Claim Review Manual for Research and Technology Advisors

Chapter 6.0 Documenting the review

Table of contents


6.1.0 Summary of chapter

Documenting the review carried out by the research and technology advisor (RTA) is discussed in this Chapter. The main topics covered are:

  1. who uses the RTA's documents;
  2. definition of working papers and supporting documentation;
  3. importance of file documentation, and the basic principles of what to document and how to document;
  4. types of working papers and supporting documentation;
  5. the various ways that the RTA can document their work along with the details required for different situations, which include memos and the scientific research and experimental development (SR&ED) Review Report; and
  6. how to format and index the TF98 file.

6.2.0 Requirements of chapter

The following requirements, introduced in Chapter 1.6.0, are outlined in this Chapter:

  1. document all relevant review work (working papers), as well as keep other relevant supporting documentation for the work;
  2. do not document irrelevant personal opinions or irrelevant information about other claimants, as they are against basic principles of integrity and professionalism;
  3. prepare an SR&ED review report using the template in Appendix A.5 when it is required, or a memo if that is sufficient,  explaining the review work performed and the rationale for any decisions and determinations;
  4. keep and organize working papers and supporting documentation in the TF98 file; and
  5. consult the research and technology manager (RTM) for approval of the SR&ED review report.

6.3.0 Users of the RTA's documents

Documentation supporting the RTA's decisions provides relevant information to the following groups:

  • Claimants. The SR&ED review report explains the Canada Revenue Agency’s (CRA) decision on the issues. It outlines the facts relied upon by the RTA for any decisions and determinations and helps the claimant to understand the reviewer’s rationale, which should be based on facts. It may also provide guidance for improving compliance for future claims;
  • Financial Reviewers. The documented decisions of the RTA are needed by the financial reviewer (FR) to complete their work. These decisions advise the FR about possible issues and clarify which elements of the claimed work are SR&ED;
  • Management. The file documentation provides a record of the claimant's compliance history and can also be used to monitor the quality of the CRA's services;
  • Tax Centre, Control Function, and Research & Technology Officers. Information about prior years' reviews is valuable in the risk assessment, screening and "limited review" of claims;
  • Research & Technology Advisors. The documented review information and decisions provide background for future reviews or necessary educational services;
  • Program Administration and Quality Assurance (QA) Division, Headquarters (HQ). The file documentation is used to determine the quality of the work with respect to the standards in this Manual.
  • Appeals Division. The documentation will be used in resolving objections. It can demonstrate that the RTA has given the claimant due process, and that the review is supportable;
  • Department of Justice. The documentation may be used as evidence in tax court, to determine if the Act is being followed correctly;
  • The Taxpayer's Ombudsman. The documentation may be used to demonstrate adequate service delivery, when there are service-related complaints; and
  • The Auditor General. To determine if CRA procedures are being followed, the documentation may be used in the course of an internal audit or in a follow-up to a previous internal audit.

6.4.0 Definitions / explanation of terms

Evidence:

  • Supporting evidence – is anything that can be legally relied upon to bear witness to the facts of a case.
  • Direct evidence – is evidence that proves a fact.
  • Indirect evidence – is evidence that suggests a fact while not actually proving it.
  • Documentary evidence – is evidence in the form of written material.

Documentation:

Documentation consists of written material such as judicial and other official records, contracts, deeds and less formal documentation such as letters and memos and the normal books and records:

  • Contemporaneous documentation – is documentation produced during the normal course of (the claimant’s) work.
  • Working papers – is documentation created by the RTA during the review process. They may be created entirely by the RTA (such as the SR&ED review report) or be other documents (such as documents from the claimant) which have been altered by the RTA with the addition of notes or comments.
  • Supporting documentation – is a subset of supporting evidence. It is any document obtained from the claimant, representative, or any third party that is used in the review process to arrive at or as a rationale for the decision of the RTA.
  • Original documentation – This term is not defined in the Act, so the standard English meaning is used. In the context of the CRA, an original document is the first instance of the reviewer obtaining it from whoever sent or provided it. As noted in Chapter 5.6.6 the RTA may certify copies received from the claimant and these are considered the same as true copies of the original. There are designated individuals in the CRA who can print out and certify information in electronic databases.

6.5.0 Basic principles

The basic principle of file documentation is that all work on the file is documented.

Working papers are essential in explaining decisions, the application of legislation and the rationale for review adjustments. They provide an explanation of the nature and extent of the review work performed, and document the review techniques and procedures followed during the course of the review.

A well-documented file is vital for both the RTA and the FR. Documenting occurs at all phases of the review, including planning, conducting and closing the file. The advantages of a well-documented file include:

  • strengthening the supportability of the decision by demonstrating that due process was provided to the claimant (refer to Chapter 1.5 for a discussion of due process);  
  • supporting review decisions;
  • facilitating the review process for claims in subsequent years; and
  • assisting in the efficient review of the file by management (RTM, Assistant Director (AD), Quality Assurance (QA)), Appeals, Tax Court, and the Auditor General.

In carrying out this documentation function, working papers and supporting documentation should:

  • provide explanations for issues that were identified at or subsequent to the planning stage, but were resolved without any adjustments or contact with the claimant;
  • describe problems encountered during the course of the review;
  • provide information about items that require follow-up in any subsequent review;
  • provide evidence that areas of material risk have been addressed;
  • support decisions and recommendations;
  • relate only to the claims under review and not to other claimants unless this is relevant. For example, working papers could include information about a related company or a contractor that has claimed the same work or expense;
  • provide a summary of communications with the claimant;
  • provide details of all meetings and discussions with the claimant including who attended, the issues that were discussed and how these were resolved; and
  • reference the source and location of working papers and supporting documentation kept in other CRA files that are relevant to the review, but these working papers do not need to be copied and put in the TF98 file. Examples are financial documents that are kept in the audit file. It is recommended that information from any pre-claim project review (PCPR) and account executive (AE) be kept in the TF98 file. However, if separate files are maintained in the tax services office (TSO), the information does not need to be duplicated and kept in the TF98 file.

Working papers and supporting documentation should not:

  • contain any irrelevant opinions, assumptions or comments about any individuals associated with the claim, criticize the claimant's business decisions or the quality of their work. Working papers must only show information or comments that are factual, unbiased and relevant to the case at hand. If a file goes to the objection or court stage, the claimant should understand the review process and the rationale behind the RTA's decision. It is important to remember that information contained in the TF98 file may be disclosed to the claimant in the course of a court case;
  • have markings of any kind such as highlighting, underlining or check marks on any original documents submitted by the claimant, including project information and correspondence, aside from the identification and numbering noted in Chapter 6.10.0. As noted in the CRA Audit manual chapters 9.8.1 and 10.5.4, if such marks are made, the claimant may simply claim on appeal or at trial that the document in question is not the one provided to the RTA. If notations are made on a document or it is marked up in some manner, the question arises subsequently as to who made them and when. As well, highlighting of text or other material in a document often distorts or renders the highlighted part illegible in future photocopies of the document. If it is necessary to highlight certain statements, or to write comments in the margins, for purposes of discussion of a document, this must be done on a photocopy of the original and the clean copy must be filed separately with the working papers; or
  • refer to documents or information not in the CRA files, as this information may not be accessible later. Information that would always be available later are exceptions to this rule and would include:
    • copies of CRA publications, such as information circulars, directives and application policies (AP), and court cases. These do not need to be in the file. It is sufficient to reference and / or quote these documents (including the version or publication date) since they will always be available for later reference
    • records in CRA-wide electronic databases, like CORTAX, Audit Information Management System (AIMS), and the SR&ED risk management tool. This exception would not apply to electronic applications restricted to the local office. It should be clear where the information has come from, however. If data from these electronic databases is later needed by someone outside of the CRA, such as for Tax Court, there are designated individuals within the CRA who can provide paper copies of this and a certification that it is a copy of electronic information contained in the database;
    • documents like standard references or dictionaries that are reasonably expected to be readily available later;
    • information in public databases like patents and court cases; and
    • claimant documents reviewed on-site but not copied or retained, provided they are not needed to support an unfavourable determination. Chapter 5.6.6 has more discussion on retaining copies of claimant’s supporting information.

Note that material not used or relevant to the review should not be kept in the file. However, all documentation provided by the claimant must be either returned or retained on file, even if considered irrelevant. Claimants may consider this relevant, and it needs to be in the file for later review.

It is recommended that any notes made during the analysis process be made on a T2020 or similar working document and be kept in the TF98 file. Relevant factual observations that might eventually contribute to the resolution of the identified issues are itemized in a working paper and kept in the TF98 file. 

The RTA must not write on or alter any original documents submitted by the claimant. If a document is given on-site and the RTA wants to make notes on it, a copy should be made on the claimant’s premises and notes should be made on the copy.

6.6.0 Types of working papers and supporting documentation

This section describes the major types of working papers and supporting documentation that must be kept in the TF98 file.

6.6.1 Documents received from the tax centre

Any documents received from the tax centre (TC), such as correspondence, and information from CRA electronic databases, such as the TC Risk Assessment documents, are on-line and do not have to be printed and kept in the TF98.

6.6.2 Documents received from the Control Function 

Any documents received from the control function (CF), like risk assessment documents, do not have to be printed.

6.6.3 Review plan

The review plan, which includes the issues identified and the scope of the review, revisions made to the review plan if any are made, and any notes explaining revisions to the plan, are kept.

6.6.4 Records of communications

Records of conversations (including transcribed voice mail), discussions and meetings that are relevant to the decisions or work done in the file. It is recommended that the T2020 form be used as a universal log or diary for this purpose, so that any subsequent reader / user has a single source to identify events that occurred during the review. Notes may also be taken using a laptop or similar means, but these would need to be dated, printed and signed by the RTA. It is acceptable to use an electronic T2020 or equivalent during the review process. Included under this general heading are:

  • telephone conversations with claimants or their representatives;
  • meetings and or on-site visits with claimants including any proposal meetings;
  • meetings and discussions with RTMs, co-workers, HQ, other branches of the CRA;
  • meetings and discussions with people outside the CRA; and
  • briefings with outside consultants (OC) and team members.

Record the name of the claimant, date, time, person(s) you communicated with, other persons present (even if not involved in the discussions) and details of the conversation. The RTA should ensure that records of communications in the TF98 are legible. If the RTA's handwriting is difficult to read, the notes should be legibly rewritten and attached to the original. Both transcribed and original documents should be dated, signed, and inserted to the TF98 file.

6.6.5 Correspondence

Copies of correspondence sent or the original correspondence received that pertains to the file. Correspondence includes the original request as well as the response. If there is no response from the claimant, that fact should be indicated in the file. Major types of correspondence include:

  • all correspondence to or from the claimant or their representative;
  • meeting agendas;
  • written requests for information (discussed in Chapter 5.4.1.2);
  • relevant advice or opinions from the RTM, the Assistant Director (AD), co-workers, HQOCs or other branches of the CRA;
  • relevant advice or opinions from outside the CRA;
  • internal emails. Paper copies of emails (ingoing and outgoing) must be made and kept in the file. Chapter 2.9.0 has CRA’s policy on communication via email; and
  • Faxes. Copies of all incoming and outgoing faxes must be kept in the file. Chapter 2.9.0 has CRA’s policy on communication via fax.

6.6.6 Documentation related to outside consultants

Information produced for or by the OC, including briefing notes and correspondence with the OC, authorization letters, the OC resume and documentation obtained or produced by the OC during their contract must be retained on file.  Personal information such as their address and the details of their contracts with the CRA must not be kept in the TF98 file but in the contract file. Refer to Directive 2003-02 Managing Outside Consultants for details of this documentation.

6.6.7 Results of RTA's work

This includes the SR&ED review report, all versions sent to the claimant including any revisions or addendums, any notes describing how the issues were resolved and any documentation supporting the RTA’s decisions. Chapters 6.7.0 and 6.8.0 have guidelines concerning those documents.

6.6.8 Other Supporting Evidence

Included in this category are:

  • Form T661, including the project information. (Note: The RTA may only have the information from CORTAX. The originals, if filed on paper, may be kept at the TC.);
  • any additional information sent by the claimant or their representative or received at the site visit;
  • copies of relevant books and records, invoices, etc;
  • photographs (Note: This means photographs the claimant supplies. The RTA must not take photographs at a claimant's premises due to security concerns);
  • claimant authorization documents. If communications are made with any individual other than the claimant, authorization for any third-party representatives must be on file (Chapter 2.9.2 discusses authorization in more detail);
  • electronic media (such as compact discs CDs, digital versatile discs (DVDs), or universal serial bus (USB) memory sticks), if provided by the claimant, although this is not encouraged due to storage and handling issues. CRA procedures for using electronic media from outside the CRA must be followed. The Electronic Document Management Policy can be consulted for more information. The RTA should consult their local information technology (IT) services in order to view the documentation and extract relevant parts, if necessary, and make paper copies. The original media would then be returned to the claimant if no longer needed;
  • physical samples provided by the claimant (if relevant to the decisions), although this is not encouraged due to security, storage and handling issues; and
  • information from public sources that is relevant to the decisions (for example, information from the claimant's web site, textbooks, and magazines). Copies should be made and placed in the TF98 file. This is especially true of information taken from web sites due to their changing nature. Where the source document cannot be placed in the TF98 file in its entirety, it is sufficient to copy the relevant extract from the document, identify the source and place it in the file.

6.7.0 Documents supporting the RTA's decisions

6.7.1 General requirements

Documentation supporting the RTA's decisions helps to demonstrate that due process has been given to the claimant. It also improves the supportability of decisions. Documents generated by the RTA usually include the review plan, letters to the claimant, field notes and other information written on a memo to file (T2020 or equivalent), and the SR&ED review report.

The principles discussed in Chapter 6.5.0 also apply to these documents. These other points apply more specifically to documents supporting the RTA's decisions. This documentation must:

  • reflect the fact that the review of the file was conducted according to applicable legislation, CRA policies and procedures;
  • give sufficient detail and clarity as to why and how the RTA's decisions were reached;
  • address only matters within the responsibility of the RTA. While appropriate discussions of joint issues are required, memos and reports must not include any decisions concerning expenditures, which are the responsibility of the FR; and
  • demonstrate that due process was given to the claimant.

6.7.2 Detail required to support the RTA's work

The volume of supporting material and their details in the documentation depend on the scope of the technical review, the nature of the issues and the decisions. This section gives some general guidelines as to the nature of the documentation needed, depending on the review performed. The following list provides a summary of the documentation needed for four common review situations:

6.7.2.1 No technical issues but the FR requires some assistance

When there are no remaining technical issues, but the FR requires the assistance of an RTA on some joint issues, the RTA simply should document their work (for example, if claimant is contacted) in a memo to file (T2020 or equivalent), and send a memo to the FR who requested the assistance. This also applies to the cases where the FR requests assistance subsequent to the RTA's review. The memo is an internal document that will not be shared with the claimant. If necessary, the RTA may assist the FR with the appropriate text to include in the proposal letter.

6.7.2.2 All issues resolved in claimant's favour, no on-site visit made

If the issues can be resolved in the claimant's favour without an on-site visit, the RTA must, at a minimum, document the work they did, the decision and the rationale in a memo to file (T2020 or equivalent). An SR&ED review report is not required but is an option (see the end of this section). Typically, all that is needed is a brief explanation of the rationale for this decision, with an indication as to what additional information was used, and any other work undertaken (such as discussions with the RTM, another RTA or a search of the claimant's website or other public information) to reach this decision.

Unsupported statements like "no problems seen" do not constitute adequate rationale. If an issue is resolved without further review, the RTA has essentially made a risk assessment and has concluded that there is a high probability that they would otherwise be resolved in the claimant's favour. There is no requirement to repeat information already in the file or easily available elsewhere, but the source of the information must be indicated. If on the other hand the basis for the decision is difficult to understand, it is recommended that the information relied upon be included in the file (for example, a web or textbook reference). In simpler cases, the reasons why a claim is accepted as filed could be documented in the form of a memo to file (T2020 or equivalent). In more complex cases, the RTA can present their findings in a "Short SR&ED review report," (discussed in chapter 6.9.2).

6.7.2.3 All issues resolved in claimant’s favour, following an on-site visit

In this situation, the RTA would document the work, the determination/ conclusion/decision, and the rationale. The work would typically be documented in an SR&ED review report. Details would be needed to describe the additional work done that involved claimant contact. This would take the form of notes of telephone conversations, letters, a discussion of the claimant's response to their questions, observations during the on-site visit, observations concerning reviewing the books and records and so forth, depending on the specific details of the claimant contact. The RTA should take definite positions on the identified issues. It will be beneficial to the claimant if the CRA makes a definite determination of eligibility. The RTA's determination may also assist the claimant in future compliance. Details of the work the RTA does are recorded with appropriate reference to other working papers or supporting documentation. The arguments should be presented with sufficient detail since the RTA is taking a position concerning a legislative or policy matter. The documents explain how and why the determination was reached, with reference to appropriate documentation, conversations or other working papers.

6.7.2.4 Not all issues resolved in claimant's favour

If not all the issues can be resolved in the claimant's favour, whether or not an on-site visit was involved, the RTA's work must be documented primarily in the standard SR&ED review report, using the template in Appendix A.5,which is discussed in Chapter 6.8.0.

Documenting the rationale and the decisions reached by the RTA regarding the identified issues is required. The rationale must include appropriate references to the Act, other relevant information and the claimant’s supporting evidence that was used to come to this determination. Note that the detail needed in the rationale is greater because the RTA must make a case that the work or part of the work claimed does not meet the definition of SR&ED in the Act.

6.8.0 The SR&ED Review Report

Some of the discussion here is based on the course HQ1180-000 "SR&ED review report writing". More information, including examples, is available in this course.

The SR&ED review report is the key document produced by the RTA during their review. The original SR&ED review report is kept in the TF98 file. The following are general requirements for the report. It must be:

  • complete – the report must use the national report template in Appendix A.5, and contain all relevant observations, discussions, and evidence/supporting information considered to address issues in review plan;
  • clear – the determinations, conclusions, and other decisions in the report must be unambiguous and the report should be well structured, use plain language, and not use jargon or inappropriate terms;
  • concise – the report must be free of non-relevant information and unnecessary repetition;
  • supportable – the report must provide adequate rationale for determinations of ineligible work or other decisions on issues that are not resolved in the claimant’s favour. The rationale has to be well-rooted in legislation and policies, so that the determinations, conclusions, and other decisions can be upheld in case of a notice of objection or if the case goes to litigation;
  • accountable – the report must provide adequate rationale for determinations of eligible work or other decisions on issues that are resolved in the claimant’s favour; and
  • issued in a timely manner, preferably within 30 days of the last on-site visit or the last information received from the claimant.

The SR&ED review report includes the following elements:

6.8.1 Identification

The purpose of this section is to:

  • identify the claimant;
  • identify the claim reviewers; and
  • identify the claim in CRA databases.

All the items must be filled in and, to avoid errors, it is recommended that the RTA start with a fresh report template and avoid "cutting and pasting". The wording for this section is slightly different for partnership claims (Refer to Chapter 6.9.3 and the discussion in Appendix A.6.11 for more details).

6.8.2 Summary of results by tax year

The purpose of this section is to provide a tabular summary of the results of the review for quick reference and statistical capture in AIMS. When filling in the table, ensure that the summary correctly reflects the determinations, conclusions, and other decisions made throughout the report, and that the numbers add up.

6.8.3 Review issues

The purpose of this section is to identify each issue (or group of issues), including the project(s) it relates to. The issues are the reasons for the review, and include:

  • the issues identified on the review plan;
  • joint issues arising from consultation with the FR; and
  • issues (if any) that arose during the review process that were not part of the original plan.

All issues identified must subsequently be addressed in the remainder of the report.

6.8.4 Review methodology

The purpose of this section is to:

  • summarize the review process, what happened during the review and the steps followed; and
  • provide basic details of the review process.

It describes the work done by the RTA to resolve the identified issues. It includes the review steps and procedures, such as information requested, information received, conversations, meetings, on-site visits conducted, and questions asked.

6.8.5 Information and supporting evidence reviewed

The purpose of this section is to identify information, records, and documentation submitted with the claim, provided by the claimant or their representative during the review, or obtained elsewhere by the RTA or FR, and relevant to the determination/conclusion/decision.

The information in this section assists in the location of any material required for any other review processes, such as a review during dispute resolution, a notice of objection, or an appeal to Tax Court. Sufficient detail should be given to identify and, if necessary, locate the material for future use. Indicating that all relevant information presented by the claimant was reviewed helps to demonstrate that due process was given. The documentation listed in this section is different from the documentation generated by the RTA during the course of the review and documents published by the CRA.

In this section, the RTA should include a brief description of the information reviewed, preferably listed in chronological order. The information may be grouped as received

  • prior to site visit;
  • during the site visit;
  • after the site visit, and
  • any other information reviewed, such as:
    • scientific or technical journals;
    • textbooks; and
    • websites.

Examples of information reviewed prior to any on-site visit may be:

  • Form T661 project information;
  • claims from previous years;
  • AE, first-time claimant advisory service (FTCAS) or PCPR information;
  • Information on business context of the claimant or business environment , and
  • additional information submitted by the claimant (for example, a reply to a request for information (RFI) letter from the CRA).

Appendix 2 in the T4088 – Guide to Form T661 provides guidance and examples of supporting evidence. Do not list any documentation published by the CRA, even if they were used as references. Policies are used and are relevant in the interpretation of the evidence, but they are not evidence.

6.8.6 Review observations, determinations, conclusions, and other decisions

Introduction

The purpose of this section is to provide a summary of review observations, determinations, conclusions, and other decisions using a rationale supported by facts. These review summaries must be:

  • complete;
  • clear;
  • concise; and
  • supportable/accountable.

In this section, a description of the review observations should be presented in as much detail as necessary to explain, based on facts gathered during the course of the review, how the issues were resolved. This section would also describe information the claimant presented about their work and their responses to questions. This is also the place to discuss business context, and what specific business context facts are relevant to the review. The facts that affected the review are part of the rationale.

This section should include relevant observations from the on-site visits or other meetings with the claimant. It should describe the significant issues that were discussed and how these resulted in the review determinations, conclusions, and other decisions. It may also include a discussion or analysis of claimant responses to our questions, observations or preliminary determinations.

The RTA should not repeat or paraphrase the claimant’s project information if the description is consistent with the RTA’s observations. The RTA can refer to the Form T661 project information. However, if some aspect of the information is or becomes a review issue, the RTA should reference the relevant information together with an explanation of the RTA’s determination and rationale.

The RTA’s determinations, as noted earlier, must not contain determinations, conclusions, or decisions on purely financial issues. For joint issues, factual observations, conclusions, and other decisions within the RTA’s mandate should be documented so that the FR can resolve the related financial issues.

The status of the projects/ issues reviewed at the end of the review period may be noted to assist in the review in subsequent years.

6.8.6.1 Documenting eligibility determinations

Determinations of eligibility must be documented to avoid misunderstandings or ambiguity, and to demonstrate that they are based on the Act and CRA policies.

A rationale supported by facts must be provided when making determinations. The rationale uses a combination of the facts, legislation, and policy that are cited and discussed in order to come to a determination about the work. Care should be taken when characterizing claimant’s work. Referring to elements of the work as "standard practice," "knowledge commonly available to the industry," "routine testing," "routine engineering," or making statements such as "there is no technological uncertainty" or "the work is not an advancement in a field of science or technology" without justification are considered not supportable at the notice of objection stage. 

For instance, if the RTA states that that the claimed work was "standard practice", it must be demonstrated, for example, by referring to the claimant’s previous practice or to published information. 

The SR&ED review report should cite the evidence or information that led the RTA to make such statements. As noted in the eligibility policy, the RTA must take into account the context of the claimant's business environment in order to make an eligibility determination. These explanations do not need to be long, but should be sufficient for the claimant and any other reader (such as a lawyer or judge) to understand the RTA’s rationale.  

In the rationale, when using the Act and CRA policies, the RTA should use the exact words, and not paraphrase, add to, truncate, or use apparently similar expressions. That is because the meaning can be easily altered if the exact words are not used, and the RTA’s rationale may be unclear as a result. 

It is expected that the rationale will make appropriate reference to the five (5) questions of the eligibility policy, but there is no requirement that each question be specifically answered for each project and written in the report. The 5 questions are used to communicate the determination to the claimant. Remember that for there to be SR&ED, all the five questions must be answered "yes". Therefore, in principle, a single "no" is sufficient to demonstrate that there is no SR&ED. However, the rationale may be stronger or clearer if more than one question is specifically answered. There also may be circumstances where it is helpful to the claimant if several or all of the questions are specifically answered. 

When presenting a rationale using the 5 questions, remember that, as described in the eligibility policy, the questions are linked and the answers are determined by considering all the information in the file for understanding the eligibility determination as a whole. Care should be taken that contradictory statements are not made. For example, if Question 1 is "no", Question 2 must also be "no".

If the RTA determines that some work is not SR&ED, it is helpful to think about potential weaknesses or counter-arguments to their explanations and attempt to address them in their rationale.  It is often helpful to ask the RTM or a co-worker to review the report.

When there is a change in eligibility of on-going work (for example, if a project considered to be SR&ED in a previous tax year is no longer considered to meet the definition of SR&ED), the RTA should present a rationale that distinguishes the current work from the work of previous years. They should provide a rationale for their determination of when the SR&ED was finished. On the other hand, if the attempt to achieve the scientific or technological advancement is expected to continue into the next fiscal year, this should be documented in the SR&ED Review Report to guide future RTAs.

The eligibility policy indicates that determining the eligibility of work is a 2 step process. The first step is that the RTA determines if there is any SR&ED using the 5 questions. The second step is that the RTA determines the extent of SR&ED.

When there is a project where only some work is considered SR&ED, it is not sufficient to only state that "some" or an unsubstantiated percentage of a project does not meet the definition of SR&ED. Determinations based on vague or unsubstantiated statements are not supportable. 

When only some work in a project is SR&ED, precise statements are needed in the second step to establish the extent of SR&ED (this concept is discussed in detail in Chapter 4.6.3), along with a rationale. Some common examples are with respect to matters such as:

  • Time
    • when the SR&ED begins and ends; or
    • when the technological uncertainties were addressed and/or resolved
  • Scope
    • work specifically excluded (par. 248(1) (e) to (k) of the definition)
    • work not directly in support of SR&ED;
    • whether production runs represent experimental development resulting in experimental production (ED+EP) or experimental development in conjunction or simultaneously with commercial production (ED+CP)
  • Quantity
    • the amount of work commensurate (or not) with the needs of the SR&ED
  • Personnel
    • which people claimed are / are not directly engaged in the SR&ED work

The following are some examples of such precision:

  • "The data collected during the period (where the RTA provides specific dates or some other objective reference point) is not commensurate with the needs of the SR&ED because…";
  • "process trials after…(where the RTA provides a specific date or some other objective reference point)…were not directly in support of the SR&ED because…"; or
  • "The work of…(where the RTA provides the names of employees)…was related to customer support because…".

6.8.6.2 Documenting Unsubstantiated claims

If the issue is the lack of supporting evidence, it is not adequate to state only that "the documentation provided was insufficient." This statement would need to be supported by, for instance, a listing of what supporting documentation or evidence was seen, what was in the information that was seen, and why this was inadequate (that is, what was missing).

6.8.6.3 Formal statements to be used in section 6 of the SR&ED review report

For each project (or group of projects), determinations/conclusions/decisions must contain a summary of work reviewed.  Once all the facts and rationale have been presented in section 6 of the SR&ED review report there must be a formal statement of the determination/conclusion/decision for each evaluated project. 

Although the discussions and arguments in the report may use the language of the claimant or CRA publications (such as the 5 questions of the eligibility policy), determinations must always include a formal reference with respect to the definition of SR&ED in subsection 248(1) of the Act, since that is the legal basis for the RTA’s determinations.

The standardized wording must not be altered. This section provides the standardized wording given during the RTA National Training in the course HQ 1180-000 "SR&ED review report writing". For more information on the contents of this and all other sections of the SRR, please refer to the course material.

The standardized wording is as follows:

AW determination statement

All work (AW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

SW determination statement

Some work (SW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

The following work meets the definition of SR&ED in subsection 248(1) of the Act.

The following work does not meet the definition of SR&ED in subsection 248(1) of the Act.

NW determination statement

No work (NW) in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

UN conclusion statement

The claimant was unable to provide sufficient evidence to substantiate the claimed work and it is not possible to determine if the work in Project X meets the definition of SR&ED in subsection 248(1) of the Income Tax Act. Therefore, this work is unsubstantiated (UN).

AAF decision statement

The claimed work in project X is accepted as filed (AAF) without a review to determine if it meets the definition of SR&ED in subsection 248(1) of the Income Tax Act. The decision to AAF this project means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.  

Joint technical-financial issues

Eligibility determinations with respect to subsection 248(1) are necessary but not always sufficient to summarize all of the RTA’s findings. The mandate of the RTA involves more than determining if the claimed work meets the definition of SR&ED set out in subsection 248(1). The SR&ED science review report must also have statements about compliance issues not directly related to the definition of SR&ED in subsection 248(1) of the Act. These decisions on joint technical-financial issues are necessary and relevant to the FR in making their determinations on expenditures, but do not relate directly to subsection 248(1). The RTA should provide as much detail as possible with respect to these joint issues to help the FR to identify allowable costs. This is also outlined in Chapter 4.6.3.

Below are examples of possible statements that could be the outcome of the assistance given to the FR.

Materials

The materials claimed in Project X were / were not raw materials, substances, or other items that compose the body of a thing at a given moment in the SR&ED process.

The materials claimed in Project X were / were not consumed / destroyed / rendered virtually valueless in the prosecution of SR&ED in Canada.

The materials claimed in Project X were / were not transformed in the prosecution of SR&ED in Canada, that is, the materials were / were not incorporated into other materials or products that have some value either to the claimant or to another party.

Contracts payments

The ZZZ contract claimed in Project X was / was not for SR&ED performed in Canada for or on behalf of the claimant.

ASA

Capital property YYY, claimed as an expenditure of a capital nature, was / was not intended to be used during all or substantially all (ASA) of its operating time in its expected useful life for the prosecution of SR&ED in Canada.

It was / was not intended that all or substantially all (ASA) of the value of capital property YYY, claimed as an expenditure of a capital nature, would be consumed in the prosecution of SR&ED in Canada.

To date the capital property has / has not been used during ASA of its operating time for the prosecution of SR&ED in Canada.

ASA of the value of capital property YYY has / has not been consumed in the prosecution of SR&ED in Canada.

Shared use equipment

Capital property YYY was available for use by the claimant on yyyy/mm/dd(1). Between yyyy/mm/dd(1) and yyyy/mm/dd(2), the capital property has / has not been used primarily for the prosecution of SR&ED in Canada.

Finally, determinations about whether the work on a project is SR&ED should not be extrapolated to other projects or other tax years without a reason. SR&ED is determined by the facts of the case, such as determining whether the technological advancements have been achieved for continuing projects. When projects are considered identical in terms of the procedures followed or content, they can be grouped for SR&ED review reporting purposes. This point was discussed in detail in Chapter 4.5.

6.8.6.4 What to avoid in documenting determinations

RTAs should avoid citing or quoting from court decisions and must not interpret them. The results of court decisions are already part of the basis for SR&ED policies and guidelines. The definition of SR&ED in subsection 248(1) of the Act and relevant SR&ED policies and guidelines must be used as rationale for eligibility determinations and other technical decisions. RTAs should not use vague language, as it creates doubt or ambiguity. Some examples of vague language are:

  • "does not seem/appear to be eligible";
  • "the project has the potential for SR&ED but does not qualify";
  • "hours claimed are not reasonable";
  • "in my opinion";
  • "the SR&ED is not eligible"; and
  • "the research is not SR&ED".

Similarly, the RTAs should avoid using adjectives, adverbs, or comparatives, because they are not facts and do not strengthen the rationale for a determination. In addition, they could suggest that the RTA is rating or giving a value judgement of a company’s claim and this may lead to unproductive arguments. Some examples to avoid, and a possible context, are:

  • extremely (little documentation);
  • just (involved consultations with the suppliers);
  • only (the evaluation of an existing technology); and
  • merely (the application of known technology).

The RTA should not add unnecessary length to the report by quoting such things as:

  • all relevant paragraphs from the Act or relevant policies, as these are well-known and easily found; or
  • large sections of the claimant’s technical material; refer to the Form T661 project information if the description is consistent with the RTA’s observations or reference the relevant information together with an explanation of the RTA’s determination and rationale if some aspect of the information is at issue.

The RTA should not use judicial jargon, as it has specific and restricted legal meanings, as used by lawyers and judges.  Some examples are:

  • "on the balance of probabilities";
  • "beyond a reasonable doubt";
  • "the preponderance of the evidence";
  • "deemed"; and
  • "without prejudice".

6.8.7 Working with the claimants

The purpose of this section is to:

  • describe how the RTA worked with the claimant and their representative to educate and help them during the review process;
  • report any observations of unclaimed work that were made and discussed with the claimant; and
  • summarize how the RTA supported the incentive nature of the program.

This would include all assistance provided to the claimant:

  • to explain the SR&ED Program;
  • to explain the review process;
  • to identify SR&ED; and
  • how to prepare their SR&ED claim.

It would include:

  • presentations;
  • explanations of the meaning of SR&ED;
  • explanations of SR&ED Program services,
  • demonstration of tools (like the Self-Assessment and Learning Tool (SALT));
  • advice on documentation to support an SR&ED claim or project information requirements; and
  • time spent explaining review results, especially determinations that work does not meet the definition of SR&ED as described in subsection 248(1) of the Act.

If any observations of unclaimed work are made and discussed with the claimant, they should be mentioned here (this subject is discussed more in Chapter 5.8.2). Any work of the type suggested in the "working with claimants" boxes in the Claim Review Manual (CRM) would also be included here.

6.8.8 Claimant concurrence

The purpose of this section is to:

  • indicate that the claimant was informed of the results of the review, and if the claimant indicated that they did or did not concur with them;
  • provide descriptions of any known outstanding areas of disagreement (if not reported in Section 6); and
  • be a useful tool in planning reviews of subsequent years.

The RTA should indicate in this section if the claimant does not respond to queries about concurrence.

If there are any known outstanding areas of disagreement, descriptions of these specific areas of disagreement should be provided. If adequate details concerning these disagreements have already been provided in Section 6 Review observations, determinations, conclusions and other decisions, there is no need to repeat this information again. This section can refer the reader to Section 6 for further information. Regardless of which section provides this information, the report should illustrate that the claimant had opportunity to make representations. These representations should be documented along with the steps taken by the reviewer to resolve the claimant’s concerns. The reviewer’s response to the representations should be documented. Application Policy 2000-02R, Guidelines for Resolving Claimant’s SR&ED Concerns – Revision should be the guiding document in these situations.

6.8.9 Recommendations for future claims

The purpose of this section is to:

  • provide an additional opportunity to clarify areas that need improvement in the original SR&ED claim;
  • explain positive steps that can be taken in the future to avoid reoccurrences such as claiming work that is not SR&ED or is not substantiated; and
  • have a record so that, in future years, RTA will be able to follow-up and monitor whether the claimant complies.

This is a step in CRA’s graduated approach to compliance. Other actions are possible. As indicated in detail in Chapter 5, if the claimant persistently ignores requests for supporting documents, an option is to send a better books and records letter (discussed in Appendix A.3). This letter can be sent to the claimant at any time during the review; the RTA does not need to wait until the review is complete.

The RTA should not use generic or vague statements and make sure that only pertinent recommendations are made. It is not the appropriate place for general education on the SR&ED Program or recommendations to review CRA publications. The advice needs to be specific, so that the claimant clearly understands the concern. Also, in future years, the RTA needs to be able to follow-up and monitor whether the claimant complies. If the claimant has been properly informed, the CRA can be justified in taking stronger compliance actions if the issue persists in later years.

It is preferable that any recommendations for future claims be formally indicated to the claimant in the proposal package. Nevertheless, this section provides an additional opportunity for the RTA to do so.

6.8.10 Other financial review considerations

The purpose of this section is to document any concerns about the claim believed to require the attention of the FR but which are not elsewhere indicated in the SR&ED review report. It is not intended to be a summary of other report sections, specifically the "Review observations, determinations, conclusions, and other decisions" section of the SR&ED review report.

Examples include equipment only partially used for SR&ED, use of non-taxable suppliers, separation of SR&ED and commercial/marketing work, and identification of work not in support of or commensurate with the needs of SR&ED. In most cases, issues would have been addressed, or, as a result of the coordinated review, the FR would have been aware of the issue already.

6.8.11 Signatures

The purpose of this section is to:

  • confirm authorship of the SR&ED review report by the RTA; and
  • confirm approval by the RTM.

The SR&ED review report must be signed by the RTA. There is also a place for the RTM to sign to indicate their approval of the report. The RTA must consult the RTM and obtain the RTM’s approval in every review. The approval of the review report by the RTM indicates that management agrees with and supports the determinations, conclusions, and decisions made by the RTA.

The RTA is responsible for the quality of their work and reports. The RTM has additional responsibility for the quality of SR&ED reviews and SR&ED review reports delivered by their work unit. The RTA must therefore comply with any quality assurance procedures at a local, regional and national level.

The review of SR&ED review reports by the RTM is a key element in ensuring quality. The RTM’s signature indicates that the review performed by the RTA and the SR&ED review report have been reviewed against the standards set out in the CRM and that they comply with the standards of the SR&ED Program.

RTAs may also have their reports reviewed by their co-workers (peer review) prior to the completion of the report. The procedures for this, if it is done, would be set by the local coordinating tax services office (CTSO). 

6.9.0 Other methods to document the RTA's work

6.9.1 Memos

A memo has no specific format, is kept in the TF98, and is not sent to the claimant. It is acceptable to use T2020 forms, an electronic T2020, or any equivalent. Memos include all information that is relevant to the particular claim and is not already captured in another document such as letters, information provided by the claimant, etc. As noted in Chapter 6.7 and throughout the CRM, a memo should be used to document the following information (this is not an exhaustive list):

  • details of all communications, or attempts to communicate, with the claimant or their representative;
  • details of all communications with the FR, RTM, piers, and other internal personnel;
  • notes made during the analysis process;
  • details of on-site visits and field notes taken;
  • the determination, conclusion, or decision and the rationale;
  • changes to the scope of the review;
  • the work the RTA did with the claimant;
  • divergence from the advice or opinion received through referrals or consultations; and
  • divergence from the original review plan as they occur over the course of the review.

6.9.2 Short SR&ED review report

A short SR&ED review report may be used when all the issues are resolved in the claimant’s favour, as noted in Chapter 6.7. The SR&ED review report template as shown in Appendix A.5.1 is used, with the following modifications:

  • section "2. Summary of results by tax year" – categories Aii., Aiii., and D. should not be populated;
  • section "7. Working with the claimant" – this section may not be required, especially if no on-site was conducted. If this section is not required, do not remove it but state "none" or "N.A." in the body;
  • section "8. Claimant concurrence" – this section is not required as all the issues are resolved in the claimant’s favour. Do not remove this section but instead state "none" or "N.A." in the body; and
  • section "9. Recommendations for future claims" – this section may not be required, especially if no on-site was conducted. If this section is not required, do not remove it but state "none" or "N.A." in the body.

6.9.3 SR&ED review report for a partnership

The SR&ED review report template as shown in Appendix A.5.1 is used, with the following modifications:

  • section "1. Identification" – place the partnership name or the name indicated in the AIMS case in the ‘Claimant:’ section;
  • section "1. Identification" – place the partnership number in the ‘Business/social insurance number (SIN) number:’ section; and
  • section "10. Other financial review considerations" – if the names of the individual partners, their Business numbers/ SINs, and their percentage of ownership is known, this information can be placed in the body of this section. Note that this information is not mandatory.

6.9.4 SR&ED review report addendum

Once an SR&ED review report has been signed and released, an addendum report must be used to document subsequent events like representations. The SR&ED Review Report template as shown in Appendix A.5.1 is used, with the following modifications:

  • title block – add "– Addendum" to "Scientific research and experimental development (SR&ED) Review Report in the title block;
  • section "1. Identification" – select ‘Yes’ for the question "Are there any other reports issued for the same tax year end?" and state the date of the applicable report(s) after the statement "If yes, date(s) of report(s):";
  • section "2. Summary of results by tax year" – update the table as necessary; and
  • sections 3 through 10 – if changes are required in the section, add the statement, "Additional to previously issued report:" and add the new information. If no changes are required, add the sentence, "No change to previously issued report."

6.10.0 Formatting and indexing the TF98 file

When the review is concluded, the RTA should review the TF98 file to make sure that all needed information is present, and unnecessary information is either removed or sent to the appropriate location. The files must be complete, numbered, indexed and cross-referenced, following the format described here.

Complete, numbered, indexed and cross-referenced working papers are of considerable importance when the RTA’s findings are reviewed by management, QA, the appeals division, or in court. They can also facilitate answering subsequent queries from the claimant and others, and the planning of future reviews. Clear indexing and cross-referencing is very important to ensure that the evidence is readily accessible.

The need for a standard way of indexing follows a QA review of many files across the country. The required format is as follows:

  1. The top page of the TF98 file must be a Table of Contents (TOC), which is a chronological list of every document in the file. Each document is identified by date and number of pages, a brief (one or two line) description, and the location in the TF98 (the pages where it is located). The location in the TF98 are the numbers mentioned in point 2.
  2. Every document in the TF98 is in chronological order, and the entire file is numbered sequentially, with the first page of the oldest document being page one, and the last page being the last page of the newest document. This numbering ensures that the original order can be reconstructed, and that nothing is missing from the file, if the file is removed from the TF98 folder for any reason. Due to the physical construction of the TF98 folder, it is simplest to do this after the end of the review by the RTA, when no new documents are likely to be added to the file.
  3. Each document in the file must be identified with the claimant’s name, business number, fiscal period covered (or the AIMS case number), a description of the contents, the preparer’s name, and the preparation date, if any of these are not clear from the document itself. If the document is more than one page, the identifying information is only on the first page, which also indicates the number of pages in the document. .
  4. T2020s or documents with more than one entry date are placed in the file using the last entry date as the representative date for the full document.
  5. Undated documents are given a date of receipt, which is the date used for filing.
  6. For multi-year files, with only one review report, a copy of the report should be placed in the TF98 for each year. Other documents only need to go into the most recent year of the claim.

Cross-referencing

If documents in the TF98 reference or depend on other documents in the TF98, they should be described in enough detail so that the documents can easily be found in theTF98 file.

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