Copyright 2010 – Bruce Madole Self-Compliance

Self-Compliance

The Canada Revenue Agency (CRA) occasionally speaks about SR&ED

claimants achieving a state which CRA calls “self-compliant”. On the surface, it seems

like a reasonable goal – a claimant should have reached a level of sophistication, about

the SR&ED program, which enables them to claim only what should be claimed, and

presumably, never to claim what shouldn’t be.

It sounds like a happy situation, doesn’t it? No arguments with science reviewers

or financial auditors about the eligibility or the scope of one’s claims. Perhaps, a level of

frequent or at least open consultation to see if everybody still agrees with everybody else?

Is this beginning to sound like “they all lived happily ever after”?

I’m in favour of self-compliance, as a goal, but there may be other goals that need

to be recognized, such as the desire to maximize what is properly claimable. Does

maximizing a claim sometimes entail crowding the edge of what is acceptable to claim?

And if you do that, and the CRA pushes back, for science or financial reasons, have you

stopped being self-compliant and become, suddenly, less trustworthy?

Myself, I don’t think trust really enters into it. I suspect that self-compliance is a

matter of observable fact, and that it is probably also an historical observation, based on a

pattern of claims filed over time, but without much predictive validity. (Unless or until,

that is, a company reaches the level of process review with CRA, which does seem to

imply a level of negotiated trust, not in the claims themselves, but in the processes that

lead to them.) Perhaps, in an ideal sense, self-compliance means that we claim what we

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 Self-Compliance

should, don’t claim what we shouldn’t, and then consult with CRA, in an open and

receptive way, about the borderline bits?

This approach may result in a bit of under-claiming, from time to time, but you

would have to think that such a working relationship would be healthier, in the long run,

than ratcheting up the scrutiny, and even potentially triggering an audit, every time a

claim is filed. So maybe self-compliance isn’t such a bad objective. I happen to think

it’s a great idea, and more efficient, all round.

One thing, though. The law that governs SR&ED is defined by the House of

Commons, as a part of the Income Tax Act. The final say about the interpretation of that

law rests with the Tax Court of Canada (TCC); the CRA administers the law, but they

don’t own it. The CRA itself has processes for unhappy claimants to follow in pursuing

their concerns, which may ultimately arrive at the TCC. It has even happened,

occasionally, that the TCC disagrees with CRA about CRA’s interpretation or

administration of the law.

Therefore, it is important to remember that self-compliant, as a term, refers to

being self-compliant with the law, and not merely self-compliant with respect to CRA

guidance documents, policies, or expressed opinions, nor even, potentially, with the as-

yet-unpublished claim review manual. The day may come when a claimant and the CRA

disagree to the extent that the Tax Court of Canada must ultimately decide the matter:

that is a claimant’s right, and the pursuit of self-compliance should not be seen or

understood in any sense to alter that.

( http://www.sredunlimited.com )

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