MANNING CANNING KITCHENS INC., c. HIS MAJESTY THE KING
Docket: 2023-2126(IT)I
BETWEEN:
MANNING CANNING KITCHENS INC.,
and
HIS MAJESTY THE KING,
Appellant,
Respondent.
Appeal heard on October 29 and 30, 2024, at Toronto, Ontario
Before: The Honourable Justice Scott Bodie
Appearances:
Agent for the Appellant: Counsel for the Respondent: Julie Bond
George Lin
JUDGMENT
The appeal from the Notice of Assessment issued on November 15, 2021
made under the Income Tax Act for the 2020 taxation year is allowed, without costs,
and the matter is referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with the terms of the attached
Reasons for Judgment.
Signed at Toronto, Ontario, this 13th day of December 2024.
“J. Scott Bodie”
Bodie J.Citation: 2024 TCC 159
Date: 20250117
Docket: 2023-2126(IT)I
BETWEEN:
MANNING CANNING KITCHENS INC.,
and
HIS MAJESTY THE KING,
Appellant,
Respondent.
AMENDED REASONS FOR JUDGMENT
Bodie J.
I. INTRODUCTION
[1] The Appellant in this case, Manning Canning Kitchens Inc. (“Manning
Canning”) is a Toronto-based corporation that has been involved in the food and
drink development, production and consultancy business since November 1, 2014.
It claimed expenditures arising from activities it undertook during its taxation year
ending July 31, 2020 (the “2020 taxation year”) in furtherance of a project, the
objective of which was the development of a drink it ultimately brought to market
and called Chrisoda, as scientific research and experimental development
(“SR&ED”) expenditures. The Minister of National Revenue (the “Minister”)
disallowed such expenditures as SR&ED on the basis that the activities undertaken
by Manning Canning in the 2020 taxation year did not meet the definition of SR&ED
in subsection 248(1) of the Income Tax Act (the “Act”). Manning Canning appeals
that determination. All statutory references herein are to the Act.
II. ISSUE
[2] The issue in this appeal is whether in carrying out this project, Manning
Canning faced one or more technological uncertainties, and if it did whether it
addressed them utilizing a scientific methodology. It is the Minister’s position that
Manning Canning did not meet any technological uncertainties in the course of the
project, but rather carried on product development, utilizing non-scientific
procedures.Page: 2
The relevant portion of the definition of SR&ED in subsection 248(1) reads
[3] as follows:
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...
(c) experimental development, namely work undertaken for the purpose of
achieving technological advancement for the purpose of creating new, or
improving existing materials, devices, products or processes, including
incremental improvements thereto….
[4] In Clevor Technologies Inc. v Her Majesty the Queen 2019 TCC 166 at
paragraph 11, Justice Russell listed the five questions for determining whether
activities constitute SR & ED, which were introduced by then Chief Justice Bowman
in Northwest Hydraulic Consultants Ltd. v The Queen, [1998] 3 CTC 2520 and
adopted by the Federal Court of Appeal in C.W. Agencies Inc. v The Queen, 2001
FCA 393 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 SR&ED formulate hypotheses
specifically aimed at reducing or eliminating that technological uncertainty?
3) Did the procedure adopted accord with the total discipline of the scientific
method including the formulation, testing and modification of the 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?
[5] I will examine each of these questions below in the context of the facts as
determined at trial. First, I would like to introduce the witnesses who appeared at
trial. Each party called one witness. Manning Canning called Christine Manning
who described herself as the founder and owner of Manning Canning. She noted that
she is not a food scientist but she testified that she has a deep knowledge of
consumer-packaged goods, having previously worked in marketing for a
consumer-packaged goods company. Since forming Manning Canning in 2014 she
has fully developed a line of preserves which Manning Canning produces and sellsPage: 3
to retailers such as Whole Foods, Loblaws and Metro. She testified that through her
experience, she has gained a solid understanding of the processes and approaches
required in the area of developing food and beverages, and for this project she
worked with food scientists to fill in any knowledge gaps where she felt they were
apparent. I found Ms. Manning to be a reliable and credible witness.
[6] The Respondent called Rehmat Chakera Nazarali who testified that she works
as a Research and Technical Advisor (“RTA”) for the Canada Revenue Agency (the
“CRA”). She said that she has worked in that capacity for nine years. She explained
that she is the RTA who was assigned to review Manning Canning’s file for the 2020
taxation year. I found Ms. Nazarali to an honest and dedicated public servant who
provided the Court with forthright and detailed explanations of the processes she
followed and the conclusions she arrived at during the course of the audit. In her
testimony, she demonstrated that she is well-versed in the CRA’s policies and
procedures with respect to the administration of the SR&ED program.
[7] Before turning to an examination of the five questions listed above, I note that
in his Northwest Hydraulic decision, then Chief Justice Bowman described the intent
of Parliament in enacting the SR&ED program and the approach that courts should
take in interpreting the enacting provisions because of that intent as follows:
[11] The tax incentives given for doing SRED are intended to encourage scientific
research in Canada (Conoltex Inc. v R. (1997), 97 D.T.C. 724 (T.C.C.)). As such,
the legislation dealing with such incentives must be given “such fair, large and
liberal construction and interpretation as best ensures the attainment of its objects”
(Interpretation Act, section 12).
III. ANALYSIS
[8] I will now consider the five requirements in turn.
(1) Technological Uncertainty
[9] To qualify as SR&ED, a particular project must face a technical risk or
uncertainty that cannot be resolved or addressed by routine engineering or standard
procedures.
[10] Ms. Manning explained that the objective of the project undertaken by
Manning Canning in the 2020 taxation year was to develop a new product in the
growing segment of consumer-packaged goods which she described as
better-for-you sodas. The product envisioned by Manning Canning was aPage: 4
vinegar-based drink containing cold-pressed juice that could be stored and ultimately
sold in a can. In order to make the product economically viable the product had to
be shelf-stable at room temperature. It was the position of Manning Canning that
because fruit was, in Ms. Manning’s words, “dirty by nature”, there was uncertainty
as to whether it was technologically possible to develop a canned, shelf-stable drink
which contained cold-pressed juice as a main ingredient. At the time, there was no
such product on the market. The closet comparable products on the market at the
time were heat-treated and stored in glass bottles, making them much more
expensive. The evidence showed that the first attempts Manning Canning made to
develop a product that met its objective resulted in the cans exploding because the
cold-pressed juice products they were testing created microbial growth which
released oxygen.
[11] The Minister took issue with Manning Canning’s assertion that the objective
of the project was to develop a cold-pressed juice product that would be shelf-stable
at room temperature. Rather, it was the Minister’s position that the objective of the
project was to increase the shelf-life of the product without using pasteurization. The
evidence showed that within the industry a product is considered to be shelf-stable
if it can remain stable at room temperature for a period of at least two years. It would
have been a more modest objective to merely increase the shelf-life of a product
which either Manning Canning or a competitor had already developed. Moreover, if
the objective of the project was to merely increase the shelf-life of the product, in
the view of the Minister, it was then more likely that the objective could be reached
by developing a refrigerated, as opposed to a non-refrigerated, drink. Since in the
Minister’s view, refrigeration is a well-known method for reducing the growth of
yeast, bacteria and mold, the project could not have faced an uncertainty that could
not have been resolved by routine engineering.
[12] In support of its view of Manning Canning’s objective in undertaking the
project, the Minister emphasized that Manning Canning’s description of the project
set out in the Schedule T-661 form it submitted to the CRA in support of its SR&ED
claim (the “Schedule”), did not specifically state that the objective of the project was
to develop a non-refrigerated product. I am not persuaded by this contention. I
acknowledge that the description of the project in the Schedule did not specify that
the objective was to develop a non-refrigerated product. However, it also did not
state that the objective was to develop a refrigerated product. In the Schedule,
Manning Canning said that its trials included observations of cans stored at both
refrigerated temperatures and room temperatures. In both her examination-in-chief
and cross-examination Ms. Manning was firm that the objective at the outset of the
project was to develop a cold-pressed juice product that would be shelf-stable atPage: 5
room temperature. She said that the trials Manning Canning conducted included both
refrigerated cans and non-refrigerated cans because they were trying to test the
product under various conditions, but the overriding objective remained constant
throughout.
[13] I accept Ms. Manning’s evidence that the objective of the project was to
develop a vinegar-based product with cold-pressed juice that could be shelf-stable
in a can at room temperature and that due to the microbial growth caused by the
presence of the cold-pressed juice, this objective presented Manning Canning with
a serious challenge. It was far from certain when Manning Canning started the
project the steps that would be necessary to meet this challenge or in fact, whether
the challenge could be met at all. However being faced with an uncertain path
towards an objective is not, in and of itself, enough to qualify a project as SR&ED.
A taxpayer must also be able to prove, on a balance of probabilities, that the
uncertainty could not be resolved though routine engineering or standard procedure.
[14] It is the Minister’s position that Manning Canning failed to discharge this
burden. The Minister takes the view that Manning Canning’s attempts to overcome
the challenges manifested by exploding cans amounted to experimentation with
preservatives that were generally available to competent professionals in the field,
including potassium sorbate, sodium benzoate and Chiber. Ms. Manning said that
after initial testing Manning Canning quickly moved away from potassium sorbate
and sodium benzoate as they caused the product to take on a milky appearance that
did not have the taste Manning Canning desired.
[15] However, Manning Canning took a different position with regard to the
substance called Chiber. Ms. Manning testified that Chiber is an extract from white
button mushrooms that could be used as an all-natural preservative. It is produced
by a Canadian company called Chinova Bioworks. Ms. Manning testified that she
and her team uncovered Chinova Bioworks and Chiber after extensive research. She
explained that after speaking with Bioworks, she discovered that previously, Chiber
had only been used in dairy products and had never been used in the type of product
that Manning Canning was attempting to develop. However, after conferring with
Chinova Bioworks, Manning Canning decided to begin a series of tests with Chiber
in their product. Manning Canning discovered that it worked to decimate microbes
in its product. This solved the problem of the exploding cans and ultimately was key
to Manning Canning successfully bringing a product that met its objectives to
market.Page: 6
[16] In Joel Theatrical Rigging Contractors (1980) Ltd. v Her Majesty the Queen
2017 TCC 6 at paragraph 17 Justice Sommerfeldt acknowledged that there is not a
definitive definition of the term “routine engineering”. However, he noted that the
term typically “describes techniques, procedures and data that are generally
accessible to competent professionals in the field”. In Canafric Inc. v His Majesty
the King 2023 TCC 108 at paragraph 89, then Chief Justice Rossiter said that “the
lacking knowledge must exist in the base of scientific or technological knowledge,
not simply be unknown to the claimant.”
[17] I accept Ms. Manning’s evidence that prior to the testing that Manning
Canning conducted with Chiber to stabilize Manning Canning’s juice based product,
Chiber had not been used by food scientists including those working for Chinova
Bioworks, outside of dairy. The introduction of Chiber was key to the successful
development of the product as the other more readily known preservatives in the
industry that were tested by Manning Canning to resolve the exploding cans issue
did not produce satisfactory results. Accordingly, the testing of the preservative
Chiber outside of its known application to dairy did not constitute routine
engineering. I therefore conclude, on a balance of probabilities, that in undertaking
the development of their cold-pressed juice drink, Manning Canning faced a
technological uncertainty that could not be resolved by routine engineering or
standard procedure.
(2) Formulation and Testing of Hypotheses
[18] In his decision in Joel Theatrical Rigging Contractors (1980) Ltd.,
Justice Sommerfeldt, after reviewing the jurisprudence that considered the meaning
of the word “hypothesis” concluded at paragraph 26 that a hypothesis is a statement
to be tested by an experiment or a trial. Ms. Manning testified that throughout the
project undertaken in the 2020 taxation year, there were numerous suppositions,
which Manning Canning developed and then set about testing. For example,
Ms. Manning testified that at some point in the development of the product, she and
her food scientists determined that they could achieve shelf stability for her drink
through the use of a preservative as opposed to the process of heat pasteurization,
which was a more widely used method. This led to Manning Canning conducting
tests with potassium sorbate, sodium benzoate and ultimately Chiber. I therefore
conclude that Manning Canning formulated hypotheses throughout the development
of their product aimed at eliminating a technological uncertainty which it then tested
by experimentation or trial.
(3) Scientific MethodPage: 7
[19] It was the Minister’s position that Manning Canning had not undertaken a
systematic investigation or search in the development of its product.
[20] At paragraph 33 of Joel Theatrical Rigging Contractors (1980) Ltd.,
Justice Sommerfeldt summarized the characteristics which must be present in order
to demonstrate that a scientific method had been adopted, as follows:
The third requirement indicates that the procedures used should accord with
established and objective principles of the scientific method, which is characterized
by:
• trained and systematic observation,
• measurement and experiment, and
• the formulation, testing and modification of hypotheses.
[21] I find that the first characteristic was present. In her testimony, Ms. Manning
described the systematic method followed by Manning Canning throughout the
project as follows:
“…We worked with a food scientist, Hale Foods, who has over 35 years of
experience internationally, as well in Canada, of bringing complex food products
to the marketplace. And we worked very closely with him on setting up a system
of tests that we would implement.
So we would test one thing. If that was successful, we would then move to the next
set of tests that he had developed. If that was not — if that was not successful, we’d
go back and look at the alternatives. If it was successful, we’d move on to the next
test. So I would say that we followed as fairly — quite systematic approach to
bringing this product to market.”
[22] Secondly, the evidence showed that there was measurement and experiment.
In further describing the process that was followed, Ms. Manning in her testimony
stated as follows:
“…So we would measure out volumes of the concentrate, combined with water and
different levels of carbonation, to see how all three components worked
together…So Brix is the level of sugar that a product has. And the higher the level
of sugar, the - - the more likely the shelf-life is going to be. Sugar acts as a great
preservative. And the pH is the acidity level of the product.”
[23] Ms. Manning’s statement that they would measure out the volumes of the
concentrate, combined with water and different levels of carbonation is supportedPage: 8
by the documentary evidence that was submitted at trial which records various
experiments completed on various dates with varying measurements of concentrate
and water used as well as the resulting pH and Brix levels.
[24] Concerning the third characteristic of the use of the scientific method,
Ms. Manning in her testimony provided various examples of the formulation, testing
and modification of various hypotheses. One such example is the following:
“One of our most expensive experiments was we thought we would do a small test
run — this was before the discovery of Chiber — to see if the concentrate would
be stable. Because one of our hypothesis was in a can, because there was no light
present that that — the darkness might limit the microbial growth. So we did a test
run in cans to see if we could maintain shelf stability, refrigerated. Everything —
all our experiments started off refrigerated. And then when we proved it would be
successful refrigerated, we moved to ambient temperatures. So our most expensive
experiment was doing a test run in cans and that failed even in refrigerated
temperatures.”
[25] The evidence showed that when Manning Canning discovered that darkness
would not impede microbial growth in the cold-pressed juice product it wanted to
develop, it modified to experiment with various preservatives, including Chiber.
[26] Accordingly, I find that on a balance of probabilities, Manning Canning
adopted a scientific method in carrying out the project.
(4) Technological Advancement
[27] In Northwest Hydraulic Consultants Ltd., then Chief Justice Bowman
expressed the view that this question may be answered in the affirmative if the
process at issue resulted in an advancement of general understanding. At
paragraph 16(4)(a), he wrote:
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 China, may
have made the same advance but his or her work is not generally known.
[28] Given Ms. Manning’s long experience in the field of food and beverage
production and marketing, which was not challenged by the Minister, I accept her as
a person knowledgeable in that field. Further, I accept her evidence that inPage: 9
undertaking the project Manning Canning sought to fill what she described as a gap
in the good-for-you beverage industry, by attempting to create a shelf-stable, canned,
cold-pressed fruit juice-based beverage. In order to accomplish this, Manning
Canning was not able to follow a precedent or to reverse engineer a competitor’s
product, as such product did not exist. Rather, through a series of experiments
developed with its food scientists and with the assistance of Chinova Bioworks, who
worked with Manning Canning to develop a new application for its unique
preservative, Chiber, it successfully found a way to fill that gap. The evidence
showed that the resulting product, Chrisoda, was ultimately brought to the market
place, demonstrating to those in the food and beverage field that a canned,
cold-pressed juice, shelf-stable product was technologically possible to produce. I
therefore find that, on a balance of probabilities, the general knowledge of those in
that field was advanced through the scientific methodologies and efforts pursued by
Manning Canning.
(5) Record of Hypotheses, Tests and Results
[29] As Justice Sommerfeldt noted in paragraph 46 of Joel Theatrical Rigging
Contractors (1980) Ltd. some cases have suggested that a written contemporaneous
record of hypotheses tested and results kept may not be absolutely essential. For
example, in Les Abeilles Service de Condtionnement Inc. v The Queen
2014 TCC 313 at paragraph 94, Justice Jorré stated that although the existence of
contemporaneous documentation may be necessary to resolve factual disputes
between the parties, “the existence of contemporaneous documentation, or
contemporaneous documents with specific intent, is not a condition to the
recognition of scientific research or experimental development.” The Minister
challenged the existence of adequate documentation to support Manning Canning’s
contention that it followed the scientific method. However, I accept Ms. Manning’s
testimony that that throughout the 2020 taxation year, the company maintained
contemporaneous documents sufficient to enable it to record its hypotheses, the
testing it completed in furtherance of such hypotheses and the results of such tests.
Ms. Manning said:
“We have numerous files. Every single step along the way we would put what our
hypothesis was, what we were testing and what the results were, and what actions
we’d be taking based on those results.”
[30] At trial Manning Canning introduced as evidence in support of this statement,
what was described as a sampling of records that indicated the dates on which
various tests were carried out, the hypothesis of such tests and the test results. WhilePage: 10
the records submitted may be difficult for someone unfamiliar with the goals,
methods and research path followed by Manning Canning to decipher, it is important
keep in mind that the purpose of such documentation is to enable the party
conducting the research to keep track of the hypotheses formulated, the tests
conducted and the results of such tests to facilitate proper follow up action. Ms.
Manning’s testimony indicated that the documentation kept by Manning Canning, a
sampling of which was submitted at trial, fulfilled this purpose. I accept that
evidence.
IV. CONCLUSION
[31] I therefore find that on a balance of probabilities, Manning Canning
successfully discharged its burden to answer the five questions referred to above in
the affirmative. The project undertaken by Manning Canning in the 2020 taxation
year accordingly qualifies as SR&ED. This appeal, brought under the Court’s
informal process, is thereby allowed without costs, and the assessment at issue in
this appeal is referred back to the Minister for reconsideration and reassessment.
These Amended Reasons for Judgment are issued in substitution of the
Reasons for Judgment dated December 13, 2024.
Signed at Québec City, Québec, this 17th day of January 2025.
“J. Scott Bodie”
Bodie J.CITATION: 2024 TCC 159
COURT FILE NO.: 2023-2126(IT)I
STYLE OF CAUSE: MANNING CANNING KITCHENS INC.
v. HIS MAJESTY THE KING
PLACE OF HEARING: Toronto, Ontario
DATES OF HEARING: October 29 and 30, 2024
REASONS FOR JUDGMENT BY: The Honourable Justice Scott Bodie
DATE OF JUDGMENT: December 13, 2024
DATE OF AMENDED
January 17, 2025
REASONS FOR JUDGMENT:
APPEARANCES:
Agent for the Appellant: Julie Bond
Counsel for the Respondent: George Lin
AGENT OF RECORD:
For the Appellant:
Name: Julie Bond
Firm: Bond Consulting Group
920 The East Mall, Suite 300
Etobicoke, ON M9B 6K1
For the Respondent: Shalene Curtis-Micallef
Deputy Attorney General of Canada
Ottawa, Canada
