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The Scientific Research and Experimental Development (SR&ED) Tax Incentive Program was established in 1985 and remains the largest source of federal support for business research and development. It is administered by the Compliance Programs Branch of the Canada Revenue Agency (CRA).

Upon hearing of dissatisfaction with the SR&ED program expressed by some claimants and their representatives, the Office of the Taxpayers' Ombudsman (OTO) began an investigation to determine whether the CRA's administration of the program is consistent with the service rights within the Taxpayer Bill of Rights. Our investigation focussed on service issues such as the sufficiency and timeliness of the CRA's communication to claimants as well as questions of administrative fairness.

We held consultations with tax intermediaries (e.g. accounting firms, tax preparers, industry associations) and claimants and urged them to file formal complaints with our Office, but very few did so. Our investigation also involved an examination of the CRA's policies and procedures, as well as discussions with CRA personnel who administer the SR&ED program.

There is much at stake for those involved in the SR&ED program. On one hand, the CRA must administer a $3 billion tax incentive program to eligible claimants while ensuring that incentives are only provided to those who qualify. At the same time, claimants, consultants and claim preparers have a considerable interest in how the program is administered as it can have a significant impact on their revenues.

Although we heard numerous accounts of discontent with the SR&ED program among claimants, we were unable to validate many of the criticisms due to a lack of complaints to investigate. This Observation Paper is therefore not a Special Report with formal recommendations. Rather, it contains observations on the issues raised by SR&ED stakeholders that are within the mandate of the Taxpayers' Ombudsman. These include the issues of regional comparisons, Preliminary Eligibility Discussions, the rationale provided for ineligible claims, Administrative Second Review, and the Appeals Process.

We hope that our investigation and reported observations will be informative and foster productive dialogue between the CRA and claimants, for the benefit of the entire SR&ED community.