Tax Court of Canada


Income tax

Tax credits

Claim for scientific research and experimental development tax credit was disallowed

Taxpayer was natural health product company, whose president was naturopathic doctor. Doctor formulated three new natural health products for taxpayer, evaluating condition to be treated, conducting systematic review of others’ clinical studies and literature, corresponding with other professionals and calculating ingredients by drawing on his expertise. Doctor did not run clinical trials due to expense and because they were not required for licensing of natural health products. Taxpayer claimed scientific research and experimental development (SR&ED) tax credit for activities related to such formulation. Minister reassessed taxpayer under Income Tax Act, disallowing SR&ED credits. Taxpayer appealed. Appeal dismissed. There was scientific uncertainty in three projects to develop these products mimicking existing pharmaceuticals and, in two projects’ reformulation to use existing pharmaceutical, in identifying supplemental natural ingredients to lessen adverse side effects. Doctor hypothesized formulations but there was no testing performed to assess effectiveness or any other aspect of these products. Products were reformulated only in response to Health Canada either not approving hypothesized formula or removing restriction on doctor’s preferred ingredient. Absence of any testing resulted in uncertainty as to whether any of formulations represented any form of advancement of scientific knowledge. Newly hypothesized formulation could not on its own be considered either knowledge or advancement of knowledge. Jurisprudence had clearly and consistently interpreted definition of SR&ED as requiring some testing of hypotheses for there to be systematic investigation or search carried out by means of experiment or analysis, although such testing did not necessarily have to be in form of clinical testing. Taxpayer’s activities did not satisfy definition of SR&ED.

Life Choice Ltd. v. R. (2017), 2017 CarswellNat 219, 2017 TCC 21, Patrick Boyle J. (T.C.C. [Informal Procedure]).

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