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:
- Technological risk or uncertainty
- Hypothesis aimed at reducing uncertainty
- Procedures using the scientific method, including the formulation, testing and modification of hypothesis
- Technological advancement
- 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.