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Scientific Research & Experimental Development v4.0

Compliance Programs Branch
Scientific Research & Experimental Development Directorate

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Overview & Privacy Impact Assessment (PIA) Initiation 

Government institution

Canada Revenue Agency

Government official responsible for the PIA

Lorraine Redekop
Director General
Compliance Programs Branch

Head of the government institution or Delegate for section 10 of the Privacy Act

Lia Jackson
Director
Access to Information and Privacy Directorate

Name of program or activity of the government institution

Reporting Compliance

Standard or institution specific class of record:

Scientific Research and Experimental Development
CRA CPB 155

Standard or institution specific personal information bank:

Scientific Research and Experimental Development
CRA PPU 441
TBS Registration Number: 20140076

Legal authority for program or activity

Subsection 248(1) of the Income Tax Act defines scientific research and experimental development.

In compliance with section 150 and subsections 37(1), 37(11) and 162(5.1) of the Income Tax Act, personal information is collected and is used to verify compliance, administration and enforcement of the Scientific Research and Experimental Development (SR&ED) Program requirements.

Subsections 37(1) and 37(11) of the Income Tax Act require the taxpayer to file a prescribed form with the Minister. This form contains prescribed information related to the Program and the SR&ED claim.

Section 150 of the Income Tax Act requires the taxpayer to file a tax return for each taxation year, in prescribed form and with the required information, without notice or demand.

Subsection 162(5.1) of the Income Tax Act requires SR&ED claimants to provide information on any claim preparer that worked on the SR&ED claim. The required information includes the business number of the claim preparer, the type of payment arrangement, and the actual amount of money paid. Failure to provide the required information could result in a $1000 penalty.

The social insurance number is collected in line with section 237 of the Income Tax Act and is used for identification purposes.

Summary of the project, initiative or change

Overview of the Program or Activity

The SR&ED Program is a federal tax incentive program. It is designed to encourage Canadian businesses of all sizes and in all sectors to conduct scientific research and experimental development in Canada. The Canada Revenue Agency (CRA) manages the SR&ED Program. Under the program, businesses prepare their claims, following Canadian tax laws and CRA policies and procedures; and the CRA delivers the SR&ED tax incentives the businesses qualify for in a timely, consistent, and predictable manner.

The CRA is committed to managing the program with fiscal integrity and to making sure businesses are aware of the program and can easily access it. The CRA must apply legislation correctly, consistently, and fairly so that claimants receive all that they qualify for under the program.

The program provides more than $3.6 billion in tax incentives to over 20,463 claimants every year. This makes it the single largest federal program supporting business research and development in Canada.

There are three kinds of tax incentives: income deductions, investment tax credits, and refunds.

The federal government offers SR&ED tax incentives for three types of research:

The CRA website has more information about the SR&ED Program at www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program.html

What’s New

  1. The SR&ED is onboarding to a Secure Drop Zone starting January 15th, 2024. Secure Drop Zone is a communication tool that allows clients (claimants, claim preparers, others) to send and receive files to and from the CRA digitally, securely and near real-time, using their web browser. It is important to mention that Secure Drop Zone is a secondary option of communication with claimants and will be used when the claimant or their authorized representative cannot or chooses not to use the CRA portals (My Business Account, My Account, Represent a Client). The CRA Portals should always be the first option to communicate with the CRA.  
  2. The SR&ED Program developed a secure new web application for internal use. The new web application allows the SR&ED Program to capture and host taxpayer information obtained through interacting with taxpayers. The SR&ED Program captures information using web forms and then uses this information to improve risk assessment.  
  3. The SR&ED Program launched a new project, the SR&ED service visit , as a free service to taxpayers. This project started as a pilot but became permanently adopted on June 20, 2023. The SR&ED service visit is optional and gives claimants an opportunity to discuss any aspect of the SR&ED Program with a CRA representative.
  4. The SR&ED Program launched a free tool called “Self Assessment Learning Tool” to help taxpayers understand how to prepare to apply for scientific research and experimental development tax incentives. The SR&ED Self Assessment Learning Tool does not save or share any information with the CRA, as stated on the first page of the online tool.
  5. A new application has been developed involving a parsing engine that scans document templates and uses the value of the token extracted from another system to replace placeholders. This is an internal application, which mainly aims to remove the inconsistencies that exist in managing templates across SR&ED regions and offices. 

Scope of the Privacy Impact Assessment

To ensure compliance with the Privacy Act and related CRA and Treasury Board of Canada Secretariat privacy policies, this privacy impact assessment examines the privacy risks associated with the SR&ED Program.

A separate privacy impact assessment has been created for the Film and Media Tax Credit Program.

Risk identification and categorization

A) Type of program or activity

Compliance / Regulatory investigations and enforcement  

Level of risk to privacy: 3

Details:

The personal information collected is used to decide the overall risk of not complying with the Income Tax Act. It is also used to deliver the program. The taxpayer and the claim preparer could be charged a penalty if certain required information is incomplete, inaccurate, or missing.

B) Type of personal information involved and context

Social insurance number, medical, financial or other sensitive personal information and/or the context surrounding the personal information is sensitive. Personal information of minors or incompetent individuals or involving a representative acting on behalf of the individual.

Level of risk to privacy: 3

Details:

The personal information the CRA collects may include details such as the claimant’s name, social insurance number, contact information and financial information. In addition, the CRA may also collect the personal information of employees of the company, external consultants, and other key individuals directly involved in the project, along with their qualifications and experience to administer this program.

The requirements for collecting personal information under the SR&ED Program apply to all claimants and individuals involved in the projects.

Personal information collected on forms T661, T2SCH31, T2038 (IND), T1174, T1145, T1146, and T1263 falls within the definition of taxpayer information or confidential information. Therefore, it must comply with the confidentiality provisions in section 241 of the Income Tax Act.

Social insurance numbers are collected when an individual completes form T661 to make a claim as a sole proprietorship. They are also collected when a partnership, whose partners are individuals without business numbers, makes a claim. Depending on the type of partnership, its members may not have to file form T661 with their individual return. But they can claim their share of the partnership’s tax credits. The social insurance number serves as a link from the partnership return to the partner’s tax return when the partner is an individual who does not file form T661.

Along with the above documents that have to be sent in with a SR&ED claim, the SR&ED Program may collect the same types of personal information from the supporting documents outlined in T4088, Scientific Research and Experimental Development claim expenditures - Guide to Form T661.

The SR&ED Program also collects personal information (e.g., name, phone number, email address) about individuals registering for online webinars, in-person information sessions, Pre-Claim Consultation Requests and Pre-Claim Review Requests. Personal information (e.g., name, social insurance number (for sole proprietorships), address, phone number, contact name, signature) is also collected for Administrative Reviews.

As stated on the first page of the online Self Assessment Learning Tool form, this tool does not collect any personal information.

However, taxpayers have several opportunities within the Self Assessment Learning Tool to “Contact an SR&ED specialist.” If the taxpayer clicks on that link, they are brought to a new tab in their browser and are asked for information to set up communication with CRA staff. The claimant will need to enter their first and last name, province, and a callback phone number on the “Contact an SR&ED specialist” web page in the Canada.ca external website. A privacy notice has been developed and added to this web page.

Starting January 15th, 2024, the Scientific Research and Experimental Development Program is onboarding to Secure Drop Zone. Therefore, during the review process of a Scientific Research and Experimental Development claim, the Scientific Research and Experimental Development Reviewer collects from the claimant, or their authorized representative, the claimant’s email address and cellphone number. This latter information is mandatory to open a Secure Drop Zone and generates a 16-character drop zone number. Afterwards, the Reviewer calls the claimant and gives them the drop zone number and the date the drop zone will close. When the claimant opens the Secure Drop Zone in Secure Drop Zone - Canada.ca, they need to enter the 16 character drop zone number, their email address and cellphone phone number, previously provided to the CRA reviewer, to be able to access the Secure Drop Zone and send or receive files to or from the CRA.

The new secure web application for internal use will allow the SR&ED Program to capture and store taxpayer information obtained through CRA-taxpayer interaction. CRA reviewers will capture information using web forms. The information will then be made available to the SR&ED Program to improve risk assessment. 

The SR&ED service visit is a voluntary, free service that the SR&ED Program offers to claimants who have submitted a SR&ED claim but have not been reviewed for at least three years in a row. Most of the claimant’s personal information is collected through the T661 form. However, if a claimant accepts the service, some personal information (first and last names, phone number, job title) may be collected during meetings with participants who may not have seen the T661 form.  

C) Program or activity partners and private sector involvement

With provincial and/or territorial and/or indigenous and/or municipal government(s) 

Level of risk to privacy: 3

Details:

SR&ED Program information may be shared with other areas in the CRA, such as Assessment, Benefit, and Service Branch (T1 and T2 processing, payment processing), Collections and Verification Branch, Appeals Branch (processing of Notices of Objections).

Also, SR&ED Program information may be shared with other federal government institutions, which follows income tax legislation. These institutions include the Department of Finance Canada (Tax Data – Evaluation and Formulation of Fiscal Policy) and Statistics Canada (statistical data).

Information may also be shared with provincial government institutions, according to memorandums of understanding between the CRA and the provinces on administering the provincial research & development tax credits.

D) Duration of the program or activity

Long-term program 

Level of risk to privacy: 3

Details:

The SR&ED Program started in 1986. It is a long-term program with no established end date.

E) Program population

The program affects certain individuals for external administrative purposes.

Level of risk to privacy: 3

Details:

The requirements for collecting personal information under the SR&ED Program apply to all claimants and individuals involved in the projects being claimed. That said, slightly different personal information is required if a corporation makes the claim instead of an individual. In 2022-2023, a total of 20,322 scientific research and experimental development claims made by corporations (T2) were recorded in the system, compared to 141 for individuals (T1) and partnerships.

Corporations, individuals, trusts, and partnerships that conduct SR&ED in Canada may claim SR&ED tax incentives.

Since January 1, 2014, all SR&ED claimants who use a claim preparer to make their claim have to provide additional information about the preparer, such as the name of the preparer (first and last names of the individual and social insurance number if the preparer is an individual, or name of the corporation and business number if the preparer is a corporation) and the amount paid to the preparer to prepare the claim. 

F) Technology & privacy

  1. Does the new or modified program or activity involve the implementation of a new electronic system, software or application program including collaborative software (or groupware) that is implemented to support the program or activity in terms of the creation, collection or handling of personal information?

    Risk to privacy: Yes

  2. Does the new or modified program or activity require any modifications to IT legacy systems and/or services?

    Risk to privacy: No

  3. Does the new or modified program or activity involve the implementation of one or more of the following technologies?

    Enhanced identification methods - this includes biometric technology (i.e. facial recognition, gait analysis, iris scan, fingerprint analysis, voice print, radio frequency identification (RFID), etc.) as well as easy pass technology, new identification cards including magnetic stripe cards, "smart cards" (i.e. identification cards that are embedded with either an antenna or a contact pad that is connected to a microprocessor and a memory chip or only a memory chip with non-programmable logic).

    Risk to privacy: No

    Use of Surveillance - this includes surveillance technologies such as audio/video recording devices, thermal imaging, recognition devices, RFID, surreptitious surveillance/interception, computer aided monitoring including audit trails, satellite surveillance etc.

    Risk to privacy: No

    Use of automated personal information analysis, personal information matching and knowledge discovery techniques - for the purposes of the Directive on PIA, government institutions are to identify those activities that involve the use of automated technology to analyze, create, compare, identify or extract personal information elements. Such activities would include personal information matching, record linkage, personal information mining, personal information comparison, knowledge discovery, information filtering or analysis. Such activities involve some form of artificial intelligence and/or machine learning to uncover knowledge (intelligence), trends/patterns or to predict behavior.

    Risk to privacy: Yes

G) Personal information transmission

The personal information is transmitted using wireless technologies.

Level of risk to privacy: 4

Details:

The information on forms T661, T2SCH31, T2038 (IND), T1174, T1145, T1146, and T1263 is considered to be part of the tax return (whether T1 (individuals), T2 (corporations), or T3 (trusts)). As a result, all CRA controls related to tax returns apply.

Tax centres receive and process SR&ED claims. Eighty percent of all SR&ED claims are filed electronically, and the information on these forms is automatically loaded onto the mainframe. The tax centres enter the remaining 20% of claims manually.

T2 SR&ED claims have to go through an initial risk assessment at the tax centres.  This is done with an automated risk management tool, which automatically creates a case number for complete claims. The tax services offices directly receive T1 claims above the specified dollar-amount threshold, claims for partnerships, and T3s, where they screen the claims manually. Tax centre assessors who deal with the SR&ED Program access the information in the mainframe. The assessor only verifies that the information on the form is complete, not that it is correct. A preliminary risk assessment determines whether the T2 claim should be accepted as filed or sent to the tax services office for further review. The SR&ED risk management tool automates that decision process. The assessor does not have to provide any input. About 40% of the claims sent to the tax centres are accepted as filed based on the automated preliminary risk assessment. In addition, SR&ED staff in field offices access the information from form T661, so they can do more detailed risk assessments and technical and financial reviews (audit actions) on the claims.

The Secure Drop Zone is a communication tool that the claimant accesses on a web browser. They send and receive files from the CRA via the Secure Drop Zone. The Secure Drop Zone uses wireless technology.    

H) Potential risk that in the event of a privacy breach, there will be an impact on the individual or employee

Details:

If an individual’s personal information is compromised, it could lead to financial loss, as well as identity theft or fraud, for the individual taxpayer and their business interests.

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