Copyright 2010 – Bruce Madole Marginal Claims

Marginal Claims

Some claims just aren’t that strong. Claims may be weak for a wide number of

reasons – lack of clear technological uncertainty or technological advancements being

sought, lack of evidence (or even a strong case) for experimental development, or even

financial costs not commensurate with the core science. Whatever the weaknesses, it is

also true that some of these marginal claims will have been prepared with the help of

SR&ED consultants. Perhaps the consultants are just “taking their best shot” on behalf of

a client. The question is: was this flawed or marginal claim submitted with the explicit

expectation that smaller claims receive less scrutiny than larger claims by large

corporations?

I believe it’s true that smaller claims have received less scrutiny in the past. I also

believe that the Canada Revenue Agency (CRA) often pays greater attention to larger

claims, on the grounds of “materiality”, which is accounting-speak for the fact that big

numbers are often more important than little ones. There may be a degree of relativity in

the way that the technical criteria have been weighed, between small to medium

businesses (SMBs) and larger corporations. Large corporations can afford the most expert

help, and they file large claims, and so the corporation is expected to demonstrate a more

stringent standard than may be demanded of an SMB that is perhaps just getting

introduced to the SR&ED program. I think there has always been a certain latitude or

variability in the application of such standards. What is “routine” for one company may

well be rocket science to another. The Science Reviewers try to sort it all out while trying

This document is the property of Bruce Madole, and is used by permission. All rights are reserved. The opinions expressed herein are personal, created for entertainment and
information purposes, and are not intended to be relied on in place of professional counsel or advice. No part of this document may be re-used, transmitted or re-transmitted
without the express prior written consent of the author, who can be contacted at: brucemadole@sympatico.ca
Copyright 2010 – Bruce Madole Marginal Claims

to remain conscious of the fact that SR&ED is a tax-incentive program, designed to

encourage technical innovation and the growth of technical know-how.

“Access” to the SR&ED program could easily become skewed heavily in favour

of large corporations if such technical standards are too rigidly applied. On the other

hand, how should we expect the CRA to behave if it were to become apparent that an

entire segment of the SR&ED “industry” had grown up around the creation and filing of

“marginal” claims, and with the explicit assumption that such claims would always fly

under the radar? Might this not be perceived as an abuse of the latitudes previously

granted? Might such an abuse not come to be perceived as “material” in its own way?

I think that such perceptions may well be a part of the CRA’s imminent

introduction of a manual for SR&ED review. If that is a part of the unspoken story, and I

believe it is, then small claimants (and the consultants who support them), should prepare

themselves for a bumpy ride over the next few years. (The best approach to a truly

marginal claim is probably to resist filing it in the first place, and that is a message for

small and large claimants alike.) The push for greater granularity and more consistent

scrutiny of claims will end up being more painful for smaller businesses than it is for

large corporations, who can better absorb the overhead.

The entire SR&ED program hangs on a framework of inter-locking tolerances –

technical and financial, human and legislative, legal and political. All of us who benefit

from this program, and it is the best in the world, need to be sensitive to the rules and

expectations under which we operate.

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This document is the property of Bruce Madole, and is used by permission. All rights are reserved. The opinions expressed herein are personal, created for entertainment and
information purposes, and are not intended to be relied on in place of professional counsel or advice. No part of this document may be re-used, transmitted or re-transmitted
without the express prior written consent of the author, who can be contacted at: brucemadole@sympatico.ca