is now available.

Thompson Reuters considers the authors “leading tax experts and litigators”. The authors agreed to grant TR partial rights to this work. This article first appeared in TR’s Tax Dispute and Resolution...

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