BÉTON MOBILE DU QUÉBEC INC., Appellant, v. HER MAJESTY THE QUEEN,, 2019 TCC 278

Dockets: 2015-3425(IT)G 2016-4491(IT)G BETWEEN: BÉTON MOBILE DU QUÉBEC INC., Appellant, and HER MAJESTY THE QUEEN, Respondent . [OFFICIAL ENGLISH TRANSLATION] Appeals heard on common evidence on April 8, 9, 10, 11 and 12, and May 29, 30 and 31, 2019, at Montreal, Quebec.

Before: The Honourable Justice Dominique Lafleur Appearances : Counsel for the appellant: M e Maude Piché M e Olivier Verdon Counsel for the respondent: Anne Poirier JUDGMENT In accordance with the attached reasons for judgment, the appeals against the reassessments made under the Income Tax Act (the " Act " ) for the tax years ending on January 31, 2010, January 31, 2011, and January 31, 2012, are allowed.

The reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the activities carried out by the appellant under projects B-10-18, B-11-04, B-11-07, B-12-01, B-12-03 and B-12-07 fall under Scientific Research and Experimental Development (SR&ED) activities and that the following amounts are deductible as current expenditures under

section 37 of the Act and expenditures that qualify for investment tax credits (ITCs) under subsection 127(5) of the Act:

i) For the tax year ending January 31, 2010: $3,521 for salaries, $427 for materials and $360 for subcontractor fees; ii) For the tax year ending January 31, 2011: $37,668 for salaries, $2,520 for materials and $3,425 for subcontractor fees; iii) For the tax year ending January 31, 2012: $44,192 for salaries, $4,433 for materials and $9,204 for subcontractor fees; No costs are awarded. Signed at Ottawa, Canada, this 11th day of December 2019. “Dominique Lafleur” Lafleur J. Translation certified true on this 4th day of March 2020. François Brunet, Revisor TABLE OF CONTENTS A. EVIDENCE – CONTEXT OF THE PROJECTS 3 1) Business carried on by BMQ 3 2) The concrete 4 3) The research 5

B. ISSUES 8 C. THE ACT AND CASE LAW 8 1) SR&ED activities according to the Act 9 1.1 Technological or scientific uncertainty 12 1.2 Hypotheses 13 1.3 Scientific method 13 1.4 Technological or scientific advancement 14 1.5 Detailed record 15 2) SR&ED expenditures deductible under

section 37 and expenditures that qualify for ITCs 15 D. THE PROJECTS 18 1) Project B-10-03: Determining moisture in latex concrete 18 1.1 Project description 18 1.2 Positions of the parties 19 1.3 Discussion 20

a) Qualification of the project 20

b) The expenditures 21 2) Project B-10-05: Development of a self-placing Ter-C 3 concrete 22 2.1 Project description 22 2.2 Positions of the parties 24 2.3 Discussion 24

a) Qualification of the project 24

b) The expenditures 26 3) Project B-10-07: Characterization of Ter-C 3 cement 28 3.1 Project description 28 3.2 Positions of the parties 30 3.3 Discussion 30

a) Qualification of the project 30

b) The expenditures 32 4) Project B-10-08: Development of a Type V Ter-C 3 concrete 33 4.1 Project description 33 4.2 Positions of the parties 35 4.3 Discussion 35

a) Qualification of the project 35

b) The expenditures 37 5) Project B-10-09: Characterization of a new-generation plasticizer 38 5.1 Project description 38 5.2 Positions of the parties 39 5.3 Discussion 39

a) Qualification of the project 39

b) The expenditures 41 6) Project B​10​12: Development of a no-fines concrete with a high void content 41 6.1 Project description 41 6.2 Position of the parties 43 6.3 Discussion 44

a) Qualification of the project 44

b) The expenditures 46 7) Project B-10-18: Develop a light self-placing mortar for mobile concrete mixer 48 7.1 Project description 48 7.2 Position of the parties 50 7.3 Discussion 50

a) Qualification of the project 50

b) The expenditures 52 8) Project B-11-01: Permeability study on chlorine ions and durability with various pozzolanic add-ons and cements 53 8.1 Project description 53 8.2 Positions of the parties 54 8.3 Discussion 55

a) Qualification of the project 55

b) The expenditures 57 9) Project B-11-04: Analysis of the impact of binders and admixtures on self-placing concrete performance 59 9.1 Project description 59 9.2 Positions of the parties 60 9.3 Discussion 60

a) Qualification of the project 60

b) The expenditures 62 10) Project B-11-07: Develop a quick-setting mortar for installation in a marine environment 64 10.1 Project description 64 10.2 Positions of the parties 65 10.3 Discussion 65

a) Qualification of the project 65

b) The expenditures 67 11) Project B-12-01: Development of quick-setting concrete without latex 68 11.1 Project description 68 11.2 Positions of the parties 70 11.3 Discussion 70

a) Qualification of the project 70

b) The expenditures 71

12) Project B-12-02: Improvement of quick-setting self-placing concrete 73 12.1 Project description 73 12.2 Positions of the parties 74 12.3 Discussion 74

a) Qualification of the project 74

b) The expenditures 76 13) Project-B-12-03: Development of quick-setting concrete topping without latex 77 13.1 Project description 77 13.2 Positions of the parties 79 13.3 Discussion 80

a) Qualification of the project 80

b) The expenditures 81 14) Project B-12-07: Development of a repair product for roller-compacted concrete 83 14.1 Project description 83 14.2 Positions of the parties 84 14.3 Discussion 85

a) Qualification of the project 85

b) The expenditures 86 E. CONCLUSION 88

SCHEDULE A 1 Income Tax Act , R.S.C. 1985, c. 1 (5th supp .) 1 Paragraphs 37(1)(

a) and (b), subparagraph 37(1)(b)(

i) and subclause 37(8)(a)(ii)(A)III and clause 37(8)(a)(ii)(B) 1 Subsection 127(5) 3 Subsection 127(9) 3 Income Tax Rules , C.R.C. c. 945 5 Rule 2900(4) 5

ANNEXE A 6 Loi de l’impôt sur le revenu , L.R.C. 1985, ch. 1 (5 e suppl .) 6 Alinéas 37(1)

a) et b), sous-alinéa 37(1)b)(

i) et subdivision 37(8)a)(ii)(A)III et division 37(8)a)(ii)(B) 6 Paragraphe 127(5) 8 Paragraphe 127(9) 8 Règlement de l’impôt sur le revenu , C.R.C., ch. 945 10 Paragraphe 2900(4) 10 Citation: 2019 TCC 278 Date: 20191211 Dockets: 2015-3425(IT)G 2016-4491(IT)G

BETWEEN: BÉTON MOBILE DU QUÉBEC INC., Appellant, and HER MAJESTY THE QUEEN, Respondent . [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Lafleur J. [ 1 ] Béton Mobile du Québec inc. ( " “BMQ” " or the " “appellant” " ) is appealing against the reassessments made by the Minister of National Revenue (the " Minister " ) under the Income Tax Act , R.S.C. 1985, c. 1 (5th Supp .), as amended) (the Act), for the tax years ending on January 31, 2010, ( " “2010 tax year” " ), January 31, 2011 (“2011 tax year”) and January 31, 2012 ( " “2012 tax year” " ).

The appeals for all the tax years at issue were heard on common evidence. [ 2 ] In making these reassessments, the Minister refused to consider the activities exercised by BMQ under certain projects as scientific research and experimental development ( " SR&ED " ), refused to acknowledge the deductibility of the amounts BMQ deducted as SR&ED expenditures under

section 37 of the Act and refused to allow the related investment tax credit ( " ITC " ). The deductibility of BMQ’s expenditures beyond those under

section 37 of the Act is not at issue in these appeals. [ 3 ] As regards tax year 2010, the parties agree that SR&ED qualification of activities carried out by BMQ as part of seven projects is at issue (namely, projects B-10-03, B-10-05, B-10-07, B-10-08, B-10-09, B-10-12 and B-10-18). Similarly, the parties agreed that, had I found that the activities carried out as part of any of these seven projects could qualify as SR&ED, the deductibility under

section 37 of the Act for expenditures for salaries, materials and subcontractor fees totalling $140,614, and whether they qualified for ITCs, is in dispute. The appeal was initially based on twenty projects, but the appellant agreed to withdraw their appeal regarding all projects aside from those indicated above and in regard to those related expenditures. [ 4 ] As regards tax year 2011, the parties agree that the qualification of activities carried out by BMQ as SR&ED under three projects is at issue (namely, projects B-11-01, B-11-04 and B-11-07).

Similarly, the parties agree that, were I to find that the activities carried out as part of any of these three projects could qualify as SR&ED, the deductibility under

section 37 of the Act for expenditures for salaries, materials and subcontractor fees totalling $27,338, and whether they qualified for ITCs, is in dispute. The appeal was initially based on seven projects, but the appellant agreed to withdraw their appeal regarding all the projects aside from those indicated above and in regard to those related expenditures. [ 5 ] As regards tax year 2012, the parties agree that the qualification of activities carried out by BMQ as SR&ED under four projects is at issue (namely, projects B-12-01, B-12-02, B-12-03 and B-12-07).

Similarly, the parties agree that, were I to find that the activities carried out as part of any of these four projects could qualify as SR&ED, the deductibility under

section 37 of the Act for expenditures for salaries, materials and subcontractor fees totalling $49,338, and whether they qualified for ITCs, is in dispute. The appeal was initially based on seven projects, but the appellant agreed to withdraw their appeal regarding all projects aside from those indicated above and in regard to those related expenditures. [ 6 ] Jacques Bertrand testified at the hearing. He is an engineer and also one of the founders of BMQ; he was the President of BMQ during the relevant periods.

Gérard Dubé, an engineer at BMQ, also testified at the hearing. [ 7 ] Research and Technology Advisors ( " RTAs " ) from the Canada Revenue Agency ( " CRA " ), namely, Cédric Durban, who examined the 2010 tax year projects, and Karim Mimoune, who examined the 2011 and 2012 tax year projects, also testified. Mr. Durban earned a doctorate in mechanical engineering in 1997. Mr. Durban began his career as a private SR&ED consultant; he joined the CRA in 2009, where he held the position of RTA at the time of the audit. Mr.

Mimoune holds a PhD in mechanical engineering and has worked at the CRA as an RTA since 2002. [ 8 ] The financial auditor who participated in the audits of the three tax years at issue did not testify. Also, no expert witnesses were called to testify as part of these appeals. [ 9 ] Unless otherwise indicated, any statutory provision referred to in these reasons is a provision of the Act. A. EVIDENCE – CONTEXT OF THE PROJECTS 1) Business carried on by BMQ [ 10 ] Mr. Bertrand is an engineer by training and has been practising this profession since 1967.

For many years, he worked in the civil engineering field on major projects, such as James Bay and Churchill Falls, in which concrete was widely used. He also worked on the construction of the Montreal metro station.

[ 11 ] Mr. Bertrand founded BMQ in 1979 together with two partners. Mr. Bertrand testified that, at the time, there was a lack of businesses capable of meeting the demand for smaller projects, or even more specific projects or repairs. [ 12 ] BMQ carries on its activities, as a concrete supplier, in the ready-mix and specialized concrete domain. This company is a leader in this industry. Its clients are comprised of entrepreneurs who work for public or private worksites. The majority of BMQ’s business stems from public-sector contracts.

Usually, before a contract is awarded to BMQ, and particularly when a contract is awarded in the public sector, the concrete mix to be supplied to the entrepreneur by BMQ is pre-approved by the client and the entrepreneur, since the concrete must comply with the minimum industry standards. [ 13 ] BMQ supplies freshly mixed concrete using mobile concrete mixers and not " “drum concrete mixers” " or classic concrete mixers, which allows it to offer innovative solutions and products to its clients to meet their various needs when completing and repairing concrete structures.

A classic concrete mixer transports a concrete mix that was prepared at the factory and which must be delivered within an hour and a half after leaving the factory; otherwise, the concrete cannot be used for the purposes for which it was prepared. A mobile concrete mixer makes it possible to prepare a concrete mix directly at the site where the concrete must be poured, since the inputs are mixed on site by the concrete mixer.

In addition, the mobile concrete mixer can deliver various types of concrete to different clients in a single trip, i.e., without having to return to the business premises in between deliveries, since the concrete mixer can be calibrated based on the different needs. Mr. Bertrand testified that 99% of the concrete market was comprised of classic concrete mixers and 1% by mobile concrete mixers. [ 14 ] Mr. Dubé completed his technical training in civil engineering at the Ahuntsic Cégep in 1986 and earned a diploma in the same field in 1990 at the École de technologie supérieure.

He began working at BMQ in February 1991. During the tax years at issue, Mr. Dubé handled special projects and was responsible for quality control at BMQ. He directly participated in research projects. [ 15 ] In addition, during the tax years at issue, BMQ employed three or four people who were ACI ( " American Concrete Institute " ) technicians and who were authorized to carry out concrete tests in laboratory and worksite settings. BMQ also employed experienced mobile concrete mixer operators; these operators assisted the engineer in conducting tests and prepared the mixes.

BMQ also employed interns—all civil engineering students who apparently obtained their ACI technician qualification through working at BMQ. 2) The concrete [ 16 ] Concrete is comprised of several inputs: cement, sand, stone and potable water. Various admixtures can be added to it, such as entrained air, superplasticizers, colloidal agents and latex. These admixtures are added to give certain characteristics to the concrete, such as greater strength or enhanced durability. [ 17 ] BMQ has receipts for approximately 300 concrete mixes and develops 15 to 20 of them per year. According to Mr.

Bertrand, the possible combinations of the various inputs are extremely vast, as there are six or seven types of cement, 100 types of stones, a very high number of soil types and from 500 to 1,000 different admixtures. Moreover, the mix proportion of each of these inputs can be subject to variations. [ 18 ] A concrete mix must comply with certain standards to be used for public work sites. For example, standard 3101 of the Ministère des Transports du Québec ( " MTQ " ) Cahier des charges et devis généraux must be met. According to Mr.

Bertrand, even when inputs are long-known, industry needs change and, as a result, BMQ strives to create new mixes. Minimum standards also evolve. The 3101 standard is revised every year and the CSA standards (Canadian Standards Association) are revised every five years. For example, Mr. Bertrand explained that the compressive strength standards increased from 35 megapascals to 50 megapascals from the 1960s to today. Moreover, BMQ is not necessarily limited to complying with the standards and can strive to improve products even though they already comply with minimal standards.

Each concrete mix must meet certain thresholds, and some twenty laboratory tests must be conducted for the mix to be approved for use at a public work site. These tests are designed, for example, to verify the compressive strength, scaling strength and chlorine ion permeability. [ 19 ] In addition, other tests are done directly at a site before pouring the concrete. These tests are done when the concrete was still in the plastic state, that is, while it was still in liquid form.

This consists of an air content test, a settlement test and a temperature test, which take approximately 10 minutes to complete, and a compression/density test, i.e., taking samples in cylinders, which requires approximately 15 minutes. 3) The research [ 20 ] Mr. Bertrand testified that BMQ has been conducting research and development since the late 1980s, to create new products or to enhance existing products. New products are either developed at the request of clients, or because industry standards have changed.

At times, a project may be initiated directly by the company, because it is always seeking to remain competitive. Both Mr. Bertrand and Mr. Dubé, as well as Mr. Fournier (BMQ’s master mechanic) can decide to implement a project. [ 21 ] In terms of BMQ’s approach as part of various projects, Mr. Bertrand explained that the company regularly works with the MTQ and different universities. A project generally begins with bibliographic research and discussions with colleagues, people in the industry and university professors.

However, the results of studies conducted in locations such as the United States cannot necessarily be transferred to Quebec, where winter must be taken into account to determine whether the concrete is durable; what also must be taken into account is the fact that the concrete mix is prepared in a mobile concrete mixer. The assumptions are then established: Mr. Bertrand’s assumptions are the characteristics sought in a mix, whereas, according to Mr. Dubé, they involve the standards to be met. [ 22 ] BMQ then begins conducting tests and pursues the project as it seems promising following the initial tests.

BMQ has a laboratory that includes equipment—such as a scale, cones of subsidence, an air meter, cylinders, a concrete washout container, a cold chamber and a small concrete mixer—to conduct certain tests. In the laboratory, the concrete is prepared in a stand-alone concrete mixer. If a mix is satisfactory, the next requirement is to verify if the results are similar when the mix is prepared in a mobile concrete mixer, and whether

the mix complies with the standards. To do this, BMQ uses its own concrete mixers. The durability tests, such as those for compressive strength, are carried out by independent laboratories. [ 23 ] The direction the research takes will then depend on the desired characteristics. For example, a specific admixture may be considered at the start of the project to meet a certain standard. Mr. Dubé explained that, despite his expertise, he does not always find the solution to a problem on the first attempt.

In addition, BMQ must redo the standard tests (air, settlement, temperature and density/compression) to verify whether the standards are still met each time an element is changed in the mix. [ 24 ] Two steps must be successfully completed for BMQ to be satisfied with a mix. First, standard, the standard air, settlement, temperature and density/compression (cylinders) tests are done in the laboratory; if the results are acceptable, this is followed by chlorine ion permeability tests, scaling tests and freeze/thaw tests.

If the first step of the results is not satisfactory, BMQ will try to determine the causes and reformulate the mix to then redo the tests. [ 25 ] The second step consists of calibrating the mobile concrete mixer and pouring the mix to conduct the same tests again to ensure that the mixing in the mobile concrete mixer did not affect the characteristics of the mix. According to Mr. Dubé, three persons are required to conduct a test: one mobile concrete mixer operator, one technician qualified to take samples and himself. Mr.

Dubé testified that approximately two to three hours are required to calibrate the mobile concrete mixer. [ 26 ] The analysis of the results is largely carried out by Mr. Bertrand and Mr. Dubé.

A meeting is called with the employees involved in a project, as well as the technicians who operate the mobile concrete mixer and take samples, when the results of tests are received by the company, because these employees may have an idea about the causes of a test failure and should be kept informed of the project’s evolution. [ 27 ] A project ends either when the objective has been achieved, or when the objective has not been achieved and no solution is planned to overcome the problems. [ 28 ] No report is prepared at the end of each project. However, Mr.

Dubé completed form T661 Scientific Research and Experimental Development (SR&ED) Expenditures Claim ( " Form T661 " ) and submitted it to the CRA. This form contains a description of the progress that BMQ tried to achieve, obstacles that had to be overcome and the steps taken to implement a project. [ 29 ] Mr. Bertrand explained that, during the years at issue, he was directly involved in research activities related to the drafting, design and development of research plans and that he attended conferences relating to projects.

He also directly participated in tests carried out in the field, in BMQ’s laboratory, as well as at universities. [ 30 ] With regard to expenditures, Mr. Dubé testified that, in general, the date, time and a brief description of the tests conducted as part of this project are written in a notebook. Mr.

Dubé admitted that the notes retained will not necessarily be understandable for another civil engineer, but he can understand them and consult his computer files to determine what was done in a project. [ 31 ] Each month, the documents related to a project, such as handwritten notes and emails, are submitted by the employees to Mr. Dubé, who compiles the work hours spent on each project in the BMQ computer system. The only employees who fill out time sheets are those paid based on hours worked, which excludes Mr. Bertrand, Mr. Dubé and Mr. Fournier. To calculate the hours spent working on a research project, Mr.

Bertrand indicates the time he has spent on a project and submits it to Mr. Dubé, who compiles the hours. Mr. Dubé testified at the hearing that he rounded the hours indicated on the time sheets. [ 32 ] Mr. Dubé also compiles the subcontractor invoices and equipment use hours. When an invoice contains both commercial and research elements, he himself separates the two types of elements. [ 33 ] Mr. Bertrand testified that BMQ does not invoice its clients for tests conducted when a mix is changed, even if this change is done due to a client request. According to Mr.

Bertrand, BMQ only charges for the concrete actually delivered, not the work time spent on delivery. Test costs are assumed by BMQ, unless the MTQ decides, for example, to be involved in a project and to assume a portion of these expenses. BMQ also has a quality control system that it excludes from its SR&ED claims. B. ISSUES [ 34 ] The issue is whether the activities carried out by BMQ as part of the 14 projects at issue fall under SR&ED, within the meaning of the Act.

If I find that the activities carried out by BMQ as part of any of the projects can qualify as SR&ED, the issue is then whether the expenditures incurred by BMQ as part of the projects are deductible as SR&ED under

section 37, as well as expenditures that qualify for ITCs under subsection 127(5) . C. THE ACT AND THE CASE LAW [ 35 ] To answer the questions at issue, the Act sets out a two-pronged test. The first step is to determine whether the activities meet the definition of SR&ED under subsection 248(1). If this is not the case, the review will end at this step. However, if it is concluded that the activities meet the definition of SR&ED, the deductibility of an expenditure must then be determined under

section 37 for SR&ED activities, given the facts specific to each project, and qualification of this expenditure for ITCs ( Zeuter Development Corporation v. The Queen , 2006 TCC 597 , at paragraph 20 , 2007 DTC 41 ( " Zeuter Development " ) ). [ 36 ] BMQ has the burden of establishing, on a balance of probabilities, that the activities it carried out meet the definition of SR&ED. In addition, BMQ has the burden of establishing that the expenditures it incurred are deductible as SR&ED activities under

section 37 and that the expenditures qualify for ITCs.

1) SR&ED activities according to the Act [ 37 ] SR&ED activities are defined as follows under subsection 248(1): “scientific research and experimental development” means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is « activités de recherche scientifique et de développement expérimental » Investigation ou recherche systéma-tique d’ordre scientifique ou technologique, effectuée par voie d’expérimentation ou d’analyse, c’est-à-dire :

a) basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view,

a) la recherche pure, à savoir les travaux entrepris pour l’avance-ment de la science sans aucune application pratique en vue; (

b) applied research , namely, work undertaken for the advance-ment of scientific knowledge with a specific practical application in view, or

b) la recherche appliquée , à savoir les travaux entrepris pour l’avance-ment de la science avec application pratique en vue; (

c) experimental development , namely, work undertaken for the purpose of achieving technolo-gical advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improve- ments thereto,

c) le développement expérimental , à savoir les travaux entrepris dans l’intérêt du progrès technologique en vue de la création de nouveaux matériaux, dispositifs, produits ou procédés ou de l’amélioration, même légère, de ceux qui existent. and, in applying this definition in respect of a taxpayer, includes Pour l’application de la présente définition à un contribuable, sont compris parmi les activités de recherche scientifique et de déve-loppement expérimental : (

d) work undertaken by or on behalf of the taxpayer with respect to engineering, design , operations research, mathematic- cal analysis, computer program-ming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b), or (

c) that is undertaken in Canada by or on behalf of the taxpayer,

d) les travaux entrepris par le contribuable ou pour son compte relativement aux travaux de génie, à la conception , à la recherche opérationnelle, à l’analyse mathé-matique, à la programmation infor- matique, à la collecte de données, aux essais et à la recherche psychologique, lorsque ces travaux sont proportionnels aux besoins des travaux visés aux alinéas a),

b) ou

c) qui sont entrepris au Canada par le contribuable ou pour son compte et servent à les appuyer directement . but does not include work with respect to Ne constituent pas des activités de recherche scientifique et de dévelop- pement expérimental les travaux relatifs aux activités suivantes : (

e) market research or sales promotion,

e) l’étude du marché et la promotion des ventes; (

f) quality control or routine testing of materials, devices, products or processes ,

f) le contrôle de la qualité ou la mise à l’essai normale des matériaux, dispositifs, produits ou procédés ; (

g) research in the social sciences or the humanities,

g) la recherche dans les sciences sociales ou humaines; (

h) prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,

h) la prospection, l’exploration et le forage fait en vue de la découverte de minéraux, de pétrole ou de gaz naturel et leur production; (

i) the commercial production of a new or improved material, device or product or the comer-cial use of a new or improved process ,

i) la production commerciale d’un matériau, d’un dispositif ou d’un produit nouveau ou amélioré, et l’utilisation commerciale d’un pro-cédé nouveau ou amélioré ; (

j) style changes, or

j) les modifications de style; (

k) routine data collection;

k) la collecte normale de données. " [Emphasis added.] " [ 38 ] In Northwest Hydraulic Consultants Ltd. v. Canada , [1998] TCJ. No. 340 (QL) ( " Northwest Hydraulic " ) , Judge Bowman (as he then was) stated that legislation bearing on SR&ED tax incentives must be given " “such fair, large and liberal construction and

interpretation as best ensures the attainment of its objects,” " which is to encourage scientific research in Canada (paragraph 11). [ 39 ] In that decision, based on Information Circular 86-4R3 dated May 24, 1994, published by the CRA (the " Circular " ) and

acknowledging that the Circular was a "“useful and reliable”" guide since it was the result of extensive consultations betweengovernment and the scientific community (paragraphs 13 and 15), Judge Bowman set out five criteria for determining whether workconstitutes SR&ED activities (paragraph 16). These criteria, which must be met for the activities to qualify as SR&ED, were confirmedby the Federal Court of Appeal in R I S ​ Christie Ltd. v. Canada, (FCA), [1998] FCJ No. 1890 (QL) ("R I S ​ Christie")and reiterated in C.W. Agencies Inc. v. Canada, 2001 FCA 393, 2002 DTC 6740 (paragraph 17) as follows: 1.

Was there a technological risk or uncertainty which could not be removed by routine engineering or standard procedures? 2. Did the person claiming to be doing SRED formulate hypotheses specifically aimed at reducing or eliminating that technologicaluncertainty? 3. Did the procedure adopted accord with the total discipline of the scientific method including the formulation testing and modificationof hypotheses? 4. Did the process result in a technological advancement? 5. Was a detailed record of the hypotheses tested, and results kept as the work progressed? [40] All of these cases involved paragraph (

c) of the definition of SR&ED activities in subsection 248(1), namely, experimentaldevelopment, i.e., work undertaken for the purpose of achieving technological advancement. Paragraphs (

a) and (b), which relate to basicand applied research, respectively, instead relate to the advancement of scientific knowledge. Thus, as Judge Boyle concluded in LifeChoice Ltd. v. The Queen, 2017 TCC 21 (paragraph 16) ("Life Choice"), in cases challenging paragraphs (

a) and (b), the criteria set outabove, involving technological risk, uncertainty and advancement, should therefore be considered as references to scientific risk anduncertainty, and the advancement of scientific knowledge. 1.1 Technological or scientific uncertainty [41] In Northwest Hydraulic, above, Judge Bowman stated the following about technological uncertainty (paragraph 16): [16] . . . (

a) Implicit in the term “technical risk or uncertainty” in this context is the requirement that it be a type of uncertainty that cannot beremoved by routine engineering or standard procedures. I am not talking about the fact that whenever a problem is identified there maybe some doubt concerning the way in which it will be solved. If the resolution of the problem is reasonably predictable using standardprocedure or routine engineering there is no technological uncertainty as used in this context. (

b) What is “routine engineering”? It is this question, (as well as that relating to technological advancement) that appears to have dividedthe experts more than any other. Briefly it describes techniques, procedures and data that are generally accessible to competentprofessionals in the field. . . . [Emphasis added] [42] The Circular states: 4.2 . . .

Standard Practice refers to directly adapting a known engineering or technological practice to a new situation when there is a highdegree of certainty that the known technology or practice will achieve the desired objective. . . . [43] Therefore, creating a new product using techniques, procedures and data that are generally accessible to competent professionals inthe field is not SR&ED even if there is doubt concerning the way in which the objective will be achieved.

In other words, the mere factthat a product does not exist does not necessarily support the inference that its development involves technological or scientificuncertainty (Flavor Net Inc. v. The Queen, 2017 TCC 179 ("Flavor Net"), paragraph 38). [44] In Zeuter Development, above, Justice Little specified that resolving uncertainties associated with a project is not necessarilyresolving technological uncertainties if competent professionals in the field can resolve these issues with predictability using standardand established techniques (paragraph 22). [45] In addition, in R&D PRO-innovation Inc. v.

The Queen, 2015 TCC 186 (affirmed by the Federal Court of Appeal, 2016 FCA 152),Justice Masse concluded that there was no technological uncertainty within the meaning of the definition of SR&ED in that specific case,because the uncertainty was removed by standard procedures or routine engineering. [46] Moreover, in Formadrain Inc. v.

The Queen, 2017 TCC 42, 2017 DTC 1022 ("Formadrain"), Justice D’Auray concluded thatcreating a product that could stand up to specific constraints (specifically, thin, resistant and flexible rubber) met the technologicaluncertainty criterion because the lacking knowledge truly did not exist in the base of scientific or technological knowledge and was notsimply unknown to the appellant, Formadrain (paragraph 93). 1.2 Hypotheses [47] Judge Bowman set out a five-stage process to meet the second criterion: "(

a) the observation of the subject matter of the problem;(

b) the formulation of a clear objective; (

c) the identification and articulation of the technological uncertainty; (

d) the formulation of anhypothesis or hypotheses designed to reduce or eliminate the uncertainty; and (

e) the methodical and systematic testing of thehypotheses" (Northwest Hydraulic, above, at paragraph 16).

[ 48 ] Justice Sommerfeldt revisited the concept of hypothesis for SR&ED purposes in Joel Theatrical Rigging Contractors

(1980) Ltd. v.

The Queen , 2017 TCC 6 : " “. . . a hypothesis is a statement to be tested by an experiment or a trial” " (paragraph 26). 1.3 Scientific method [ 49 ] As Judge Bowman stated in Northwest Hydraulic , above, " “the procedures adopted” " must " “accord with established and objective principles of scientific method, characterized by trained and systematic observation, measurement and experiment, and the formulation, testing and modification of hypotheses” " (paragraph 16). [ 50 ] It can be inferred from Judge Bowman’s comments that trial and error does not come within the scientific method if used alone.

This principle was also affirmed by this Court in Flavor Net , above (at paragraphs 53 and 54). 1.4 Technological or scientific advancement [ 51 ] The technological or scientific uncertainty and technological or scientific advancement criteria are interrelated. [ 52 ] Regarding the technological advancement criterion, Judge Bowman wrote the following ( Northwest Hydraulic , above, at paragraph 16): [16] . . . 4. Did the process result in a technological advance, that is to say an advancement in the general understanding? (

a) By general I mean something that is known to, or, at all events, available to persons knowledgeable in the field. I am not referring to a piece of knowledge that may be known to someone somewhere. The scientific community is large, and publishes in many languages. A technological advance in Canada does not cease to be one merely because there is a theoretical possibility that a researcher in, say, China, may have made the same advance but his or her work is not generally known. (

b) The rejection after testing of an hypothesis is nonetheless an advance in that it eliminates one hitherto untested hypothesis. Much scientific research involves doing just that. The fact that the initial objective is not achieved invalidates neither the hypothesis formed nor the methods used. On the contrary it is possible that the very failure reinforces the measure of the technological uncertainty. . . . [ 53 ] The Circular states: 4.1 . . .

A technological advance is incorporating, by means of experimental development, a characteristic or capability not previously existing or available in standard practice, into a new or existing process or product that enhances a product’s performance. Novelty, uniqueness, or innovation alone do not indicate a technological advance. . . . 4.3 Adapting a known technology or practice to new situations is ineligible when the routes for the progression of work that will lead to successful solutions to a technological or engineering problem can be identified in standard practice.

In other words, if the project involves directly adapting a known technology to a new situation, when it is reasonably certain that the approach will work, it is ineligible. If a technological uncertainty is present, however, then experimental development will occur . . . . . . . 1.5 Detailed record [ 54 ] The scientific method normally requires the preparation of a detailed record or at least the taking of notes throughout the process of testing the hypotheses previously formulated.

However, as stated by this Court in Formadrain , above (paragraph 118), and by the Federal Court of Appeal ( RIS-Christie , paragraphs 14 and 15), it is not mandatory that the evidence be documentary; testimonial evidence may be presented (see also Abeilles Service de Conditionnement Inc. v. The Queen , 2014 TCC 313 , paragraph 94 ). [ 55 ] Therefore, although risks are associated with not adequately documenting a step in an SR&ED project, testimonial evidence may be used to meet this criterion. 2) SR&ED expenditures deductible under

section 37 and expenditures that qualify for ITCs [ 56 ] Taxpayers engaged in SR&ED within the meaning of subsection 248(1) may, under

section 37, deduct from their business income certain expenditures they made for SR&ED, and may be entitled to the related ITCs. Whether expenditures qualify will depend on whether taxpayers elect to use the so-called " “proxy method” " under clause 37(8)(a)(ii)(B). [ 57 ] In this case, BMQ elected to use the proxy method for all the taxation years at issue. In such a case, under paragraph 37(1)(

a) and clause 37(8)(a)(ii)(B), as they read in the taxation years at issue (attached as a

schedule to these Reasons), expenditures that are deductible under paragraph 37(1)(

a) are expenditures of a current nature made by the taxpayer in the year and that are, specifically: – expenditures in respect of the prosecution of SR&ED in Canada directly undertaken on behalf of the taxpayer; – that portion of an expenditure made in respect of an expense incurred for salary or wages of an employee who is directly engaged in SR&ED that can reasonably be considered to relate to the SR&ED;

– the cost of materials consumed or transformed in the prosecution of SR&ED in Canada. [ 58 ] In addition, paragraph 37(1)(

b) and clause 37(8)(a)(ii)(B), as they read in the taxation years at issue (attached as a

schedule to these Reasons), provide for the deductibility of a certain portion of expenditures of a capital nature that were for the provision of premises, facilities or equipment, where it was intended that it would be used during all or substantially all of its operating time in its useful life for, or that all or substantially all of its value would be consumed in, the prosecution of SR&ED in Canada.

In this case, the lesser of the cost of the depreciable property acquired for SR&ED (subparagraph 37(1)(b)(i)) and the undepreciated capital cost of the property (subparagraph 37(1)(b)(ii)) will be deductible. [ 59 ] The ITC is a function of the " “SR&ED qualified expenditure pool”, " which includes any " “qualified expenditure” " made by the taxpayer in the year, according to the definition of these expressions in subsection 127(9) (attached as a

schedule to these Reasons). [ 60 ] Qualified expenditures include expenditures of a current nature under paragraph 37(1)(a), expenditures of a capital nature under subparagraph 37(1)(b)(i), expenditures for shared-use-equipment (that is, capital property mainly used for SR&ED without necessarily being almost exclusively consumed or used for this purpose) and, when the taxpayer elects to use the proxy method, the prescribed proxy amount ( subsection 2900(4) of the Income Tax Regulations , C.R.C., c. 945 (the " Regulations " ), attached as a

schedule to these Reasons). [ 61 ] The prescribed proxy amount is 65% of the amounts incurred in respect of salary or wages of an employee who is directly engaged in SR&ED that can reasonably be considered to relate to the SR&ED. [1] [ 62 ] Therefore, when the taxpayer elects to use the proxy method, expenses incurred for salary or wages of employees directly engaged in SR&ED will be included in the qualified expenditure pool for the purposes of calculating the ITC, whereas expenses for salary or wages of employees not directly engaged in SR&ED, as well as overhead (such as telephone or administrative staff costs), will not be included in the qualified expenditure pool, but rather, will be replaced by the proxy amount. [ 63 ] Whether an employee is directly engaged in SR&ED is based, in particular, on the tasks that are performed.

It is clear that an employee who directly performs SR&ED work and experiments will be considered to be directly engaged in SR&ED. [ 64 ] To determine whether an activity qualifies as SR&ED, it is also necessary to consider paragraph (

d) of the definition of SR&ED, which states that SR&ED includes work with respect to engineering, design, data collection and testing, if the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (

b) or (

c) of that definition. [ 65 ] But what about the supervisor, the manager or the person who analyzes results? Can one conclude that these people are " “directly engaged in [SR&ED]” " ? [ 66 ] As Judge Bowman noted in Northwest Hydraulic , the provisions bearing on incentives for SR&ED must be given large and liberal

interpretation. [ 67 ] The Act does not define the phrase " “directly engaged in [SR&ED]”. " [ 68 ] The February 1994 explanatory notes relating to the amendments to the Act introducing the proxy method state (pages 5, 7 and 8): New clause 37(8)(a)(ii)(

B) of the Act contains the new alternative method for determining SR&ED expenditures. . . . In determining the portion of any employee’s salary that relates to SR&ED, a reasonable allocation must be made of the time spent by the employee in the execution of SR&ED activities. The time spent by an employee, such as a supervisor or a manager, directing the course of ongoing SR&ED activities will generally be considered, for these purposes, to be time in which the employee was directly engaged in SR&ED. Consequently, this time may be included in determining the portion of the employee’s salary to be taken into account in calculating the proxy amount. . . . [ 69 ] Based on the various dictionary

definitions of the words " “directement”, " " “direct” " and " “directly”, " the phrase in question implies the lack of an intermediary between the activity and the person. [ 70 ] I therefore conclude that managers or supervisors who direct the course of the SR&ED work, as well as employees who analyze results, will be considered to be directly engaged in SR&ED. The same goes for such managers or supervisors regarding the time spent by them on different tasks that directly influence the SR&ED, such as planning experiments and researching the information needed for the SR&ED project to go smoothly.

However, more general supervisory or management activities as well as second- or third-line management or supervision generally cannot be considered in this regard. D. THE PROJECTS [ 71 ] Keeping in mind the principles described above, I will examine the 14 projects at issue to decide, for each of them, whether the activities carried out as part of the projects qualify as SR&ED, and I will determine the total expenditures that are deductible under

section 37 and qualify for ITCs. [2] In this regard, the parties filed Exhibit AI-1, which is a table outlining the expenditures incurred for each project. The parties indicated the expenditures challenged by the respondent, as well as those not challenged, should I conclude that the activities qualify as SR&ED. 1) Project B-10-03: Determining moisture in latex concrete 1.1 Project description [ 72 ] A BMQ client wanted to use a 15% latex concrete mix containing quick-setting cement and apply an oil-based membrane to it after

a maximum of 24 to 36 hours of drying. According to Mr. Bertrand, since fresh concrete contains water and the membrane is oil-based, it is important that the moisture content of the concrete be 5% or less before the membrane is applied to it, so that it adheres properly to the concrete. BMQ had been using quick-setting cement since 2001. However, according to Mr. Bertrand, membranes were not applied to it. Thus, it was necessary to determine whether long-lasting adhesion was possible when applying the membrane to this concrete.

The project therefore consisted in measuring the moisture content of 15% latex quick-setting concrete at different ages to determine when the concrete would be dry enough to apply a membrane to it. [ 73 ] The tests consisted in constructing 15% latex concrete cylinders, letting them dry for a certain number of hours, unmoulding them, weighing them, placing them in an oven for 24 hours, and weighing them again, in that order. The difference in weight between the two weighings helped to determine water loss and, consequently, the residual moisture content in the cylinder.

A single 15% latex concrete formulation was used for the tests. The activities carried out as part of the project took place over the course of six days. [ 74 ] According to the time sheets submitted by BMQ, two curing periods for the concrete were tested: 36 and 60 hours. [ 75 ] The project did not yield the expected results, because the residual moisture contents of the cylinders showed that the concrete was not dry enough after the maximum drying time sought by the client.

The project was therefore discontinued. [ 76 ] Should the activities carried out by BMQ as part of this project qualify as SR&ED, only a portion of the expenditures incurred in respect of salaries would be at issue, specifically expenditures totalling $947 corresponding to 29 hours, as the respondent concedes that an amount of $944 is deductible as a salary expenditure under

section 37 and qualifies for ITCs. The respondent challenges the time spent on discussions between BMQ and its client and on bibliographical research to find a way to determine the relative moisture of concrete. The respondent concedes that expenditures of $944 for salaries and $446 for materials would be deductible under

section 37 and would qualify for ITCs. 1.2 Positions of the parties [ 77 ] According to the appellant, gaps in available data on the drying time of latex concrete made it necessary to collect information on the subject. The tests performed led to the knowledge that it was impossible to achieve a low enough moisture content within 24 hours.

The activities are SR&ED activities because they involve applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view . [ 78 ] According to the respondent, the activities carried out by BMQ as part of this project cannot qualify as SR&ED. The fact that the moisture content of concrete is lower after a certain curing period does not involve technological uncertainty. According to Mr. Durban, BMQ used a standard method to determine the residual moisture content of concrete after a certain period of time.

In addition, BMQ did not attempt to apply a membrane to the concrete to run adherence tests. 1.3 Discussion

a) Qualification of the project [ 79 ] BMQ has not satisfied me, on a balance of probabilities, that this project involved scientific or technological uncertainty or that the results led to any scientific or technological advancement.

BMQ’s goal for this project was to determine the moisture content of 15% latex concrete at different ages for the purpose of applying a membrane to this concrete. [ 80 ] The case law holds that an activity qualifies as SR&ED if, among other things, there is a scientific or technological uncertainty, that is, uncertainty that cannot be removed by standard procedures or routine engineering.

Therefore, if the resolution of the problem is reasonably predictable through the use of routine engineering, there is no scientific or technological uncertainty. [ 81 ] The evidence shows that the MTQ carried out a study in 2002 on the minimum drying time of a quick-setting mortar mix by Ambex Technologies de Béton Inc. ( " Ambex " ), a subsidiary of BMQ. A mortar mix and concrete are similar, but mortar does not contain rocks. Membrane adherence to the mortar was also tested. The study found that a membrane can be applied after the mortar has cured for eight hours. According to Mr.

Bertrand, the study did not provide the answers he sought, because the MTQ had performed its tests with a mix that did not contain latex, hence the uncertainty, since the mix in his case contained latex. However, according to the documentary evidence, the mix tested by the MTQ contained latex. As a result, I cannot accept this portion of Mr. Bertrand’s testimony.

I therefore conclude that studies had previously been done on this topic and that the results of those studies were known to BMQ. [ 82 ] The evidence also shows that tests concerning the minimum drying time of latex concrete needed in order to apply a membrane to it had previously been conducted in the United States. According to the results of those tests, the membrane could be applied one hour after concrete placement. Even if Mr.

Bertrand considered these results implausible, the fact remains that tests had previously been carried out in that regard. [ 83 ] In this case, I see no uncertainty as to whether concrete contains less moisture after a certain period of time, because, in my view, this is accepted as scientific knowledge. [ 84 ] I consider that, as part of this project, BMQ carried out routine collection of data on the moisture content of 15% latex concrete at different ages, and this data collection cannot be considered SR&ED, because it was not commensurate with the needs of the SR&ED work, given my conclusion as to the absence of such work. [ 85 ] BMQ did not attempt to determine the reasons why latex concrete was drying that way.

BMQ did not conduct any studies of membrane adherence to concrete at different ages, which could have constituted an advancement of scientific knowledge. Similarly, BMQ ran tests on only one concrete mix. BMQ did not attempt to determine the reasons why this mix did not dry at the speed sought by its client; BMQ merely noted the moisture content of latex concrete at different ages using standard scientific methods or techniques.

[ 86 ] In addition, neither the evidence adduced at the hearing nor the testimony heard at the hearing clearly shows that BMQ formulated a hypothesis. I consider that no hypothesis was formulated by BMQ at the start of the project. Moreover, the record filed by BMQ at the hearing is rather sketchy, though Form T661 and the time sheets filed in evidence show the project phases. [ 87 ] For all these reasons, the activities carried out by BMQ as part of this project do not qualify as SR&ED.

b) The expenditures [ 88 ] While it is not necessary to address the issue of whether the expenditures are deductible under

section 37 and qualify for ITCs, given my conclusion that the activities do not qualify as SR&ED, I find that, if the activities had qualified as SR&ED, the respondent’s position at the hearing should be accepted. [ 89 ] First, I note that two versions of the time sheets were filed in evidence in the appellant’s book of documents. These two time sheets list different information regarding the hours spent on conducting bibliographic research; also, additional employees are listed in one of the versions. The evidence filed by BMQ lacks credibility.

Moreover, the hours indicated for bibliographic research to search for methods for determining the relative moisture of latex concrete totals 19 hours for three people. However, the evidence shows that known methods were used to make this determination. These expenditures cannot be considered related to a portion of the salary paid to an employee directly engaged in SR&ED activities. If the activities carried out as part of this project qualified as SR&ED, the expenditure amounts of $944 for salaries and $446 for materials would be deductible under

section 37 and would qualify for ITCs, as the respondent conceded. 2) Project B-10-05: Development of a self-placing Ter-C 3 concrete 2.1 Project description [ 90 ] This project is part of a series of steps BMQ undertook to improve its concrete mixes containing ternary cement, which pose several problems, particularly related to their compressive strength. According to Mr.

Dubé, BMQ had provided concrete made with ternary cement supplied by the cement manufacturer Lafarge to carry out repairs on the Champlain Bridge; this repair work was very problematic in that there was segregation of the inputs, causing problems with adherence of the concrete.

The client thus required that BMQ supply the concrete to redo the problematic repairs on the Champlain Bridge . [ 91 ] According to BMQ, this project began by changing a self-placing concrete mix in which the ternary cement from cement manufacturer Lafarge was replaced by Ter-C 3 ternary cement from the cement manufacturer Holcim. [ 92 ] According to Mr. Dubé, the obstacle encountered in this project lay in the use of a cement that was new to BMQ and in the use of a concrete pump, necessary for concrete pouring. [ 93 ] Five test strips were conducted on the Champlain Bridge between March 19 and April 14, 2009.

The same mix formula was used, but with different parameters. The quantity of the different inputs varied from one test to another to improve the mix while reducing the " “variations” " during its placement. [ 94 ] The concrete mix supplied in one of the five test strips posed problems in terms of its adherence to the surface on which it was poured and its homogeneity. That test was demolished. [ 95 ] BMQ redid the tests on the laboratory-prepared mix. Samples taken in the field were also tested by an independent laboratory, which conducted a series of tests to verify compliance with the standards.

This revealed that replacing the ternary cement had not solved the problems BMQ encountered with its mixes containing the cement previously used. [ 96 ] Mr. Dubé then changed the quantity of the colloidal agent in the mix, because he presumed that this colloidal agent could result in an increase of the viscosity of a concrete mix and, thus, limiting separation of the inputs would also have this effect on the mix tested. [ 97 ] Tests were subsequently conducted on mix samples to test the effect of vibrations and the impact of the pouring process (due to gravity or tamping) on the mix homogeneity.

To recreate the concrete placement conditions in the field, BMQ’s client’s pump was used to pour the concrete, since BMQ did not have one. The appellant had to pay for this usage. Segregation still occurred in the concrete on the tested samples, which led Mr. Dubé to conclude that using a pump to place the concrete affected the effectiveness of the admixtures in the mix, which caused segregation. He also noted that the compressive strength of the concrete decreased with the use of new cement.

In the end, BMQ succeeded in decreasing segregation of the inputs in the mix, without, however, perfectly stabilizing the new mix. However, this mix was nevertheless used to do the repairs on the Champlain Bridge. According to Mr. Dubé, the technological advancement achieved as part of this project is the improvement of a product that was lacking in terms of segregation. [ 98 ] In the event that the activities carried out by BMQ as part of this project were to qualify as SR&ED, all of the expenditures claimed by BMQ under

section 37 and taken into account to calculate ITCs for salaries, materials and subcontractors are challenged by the respondent. These expenditures total $18,991, i.e., $7,705 for salaries, $1,569 for materials and $9,717 for subcontractor fees. 2.2 Positions of the parties [ 99 ] According to the appellant, uncertainty was caused by the unanticipated defect of a product combined with the difficulty of recreating the reality of a worksite in a laboratory. The work made it possible to improve the defective product and study the impact of using a pump and vibrations on the mix.

The activities fall under SR&ED because they can qualify as experimental development work undertaken for the purpose of achieving technological advancement. [ 100 ] Moreover, the appellant explained that this project must be analyzed on a global level with projects B-10-07, B-10-08 and

B-10-09, the shared objective of which is to resolve problems caused by ternary cement. Global progress in the case of these projects lies in understanding, based on the years at issue, that the quantity of fly ash present in its suppliers’ ternary cement was too high, and in the subsequent change of its cement by cement manufacturer Holcim to reflect this information. [ 101 ] According to the respondent, there was no technological uncertainty because BMQ delivered the concrete to worksites the same day it took samples, which indicates that the product complied with the standards.

Furthermore, the first test strip was conducted barely ten days after discussions began on reformulating the mix. No trace of changes in mix proportions is found aside from in Mr. Dubé’s testimony, and it is impossible to determine whether such an activity took place when the same mix number appears on different dates. According to Mr. Durban, under this project, BMQ strove to find a solution to the problem of a defective mix. For these reasons, the activities carried out by BMQ cannot qualify as SR&ED. 2.3 Discussion

a) Qualification of the project [ 102 ] BMQ has not convinced me that, on a balance of probabilities, the activities carried out by BMQ as part of this project can qualify as SR&ED. [ 103 ] The evidence filed by BMQ did not show any specific technological uncertainty that could not be resolved by the usual procedures or routine engineering. The evidence revealed that a problem had occurred during earlier repairs carried out on the Champlain Bridge involving concrete supplied by BMQ.

However, based on the evidence, I cannot conclude that this problem could not be resolved through standard procedures or routine engineering. [ 104 ] In this case, by changing suppliers and adding inputs to the concrete mix designed to reduce segregation, more specifically, a colloidal agent to increase the suspension of the inputs in the concrete, BMQ tried to improve a mix that was segregating. The work involved the use of existing processes and inputs to improve the concrete mix. It would seem to me that the resolution of the problem was predictable under standard procedures and routine engineering.

A fine-tuning activity will not be considered an SR&ED activity if its goal is not to advance technological knowledge. In this case, BMQ has not convinced me that it advanced technological knowledge as part of this project. [ 105 ] Also, BMQ has not convinced me that the vibration tests and tests conducted with the pump differed from standard practice.

There is nothing in the evidence as to whether these tests were simply aimed at eliminating a cause of error. [ 106 ] Moreover, the commercial placement of the concrete the same day as the sample-taking raises doubts as to whether BMQ was truly uncertain about achieving the targeted objectives or the desired results. Indeed, the mix had to be qualified in advance by the MTQ.

Consequently, it is difficult to claim that there was technological uncertainty in this regard. [ 107 ] However, one cannot deny that BMQ acquired new knowledge about the interaction between the pump and admixtures and eliminated an assumption regarding the cause of the poor performance of its ternary cement-based concretes.

However, the acquisition of new knowledge is not sufficient to qualify activities as SR&ED when routine practices and engineering are used, as in this case. [ 108 ] The assumptions were not expressly formulated by BMQ, but the following may be inferred: (1) adding a colloidal agent will reduce segregation of the mix; and, (2) a pump and vibrations cause segregation in a mix. On a more global level, as regards the ternary cement, an assumption was put forth whereby ternary cement from a specific supplier would improve the mix.

BMQ has not convinced me that it had followed the scientific method under this project, given the use of a certain methodology form based on trial and error to find the causes of the defect on the test strips. [ 109 ] Just as in other projects, aside from Form T661, no detailed report was prepared by BMQ. Based on reading the time sheets, handwritten notes and invoices filed in evidence, I can, however, infer that BMQ nevertheless submitted some sort of record. [ 110 ] For all these reasons, the activities carried out by BMQ as part of this project do not qualify as SR&ED.

I reach the same conclusion by analyzing this project globally with projects B-10-07 and B-10-08. However, I fail to see how Project B-10-09 would be part of this group of projects. I will come back to this below.

b) The expenditures [ 111 ] While it is not necessary for me to address the issue of whether the expenditures are deductible under

section 37 and qualify for ITCs, given my conclusion that the activities do not qualify as SR&ED, I find that, if the activities could have qualified as SR&ED, the expenditures indicated below would be deductible under

section 37 and would qualify for ITCs. [ 112 ] As regards materials, the amount of $1,569 in materials used through SR&ED activities would be a deductible expenditure under

section 37 and would qualify for ITCs. [ 113 ] As for subcontractor fees, the $7,500 invoice established by the BMQ client for the use of the concrete pump contains a reference to [translation] " “work dated December 1, 2009,” " which would imply that it took the client several months to submit the invoice to BMQ, since the work under this project ended on August 27, 2009. According to Mr. Dubé, the company had waited until the completion of its own work on the Champlain Bridge before sending him its invoice, even though BMQ’s work had ceased a few months prior. I do not find this explanation provided by Mr. Dubé very plausible. The only subcontractor fees that would be deductible under

section 37 and qualify for ITCs are laboratory fees totalling $2,216.80. [ 114 ] As regards the amounts for salary expenditures, under the Act, the amount of wages or salary of employees directly engaged in SR&ED activities that it is reasonable to consider applicable thereto is deductible under

section 37 and qualifies for ITCs.

[ 115 ] First, Mr. Dubé, who was responsible for completing and collecting all time sheet information, testified that he rounded the hours. Indeed, there are no partial hours on the time sheets filed in evidence by the appellant. [ 116 ] The respondent questioned the accuracy of many entries on the time sheets and took the position that BMQ estimated the time rather than indicating the actual time spent carrying out the actual activities. The respondent challenged several hours allocated to analyzing test results and for which a salary amount deduction was claimed.

In addition, the respondent argues that it is odd that the hours spent conducting the test strips vary from one test to another, to which Mr. Dubé replied that access to the worksite was sometimes restricted and could be delayed.

Also, the respondent questioned the fact that, on March 19, 2009, three people spent eight hours conducting tests in the field, when a pouring had been done using a commercial process that same day at 1:00 p.m. [ 117 ] Under this project, 293 hours were recorded and, at the hearing, the appellant agreed to reduce its claim to 276 hours, which reflects salary expenditures totalling $7,705. [ 118 ] Of this number of hours, 58 were recorded for bibliographic research and discussions with the client, as well as with the cement supplier. I find that the salary expenditures for hours spent by Mr. Bertrand and Mr.

Dubé conducting bibliographic research and discussions with the client and the cement supplier would be considered salary expenditures for employees directly engaged in SR&ED activities. [ 119 ] These discussions and this bibliographic research have a direct impact on SR&ED activities, dictating how the tests are conducted and how the tested mixes are formulated. The hours spent on discussions with clients and suppliers would be considered as management of the course of SR&ED activities and, therefore, directly related to SR&ED activities. Mr.

Bertrand testified that he often undertook a project by having a discussion with one of his clients or one of his suppliers. Mr. Bertrand and Mr. Dubé also indicated that time spent on the commercial aspect was not included in BMQ’s SR&ED claims. Since these hours are directly related to the course of SR&ED activities, the related salary expenditures would therefore be deductible under

section 37 and would qualify for ITCs. [ 120 ] As regards the 96 hours spent conducting test strips, I have doubts as to whether the hours spent on test strips varied from one day to another. I do not find the explanation provided by Mr. Dubé very plausible. In the same vein, it is doubtful that three people spent eight hours conducting tests on March 19, 2009, at a worksite where commercial pouring had been done the same day as of 1:00 p.m. Thus, it is reasonable to attribute a total of 70 hours, i.e., 14 hours per test, to this element, and the salary amounts for these hours would therefore be deductible under

section 37 and would qualify for ITCs. The claim should be reduced by $597.06. [ 121 ] As for the hours spent by interns (who will earn their ACI certification during their internship) and ACI technicians participating in the results analysis, which, according to the respondent, should not be considered in relation to the issue of the amounts deductible under

section 37, Mr. Dubé testified that, when the results are received, a meeting is called with the employees involved in the project, including the ACI technicians, to discuss the potential causes of a failure; if the results are satisfactory, a meeting is also called to update the employees involved in the project. I find that the interns and ACI technicians are employees directly engaged in SR&ED activities as they are participating in the analysis of various results. However, the question also arises as to whether Mr. Dubé actually recorded their real hours or instead estimated them. I find that, given Mr.

Dubé’s testimony to the effect that he rounded the hours, it is more likely that the number of hours indicated was overestimated. [ 122 ] Given my finding about the hours spent on test strips, the amount of deductible salary expenditures under

section 37 and which qualify for ITCs would therefore total $7,108. However, in my opinion, it is reasonable to conclude that 10% of the remaining hours recorded regarding the project are excessive given that Mr. Dubé acknowledged that he rounded the hours on the time sheets. I find that, accordingly, the salary expenditures must be reduced by 10%. Thus, the salary expenditures totalling $6,397 would be deductible under

section 37 and would qualify for ITCs. 3) Project B-10-07: Characterization of Ter-C 3 cement 3.1 Project description [ 123 ] This project began in March 2009, along with project B​10​05. As mentioned above, BMQ decided to change ternary cement suppliers to use Ter-C 3 cement from the cement manufacturer Holcim; the motivation behind this change was due to compressive strength problems in the case of ternary cement used by BMQ in the past.

As a result of this change in supplier, BMQ had to test its mixes containing ternary cement (aside from those tested as part of project B-10-05) to determine whether they met industry standards and to verify their compatibility with the mobile concrete mixer. BMQ also reformulated its concrete mixes based on numerous discussions with the Ter-C 3 cement supplier.

Moreover, the latter conducted its own tests on concrete mixes that contained inputs supplied by BMQ and which were poured using a BMQ mobile concrete mixer. [ 124 ] BMQ’s objective was therefore to redevelop new mixes with the Ter-C 3 cement and to test different formulations to verify whether they met the applicable standards. [ 125 ] BMQ conducted tests on two occasions at the worksites of two different clients.

The first test was done on June 2, 2009, using a mix of self-placing mortar, and the second was done on June 18, 2009, with a 5% latex concrete. [ 126 ] The mixes tested on these dates were also installed at clients’ worksites the same day, since the clients had asked BMQ to supply concrete for a repair at the worksites. Mr. Dubé testified that the clients were unaware that BMQ was conducting tests on the mixes. BMQ benefitted from the fact that the equipment (pump supplied by clients) was on-site to conduct the tests. Mr.

Dubé admitted that the concrete to be installed had been pre-approved a few months prior for the repair. Mr. Dubé also indicated that the use of a pump was a parameter that BMQ wanted to test on its proposed concrete mixes—i.e., mixes that are placed using a pump—but the company did not have a pump; given that the clients’ pump was already at the worksites, BMQ had the opportunity to do the tests in this regard. [ 127 ] Based on the tests conducted, the concrete strengths were affected by the use of this new cement, as in the case of the ternary

cement used previously, when changing suppliers. The tests also showed that the superplasticizing admixture used by BMQ did not perform as well as in the past. [ 128 ] The T661 form prepared by BMQ indicates that the reformulation of its mixes using a binary cement is a possible solution, but BMQ has not conducted tests in this regard.

The modified description of BMQ projects explains that progress in this project relates to the assumption whereby the cement add-ons in the cement affect the stability of mixes and that changing these add-ons may fix the problem. [ 129 ] Should the activities carried out by BMQ as part of this project qualify as SR&ED, the respondent challenges the eligibility of a portion of the salary expenditures ($2,573) and the cost of materials ($344), which deduction is claimed as SR&ED activities expenditures. The appellant did not admit to these expenditures.

The respondent concedes that the expenditure amounts of $9,692 for salaries, $1,079 for materials and $3,844 for subcontractor fees would be deductible under

section 37 and would qualify for ITCs. 3.2 Positions of the parties [ 130 ] According to the appellant, the project made it possible to test several assumptions regarding the unsatisfactory results of a mix and to determine that substituting a ternary cement with another would not necessarily improve the results. The uncertainty lies in identifying the cement as a potential source of defects in the concrete. The progress made by BMQ consists of the fact that the new ternary cement has a better performance in the laboratory than that previously used.

Moreover, as mentioned above, the appellant considers that the development activities of ternary cement must be examined in conjunction with projects B-10-05, B-10-08 and B-10-09. These constitute SR&ED activities as they consist of experimental development work undertaken for the purpose of achieving technological advancement. [ 131 ] According to Mr. Durban’s report, the work carried out is standard and only consists of a performance evaluation of existing products. Apparently, no progress was made, since the effects of the cement add-ons on the concrete properties is relevant knowledge in the public domain.

According to the respondent, the activities carried out by BMQ as part of this project consist of specification-testing to meet the standards, and such tests do not constitute SR&ED activities. It is standard practice that adjustments are made to mixes when there is a change in supplier. 3.3 Discussion

a) Qualification of the project [ 132 ] The fact that a change in supplier was made for an input could create uncertainty with respect to the performance of the mixes thus changed, but the activities carried out by BMQ in this case are limited to standard tests and to a few adjustments, which, to me, seems to be standard procedure in the industry; thus, this uncertainty is not a technological uncertainty for the purposes of the Act.

Moreover, BMQ has not convinced me that technological uncertainty existed in this specific case, since BMQ installed the mixes tested at its clients’ worksites before it even received the complete results of the laboratory tests; likewise, Mr. Dubé agreed that the mixes thus tested had been pre-approved for installation at the worksite a few months before. [ 133 ] I am of the opinion that the work done as part of this project constitutes development of various mixes.

According to the Circular, development work is not eligible in terms of scientific research and experimental development activities unless it seeks to advance technological knowledge (paragraph 2.13). According to the case law, there must be technological advancement for an activity to quality as SR&ED. As part of this project, BMQ learned that the use of the new ternary cement in its mixes resulted in a reduction in the strength of its mixes, but this knowledge does not advance technology. BMQ did not determine the exact cause of the decline in the strength of its concrete mixes.

The company did formulate a hypothesis regarding the composition of cement, but formulating a hypothesis without conducting tests as a consequence does not constitute technological advancement ( Life Choice , above, paragraph 49). [ 134 ] Also, we cannot make a finding of technological advancement, since BMQ did not incorporate into its mixes an input having a new or unknown characteristic according to standard practice.

Ternary cement was a known product, the characteristics of which were not new or unknown to experts in this field. [ 135 ] As part of this project, tests were performed in a scientific manner by independent laboratories, but the evidence has not convinced me that the subsequent activities to reformulate mixes consisted in a systematic investigation; these activities seem instead to have been undertaken by the trial-and-error method.

However, BMQ provided the test results as well as a description of the chronology of activities. [ 136 ] For all these reasons, the activities carried out by BMQ as part of this project do not qualify as SR&ED. I come to the same conclusion by analyzing this project on a global level with projects B-10-05 and B-10-08. I will come back to it below.

b) The expenditures [ 137 ] While it is not necessary for me to address the issue of whether the expenditures are deductible under

section 37 and qualify for ITCs, given my conclusion that the activities do not qualify as SR&ED, I conclude that, if the activities could qualify as SR&ED, the expenditures indicated below would be deductible under

section 37 and would qualify for ITCs. [ 138 ] Firstly, concerning the cost of materials ($344) for tests on clients’ work sites, contested by the respondent, I am of the opinion that this amount would reflect materials used as part of SR&ED activities and that would therefore be deductible under

section 37 and would qualify for ITCs. Indeed, Mr. Bertrand and Mr. Dubé testified that the cost of materials indicated for the SR&ED expenditure deduction claim did not include that of materials delivered to clients. They also indicated having taken advantage of their clients’ facilities to conduct tests. Their testimony was credible in this regard. [ 139 ] Concerning salary expenditures (planning of work, tests, taking of samples and analysis of results) incurred in relation to the tests

performed on the clients’ worksites, as well as the salaries paid to the interns and ACI technicians related to results analysis, these expenditures would be considered as expenditures incurred for the wages or salaries of employees directly engaged in SR&ED. Indeed, the planning of tests, the tests themselves, the taking of samples and the results analysis are an integral part of any SR&ED exercise. An SR&ED project could not be carried out without planning tests.

These activities do not concern the non-technological aspect of the activities, since it is the very essence of SR&ED to conduct tests and to plan these tests beforehand. Similarly, the participation of interns and ACI technicians in these activities, as well as in the results analysis, seems reasonable. As a result, these amounts would be deductibles under

section 37 and would qualify for ITCs. [ 140 ] However, the question also arises concerning whether Mr. Dubé recorded the actual hours, or instead, estimated the hours. Given Mr. Dubé’s testimony that he rounded the time, I consider it more likely that the number of hours (446 hours), corresponding to a total of $12,265, was indeed overestimated. I conclude that it would be reasonable to reduce the amount of the requested deduction by 10%. [ 141 ] Thus, salary expenditures totalling $11,039 would be deductible under

section 37 and would qualify for ITCs, as well as expenditures totalling $1,423 for materials. In addition, given the concession made by the respondent, an amount of $3,844 for subcontractor fees would be deductible under

section 37 and would qualify for ITCs. 4) Project B-10-08: Development of a Type V Ter-C 3 concrete 4.1 Project description [ 142 ] Project B-10-08 was launched in April 2009 by BMQ after projects B-10-05 and B-10-07 were started. BMQ tried to redevelop its Type V concrete mix set out in MTQ standard 3101—a concrete with 35 megapascals of resistance containing ternary cement for the repair of structures—by replacing the ternary cement of its existing mix with Ter-C 3 ternary cement from the cement manufacturer Holcim.

The purpose of the project was to validate the mixes to attain CSA standards. [ 143 ] BMQ first replaced the cement of its existing mix with Ter-C 3 cement, without changing the proportions, to determine if there would be any similarity in the performance of the mixes. In the laboratory, the test results were satisfactory. BMQ proceeded with large-scale tests on the Champlain Bridge worksites at the time of deliveries

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