Documentation and Evidence Proving SR&ED
January 27, 2026
Sector:
Markham, Canada, January 27, 2026
This week, I sat down with our very own Bal Katlai (Partner, Tax) to discuss the importance of documentation for SR&ED, what constitutes documentation, relevant Tax Court of Canada (TCC) cases, and how claimants can prepare themselves. Here is a summary of our discussion:
Background
Subsection 248(1) defines scientific research and experimental development (SR&ED) for qualifying Canadian corporations that can benefit from SR&ED tax credits, which are some of the most lucrative tax credits available. In the oft-cited Northwest Hydraulic decision (1998 CanLII 553 (TCC)), the TCC set out five criteria to establish a claim for SR&ED tax credits, including the taxpayer’s ability to demonstrate proper documentation and evidence or proof of eligibility for its SR&ED expenses (defined in subsection 37(1)). An important but less well-addressed and understood issue is what constitutes sufficient evidence or proof of eligibility to support an SR&ED tax credit claim.
No specific guidance is provided in the Act regarding proof of eligibility, and the CRA offers little guidance; however, that does not mean that none is required. According to the general procedure case of 6379249 Canada Inc. v. The Queen (2015 TCC 77), the TCC states that, under the Act, “the appellant [must] prove that he has followed a systematic investigation in order to resolve a technological uncertainty with the purposes of achieving a technological advancement.”
The TCC’s Stance
The courts have held that evidence can be provided either through testimony from expert witnesses (people with scientific or technical training) or in documentation prepared by the taxpayer, its employees, or its agents. The latter documentation is preferably contemporaneous- recorded when the actual work is being performed because that provides the maximum credibility.
Recent decisions in Concept Danat Inc. v. The Queen (2019 TCC 32) and Dock Edge + Inc. v. The Queen (2019 TCC 11) serves as useful reminders of the proof required to establish expenses as SR&ED. The decisions denied the taxpayers’ SR&ED claims and commented on a lack of suitable evidence.
Danat upheld the minister’s initial assessment, disallowing the taxpayer’s claim for SR&ED tax credits of approximately $14,000 for its 2015 taxation year. The TCC cited a lack of proper documentation to support the appellant’s hours claimed as qualifying expenses; and simply estimated hours were not considered acceptable. This is important, especially if a resource-starved claimant tends to estimate qualifying expenses for the purposes of calculating the SR&ED tax credits and has no substantiating or contemporaneous evidence.
In Dock Edge, the TCC dismissed the taxpayer’s claim for SR&ED tax credits of approximately $72,000 for its 2011 taxation year. The court observed a lack of informed testimony as to what was, and was not, routine engineering or standard procedure in respect of technologies underlying the projects claimed:
A technological advancement is the gaining of new knowledge that advances general understanding. We had no informed testimony or evidence indicating that DEI had advanced general understanding, as distinguished from advancement of its own specific knowledge. DEI counsel’s questions on this point tended to be, as noted above, whether DEI’s own knowledge had been advanced re these several projects. No doubt it was, in each case, DEI is to be commended on its innovative approach and success in developing new or improved commercial products.
Furthermore, to answer whether Dock Edge kept a detailed record of the hypotheses tested, and the results kept as the work progressed – the TCC claimed a definite “no”:
Only a few photographs of prototypes and three pages of someone’s handwritten notes for one of the projects were entered in evidence. The evidence was uncontroverted in this regard that no detailed records were made or in any event kept.
Conclusion
The TCC decisions in Danat and Dock Edge emphasized the importance of documentation. The key is to prove use of the scientific method as the work proceeds, to illustrate that an attempt was made based on a particular idea (and a certain scientific/technical rationale for why the idea should work). When the approach failed in a particular way, a different approach was tried, based on another scientific/technical rationale. The lack of such a decision based on a scientific or technical rationale caused the taxpayers to lose.
In a more positive court case though, the judge in CRL Engineering Ltd. v. The Queen (2019 TCC 65) ruled in the taxpayer’s favour, stating:
The Appellant’s witness explained that “system snapshots were captured on a weekly basis and maintained in a document repository” that were accessible and regularly reviewed. It also maintained a “wiki” that was used to “log data, methods, issues and results.” The documentary evidence, notably Exhibits A-1 and A-3, supported Dr. Paranjape’s oral testimony on this issue. [Dr. Paranjape was allowed as an expert witness.]
Given these recent court emphases in documentation and evidence, Kreston GTA will help proactively identify your SR&ED projects, review your current documentation process, and ensure a robust claim.
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Author
Brandon Hoang
brandon.hoang@krestongta.com
905.474.5593 ext. 116
Director, SR&ED & Government Incentives
About Kreston GTA
Kreston GTA is a client-focused and forward-thinking accountancy firm; we understand that building a relationship based on trust is essential. We truly believe that people do business with people they know, like, and trust. That’s why our approach is always personalized. We invest the time to get to know you, understand your goals, and provide solutions that help you succeed. We provide a full suite of accountancy and financial services, including personal and corporate taxation, audits, consulting, SR&ED & other government incentives, and more.
