http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/144210/index.do
AFD Petroleum Ltd. v. Canada (Attorney General) (May 16, 2016 – 2016 FC 547, Boswell J.).
Précis: The applicant submitted a form for SRED credits to CRA. The claim was rejected because the form was not completed properly. The applicant applied to the Federal Court to review the decision of CRA. The application was dismissed; the Court found that the decision did not involve procedural unfairness. Costs were awarded to CRA.
Decision: The applicant sought to review a decision of CRA rejecting its claim for SRED credits on the basis of an incomplete application:
[2] On December 31, 2013, the Applicant requested that its 2012 corporate income tax return be amended to include a claim for Scientific Research and Experimental Development [SR&ED] expenditures. The Applicant submitted a Form T661 and related schedules in respect of the SR&ED claim for its expenditures incurred to develop a portable refueling mechanism for fracking equipment. The Applicant claimed these expenditures, which totalled some $357,000, in order to obtain a deduction from its 2012 income under section 37 of the Income Tax Act, RSC 1985, c 1 (5th Supp) [the ITA].
[3] The Canada Revenue Agency, however, found the Form T661 as submitted was not fully completed because, although the Applicant had submitted the claim on the last date for filing it, CRA received only two of the seven pages that then comprised Part 2 of the Form. Consequently, in a letter dated January 22, 2014, CRA denied the Applicant’s request for an adjustment to its 2012 tax return to claim for an SR&ED investment tax credit since the prescribed information was not filed within 12 months after the due date for filing the T2 tax return. After communications between CRA representatives and the Applicant’s accountants failed to reverse this denial, the Applicant’s legal counsel wrote a letter dated October 30, 2014 to the CRA, questioning the CRA’s position and arguing that the Form was properly filed. The Applicant’s counsel asserted that, despite the Form not being fully completed, all the required information was nevertheless included in the Form when viewed as a whole and the filing should not be vitiated or negated.
[4] The CRA responded in a letter dated January 30, 2015, finding that not all prescribed information requested in Part 2 of the Form was provided. The CRA justified this finding on the basis that the Applicant’s description of the activities in developing its refueling mechanism in line 240 of the pages of the Form that the Applicant had submitted, did not include the information that should have been supplied in response to the questions at lines 244 and 242 of the Form; lines 244 and 242 dealt with the technological obstacles and uncertainties the Applicant faced and what work was performed to overcome them to achieve the technological advancements described in line 240. The CRA thus concluded that “we cannot accept the [SR&ED] claim as complete.”
The Federal Court found that there was no evidence of procedural unfairness on the part of CRA:
[29] The Applicant contends that, by not accepting the Form as filed because it was not complete, CRA has made its SR&ED claim for 2012 a non-filing and therefore non-appealable to the Tax Court. The Applicant asserts that CRA is to scrutinize the Form and, if there is insufficient information, it can conduct a review to determine whether the claim should be allowed. According to the Applicant, it is common for an SR&ED claim to be denied initially, with further supporting information subsequently provided to address the Minister's questions or concerns; if the claim is again denied, it can then be appealed to the Tax Court. The Applicant argues that this is an arbitrary deprivation of its rights.
[30] In contrast, the Respondent argues that the Applicant had options that it chose not to exercise, and the consequence of not filing a complete Form meant that the Minister could not accept the Applicant's SR&ED claim for 2012. According to the Respondent, the Minister did not deprive the Applicant of any procedural rights because the Applicant could have filed the Form when it filed its income tax return for 2012 some 12 months earlier and, after that return was assessed, then be able to object under section 165 of the ITA. The Respondent points out that the Applicant chose instead to request an amendment on its 2012 T2 return to add the SR&ED claim on the last day possible, after the objection period for its 2012 tax year had expired.
…
[33] In the circumstances of this case, CRA’s determination not to accept the Form T661 as submitted by the Applicant was not procedurally unfair. Not only was this determination reasonable for the reasons stated above, it did not, as the Applicant contends, wrongfully convert an appealable SR&ED claim into a non-appealable non-filing. The Minister did not deprive the Applicant of any procedural rights because the Applicant could have filed the Form some 12 months earlier than it did when it filed its income tax return for 2012.
As a result the application was dismissed with costs.