http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/218483/index.do
Life Choice Ltd. v. The Queen (January 31, 2017 – 2017 TCC 21, Boyle J.).
Précis: The taxpayer was operated by a naturopathic physician, Dr. Eldon Dahl. At issue were expenses it incurred in developing drugs designed by Dr. Dahl for the purposes of combating very serious diseases, specifically stage IV Cancer, full-blown AIDS and multiple sclerosis. While the taxpayer claimed anecdotal evidence of success, it did not introduce any evidence of research that complied with the normal rules of scientific method. The Tax Court dismissed the appeal on the basis that the pursuit of scientific method was, on the basis on long established jurisprudence, a prerequisite to any SRED claim. There was no order as to costs since this was an informal procedure appeal.
Decision: On the facts before the Court Justice Boyle had no choice but to dismiss the appeal:
[52] It is not the absence of clinical testing that is fatal to Life Choice’s appeal. It is the absence of testing in any form or fashion that could be said to have been performed in a systematic fashion. Systematic testing for any or improved effectiveness of Life Choice’s formulations could have been done by Life Choice and could have been performed to assess, verify, statistically infer, or gauge effectiveness without full‑blown clinical trials sufficient to satisfy Health Canada if the products were restricted pharmaceutical products, which they were not. Any such testing could have been performed in a manner that met the requirements of the SR&ED definition even though it would not have satisfied a Health Canada requirement, or if, as in this case, there was no Health Canada requirement.
[53] My decision in this case is in no way intended to suggest that literature reviews and consultations with other researchers cannot be qualifying activities giving rise to qualifying expenses as legitimate constituent parts of SR&ED activities. This appears to be clear from a fair, liberal and purposive reading of the SR&ED definition, including paragraph (d) thereof, and from former Chief Justice Bowman’s comments on the role of intuition, creativity and sometimes genius in Northwest Hydraulic, above. Nor is this decision intended to suggest that a person performing SR&ED cannot use the data or results of the completed research of others in developing and/or testing their own hypotheses or theories.
[54] Having found that there was no testing by Life Choice of any of its formulations or reformulations after they were hypothesized by Dr. Dahl, much less testing performed in any systematic fashion, the appeal must be dismissed as the activities in support of these three formulation Projects clearly cannot satisfy the requirements of the definition of SR&ED in the Act that activities constitute a systematic investigation or search carried out by means of experiment or analysis.
[55] Counsel for the Appellant relies on Hun‑Medipharma Research Inc. v. Canada for the proposition that literature review constitutes SR&ED. I do not read it that way. It was an informal decision in which the trial judge lamented the lack of clarity of both parties. It does not mention Justice Bowman’s decision in Northwest Hydraulic, above. It was decided a month after the Federal Court of Appeal decision in RIS - Christie, above, but it is not mentioned. The Crown argued clinical experiments were required. Justice Lamarre Proulx correctly decided in Hun‑Medipharma that the SR&ED definition required either experiment or analysis and clinical experiments were not required. She was satisfied on the evidence presented to her that there had been systematic investigation by analysis. That is not so in the Life Choice case before me.
[Footnotes omitted]
In my view this decision not only follows the case law, but also common sense. It is perhaps worth remembering that Einstein first published his theory involving the bending of light rays by gravity in 1905: “Concerning an Heuristic Point of View Toward the Emission and Transformation of Light.” He did not however receive a Nobel Prize until 1922 after his calculations were verified by observations of a solar eclipse on May 29, 1919 by Sir Arthur Eddington and others which was confirmed in a paper they published in 1920: Dyson, F.W.; Eddington, A.S.; Davidson, C.R. (1920). "A Determination of the Deflection of Light by the Sun's Gravitational Field, from Observations Made at the Solar eclipse of May 29, 1919". Phil. Trans. Roy. Soc. A. 220 (571-581). Interestingly, in 1919 an optimistic Einstein on his divorce from his first wife, Mileva Maric, agreed that she and their children would be entitled to his Nobel Prize award proceeds once the Academy got around to awarding it to him.