SR&ED Dispute Settled in Airmax’s Favour by Tax Court of Canada

Airmax is an installer of heating, ventilation, and air conditioning systems in residential homes who worked extensively on the development of a high-static, high-velocity fan coil system.  They invested in the modifications and reprogramming of HVAC systems to further reduce their noise, improve efficiency, and size issues in townhouses.

Airmax claimed SR&ED tax credits for the expenses incurred when filing for its 2007 and 2008 income taxes.  However, on a reassessment, the CRA found that the majority of work conducted on the HVAC system was SR&ED-ineligible on the basis that it was routine engineering work.  Airmax disputed CRA’s reassessment, choosing the less time-consuming informal procedure and appealing to the independent Appeals Branch of the CRA.

The case of Northwest Hydraulic Consultants Limited v. The Queen identified 5 criteria that were required for SR&ED eligibility:

  1. Technological risk or uncertainty
  2. Hypothesis aimed at reducing uncertainty
  3. Procedures using the scientific method, including the formulation, testing and modification of hypothesis
  4. Technological advancement
  5. Detailed record of hypothesis and test results as work progressed.

After a thorough examination, the Tax Court of Canada concluded that Airmax had $387,553 of qualified eligible SR&ED expenditures, based on the above 5 criteria.  Offered a chance to comment, the CRA declined, as it does not discuss the affairs of individual taxpayers.

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