In a recent ruling, ACSIS EHR (Electronic Health Record) Inc. v. Her Majesty The Queen (2015 TCC 263), the Tax Court of Canada overruled the CRA’s initial decision of non-eligibility for “routine engineering” in the context of a software development claim.
Traditional science approach: Not 100% suitable for CRA reviews of software claims
This decision comes as good news for software developers whose claims are often reviewed by the CRA through a very restrictive approach. This approach is inherited from a method historically developed in the context of traditional science disciplines (e.g., chemistry, biology, physics, etc.) and involves controlled lab trials, field tests, and experiments.
In the technologically advanced domain of software engineering, work does not resemble this approach. The claimant “testified that the ‘scientific method,’ when applied to computer programming, does not have the same structure that would be employed in a science such as chemistry, where measurement is used in a different context.” Rather, software engineering is an evolving, agile, and fast-moving environment where solutions are rapidly prototyped and implemented.
These differing views on the scientific method have led to growing frustration with the CRA among software developers. When reviewing their claims, the CRA divided projects into a collection of distinct subprojects that did not entirely reflect the collective effort required to reach the objectives and resolve technological uncertainties. This methodology was dismissed by the judge, who stated that “the proper approach should be a global overview of the project and the associated activities rather than a minute dissecting of each elemental component.” More openness towards verbal testimony? The ruling was also notable in another way. Though detailed recordkeeping is preferred when supporting a claim, the verbal testimony of company engineers was deemed an acceptable complement to documentary evidence.
This ruling comes as an attenuation of the CRA’s usually very strong stance on the need for contemporaneous documentation. Signs of a paradigm shift? Through this ruling, the CRA’s traditional approach for reviewing SR&ED claims within the software sector was brought under the microscope, and the uniqueness of the software industry was acknowledged.
This ruling could be an early sign of a paradigm shift regarding how the CRA will review software engineering SR&ED claims in the near future.
 ACSIS EHR (Electronic Health Record) Inc. v. Her Majesty The Queen (2015 TCC 263), §38
 ACSIS EHR (Electronic Health Record) Inc. v. Her Majesty The Queen (2015 TCC 263), §42