Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether Manning Canning’s activities in 2020 met the definition of Scientific Research and Experimental Development (SR&ED) under the Income Tax Act.

• The central issue was whether the company encountered technological uncertainties that could not be resolved through routine engineering or standard procedures.

• The Minister contended the activities involved routine product development and did not meet SR&ED criteria due to the absence of scientific methodology.

• Key factual issue involved whether experimentation with the preservative "Chiber," not previously used outside dairy, amounted to non-routine engineering.

• Evidence and testimony assessed whether the process followed a systematic approach involving hypotheses, testing, and contemporaneous documentation.

• The Tax Court found Manning Canning satisfied all five SR&ED criteria and allowed the appeal, referring the matter back to the Minister for reassessment without costs.

Background and project objective
Manning Canning Kitchens Inc., based in Toronto, has operated since November 1, 2014 in the food and drink development, production, and consultancy business. For its 2020 taxation year ending July 31, 2020, it claimed expenditures related to the development of a vinegar-based beverage called Chrisoda as SR&ED under the Income Tax Act. The project aimed to create a canned, shelf-stable, cold-pressed juice drink. The drink had to remain stable at room temperature without heat pasteurization, which posed a technological challenge due to microbial growth caused by the cold-pressed juice.

Position of the parties
The Minister of National Revenue denied the claim, stating the activities did not meet the definition of SR&ED in subsection 248(1) of the Income Tax Act. The Minister argued Manning Canning used standard preservatives—potassium sorbate and sodium benzoate—and followed known procedures, thus not engaging in work that achieved technological advancement. It was further contended that the project objective was merely to increase shelf life rather than to develop a non-refrigerated, shelf-stable product.

Manning Canning, represented by its founder Christine Manning, asserted the project's objective was to produce a shelf-stable canned beverage at room temperature using cold-pressed juice. Early attempts resulted in exploding cans due to microbial growth. After rejecting traditional preservatives for aesthetic and taste reasons, Manning Canning identified and tested “Chiber,” an all-natural preservative derived from white button mushrooms and manufactured by Chinova Bioworks. According to Ms. Manning, Chiber had previously only been used in dairy and had not been applied to the type of beverage Manning Canning was developing.

Scientific method and experimentation
Ms. Manning testified that the company collaborated with Hale Foods, a food scientist consultancy, to devise and carry out a systematic testing process. This included a sequence of controlled experiments with measurable variables such as pH, Brix (sugar content), and carbonation levels. For instance, one hypothesis posited that the absence of light in a can might limit microbial growth. This led to a test run of refrigerated cans, which ultimately failed, prompting further experiments with different preservatives. Documented observations and results guided each subsequent test.

Policy terms and legal framework
Subsection 248(1) of the Income Tax Act defines SR&ED as a “systematic investigation or search” through “experiment or analysis” aimed at achieving “technological advancement.” The Court applied the five-question framework from Northwest Hydraulic Consultants Ltd. and Clevor Technologies Inc., used to assess whether the work involved:

1. Technological uncertainty not solvable by standard procedures;

2. Formulated hypotheses;

3. Use of scientific method;

4. Technological advancement; and

5. Proper documentation.

The Court affirmed that tax incentives for SR&ED should be interpreted broadly to fulfill their objective of encouraging scientific research in Canada.

The Court’s findings and conclusion
Justice Scott Bodie found Manning Canning’s use of Chiber, which had not previously been applied in non-dairy contexts, did not constitute routine engineering. The experiments with Chiber led to a successful resolution of microbial instability in the drink. The Court accepted that the company conducted systematic research, maintained records of hypotheses and results, and formulated and tested solutions through experimentation.

The Court held that Manning Canning met all five criteria necessary to qualify the project as SR&ED under the Act. The appeal, heard on October 29 and 30, 2024, was allowed in a judgment dated December 13, 2024. The decision was amended and reissued on January 17, 2025. The matter was referred back to the Minister for reconsideration and reassessment. The Court did not award costs.