Why The Decline in SR&ED Payouts?

Here’s an article from today. It’s about the declining payouts under the SR&ED program. http://www.obj.ca/Technology/2016-11-22/article-4690924/Feds-%26lsquo%3Bclawed-back%26rsquo%3B-$4.2B-in-SR%26amp%3BED-credits,-Ottawa-based-tech-group-says/1. The article speculates on why this is so. My own opinion is that it largely has to do with the increased number of audits. I don’t think that auditors are any tougher on the claims than they were before CRA began a few years ago to select so many more to audit. The problem is that a significant percentage of claims are adjusted downwards whether 10% are audited or 60% are. If 50% of audited claims, for example, are reduced and only 10% are audited, then 5% of all claims will be reduced. If 60% are audited, then 30% would be reduced. It’s simple arithmetic.

The two main reasons for CRA not accepting a claim are, in my experience, lack of documentation (which the article mentions and also discussed at https://gordonfeil.blogspot.ca/2016/11/the-5-sr-questions.html) and the RTA not recognizing the technical uncertainties of the claimed project, which I discussed at https://gordonfeil.blogspot.ca/2016/11/did-your-sr-claim-invite-cra-to-door.html. There are some reviewers who think that each step of the SRED process should of itself be SRED. Sometimes an RTA does not take into consideration the Scientific and Technological Uncertainty present in the overall project objective and bases their assessment, instead, on the particular technical steps taken to resolve the uncertainty. Justice Jorré discussed this approach in expressing his ruling in the case of Les Abeilles Service de Conditionnement Inc. v. The Queen, in which he stated that a project must be considered as a whole rather than looking at each individual step separately.