- the tp was in the business of re-lining underground pipes without them having to be excavated
- Tp identified a need to allow for the re-lining of underground pipes in situations where smaller contractors don’t have enough space required to manipulate the liner and apply the resin necessary for the re-lining process
- Two projects: development of a resin that would allow it to be pre- applied to the liner; and, development of a single-use mandrel that would allow for the liner to be applied using one instead of two access points, using a push vs pull method
- Together this was the “turn-key technology”
- third project: the development of equipment and a method to service main municipal sewers (the T-shaped mandrel)
- MNR determined that the resin and mandrel projects did not constitute SR&ED
- at the TCC the Crown conceded that the resin project did constitute SR&ED
- The remaining issues: did the tp’s R&D activities on the mandrel and the T-shaped mandrel constitute SR&ED?
- technological uncertainty criteria met:
- Mandrel material had to be: thin, affordable, withstand mechanical stress, flexible, adaptable to heat, resistant to tearing
- The fact that the mandrel was manufactured by a third party is within para. (d) of definition of SR&ED
- TCC accepted tp’s uncontradicted evidence that use of mandrel in industry used the inversion method and not the push method being developed by the tp
- Project needed to be considered as a whole, not each step in isolation
- The tp’s evidence showed that the factory and “in situ” trials were conducted because of real technological uncertainty
- Hypotheses were formulated specifically to eliminate that technological uncertainty:
- Tp’s documents demonstrate that numerous hypotheses were made before trials undertaken
- There was a systematic investigation including the formulation and verification of hypotheses by experiment or analysis:
- Trial and error won’t meet this criterion if there is no analysis of the reasons why the test in question did not work
- Here, the tp’s “engineers tried to understand the problems associated with the underlying technology by analyzing them in the context of the final product that they were trying to develop: a turn-key product” (para. 109)
- The admission that the resin project met this criterion is an admission that the overall approach met it also
- The overall approach was aimed at achieving a scientific or technical advancement:
- To meet this criterion the claimant does not have to have achieved a usable technology so long as the research enabled it to advance its scientific and technological knowledge
Records of the hypotheses tested and results were kept as the work progressed:
- Even though this is not a mandatory criterion and testimonial evidence may be accepted, here, the tp provided ample written evidence proving that it met this criterion
- Regulation 2900(2)(c) of the Income Tax Regulations:
- Expenses incurred for “in situ” trials to excavate drainpipes after an unsuccessful trial, fall under the Regulation
- Expenses incurred to repair sewers by using traditional methods do not
The takeaway?
All outcomes are subjective and fact specific.
Note that 95% of claims are led by engineers performing experimental development. Most engineers don’t actually think in terms of “hypotheses”. That doesn’t mean that they don’t begin with an hypothesis. However claimants may have difficulty getting engineers to actually articulate what the hypothesis was.
Government Incentives 