SR&ED And Gross Negligence Penalties

The Scientific Research and Experimental Development ("SR&ED") program is a federal tax credit program administered by the Canada Revenue Agency ("CRA") and designed to encourage Canadian businesses to conduct research and development ("R&D") in Canada. SR&ED is defined in subsection 248(1) of the Income Tax Act, RSC 1985, c 1 (5th Supp) ("ITA"). The definition is broad and was interpreted by the Tax Court of Canada in the seminal decision of Northwest Hydraulic Consultants Ltd. v. The Queen, 1998 CanLII 553 (TCC).

Corporations, individuals, trusts and members of a partnership can apply for SR&ED tax credits. Incentives may come in the form of investment tax credits ("ITC"), paid in dollars to the claimant. ITCs can be as high as 35% of eligible R&D costs such as materials and labour. In fact, some of Canada's largest companies claim millions annually, of the more than $3 billion available to eligible taxpayers.