Kam-Press Metal Products Ltd. v. R. – FCA: Appeal dismissed – appellant’s activities did not meet the Northwest Hydraulics test for SRED expenditures
https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/496738/index.do
Kam-Press Metal Products Ltd. v. Canada (May 10, 2021 – 2021 FCA 88, Webb (author), Near, Boivin JJ.A.).
Précis: The Tax Court rejected the taxpayer’s appeal of the denial of its SRED claim and the taxpayer appealed that decision to the Federal Court of Appeal. The Court of Appeal found that the taxpayer had not met the “scientific method” test set out in the Northwest Hydraulics decision by Bowman J. (as he then was) and dismissed the appeal with costs fixed in the amount of $1,670.
Decision: The taxpayer argued that “scientific method” was not part of the statutory SRED test. The Court of Appeal rejected this argument:
[6] In its memorandum, Kam-Press does not acknowledge that this Court considered and approved the approach as set out in Northwest Hydraulics. Instead, Kam-Press focuses on the text of the definition of SR&ED and emphasizes, in particular, that there was no reference to “scientific method” in the text of the definition and therefore that the third criteria, as set out in Northwest Hydraulics, should not have been applied by the Tax Court Judge in this case. However, the role of the court is not merely to recite the exact words that are used, but rather to interpret the words of a provision of the Act or the Regulations based on a textual, contextual and purposive analysis (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, at para. 10, [2005] 2 S.C.R. 601). In setting out the criteria for a project to qualify as SR&ED, Justice Bowman was interpreting the definition of SR&ED.
[7] In RIS-Christie Ltd. v. The Queen, (1998) 99 D.T.C. 5087, 235 N.R. 258, at paragraph 10, this Court endorsed the approach to the determination of whether a particular project qualified as SR&ED as set out in Northwest Hydraulics. In C.W. Agencies Inc. v. Canada, 2001 FCA 393, this Court, at paragraph 17, acknowledged that the five criteria as set out in Northwest Hydraulics are useful in determining whether a particular activity is SR&ED and were approved by this court in RIS-Christie. In 2011, in Jentel Manufacturing Ltd. v. The Queen, 2011 FCA 355, at paragraph 6, this Court confirmed that the criteria for determining whether work performed qualified as SR&ED were as set out in Northwest Hydraulics. Again in 2016, in R&D Pro-innovation Inc. v. Canada¸ 2016 FCA 152, at para. 4, this Court endorsed the criteria set out in Northwest Hydraulics.
As a result the appeal was dismissed with costs fixed at $1,670.