Executive Summary: Key Legal and Evidentiary Issues

• The Court considered whether 13 projects undertaken by Tuna Temple Inc. for taxation years ending July 31, 2005 to 2009 met the definition of SR&ED in subsection 248(1) of the Income Tax Act, and whether related expenditures were deductible under section 37 and qualified for ITCs.

• Justice Clark found that none of the projects (other than one project already accepted by the Minister and not in issue) involved a technological uncertainty that could not be resolved through routine engineering or standard procedures.

• The Court held that the appellant’s work reflected trial-and-error business problem-solving and learning how to use existing technology, without clearly formulated hypotheses, systematic use of the scientific method, or technological advancement in the field.

• The Minister’s disallowance of claimed SR&ED expenditures of $378,843, $706,131, $173,516, $459,183 and $126,557, and related ITCs of $141,633, $267,609, $71,130, $184,889 and $49,883, respectively for the 2005–2009 taxation years, was upheld.

• The Court concluded that the uncertainties faced by Tuna Temple Inc. were subjective to its own “learning curve” in working with super frozen fish rather than objective technological uncertainties for competent professionals in the industry.

• The appeals were dismissed, with the parties given 45 days from the date of judgment to file written submissions on costs, each limited to 15 pages, and no specific monetary amount in favour of the successful party was determined in the judgment.

Background and parties

Tuna Temple Inc. (the appellant) appealed assessments for its taxation years ending July 31 in 2005, 2006, 2007, 2008 and 2009, in which the Minister of National Revenue had disallowed expenditures claimed in respect of scientific research and experimental development (SR&ED) and related investment tax credits (ITCs). The respondent was His Majesty the King. The appeals were heard in Oakville, Ontario on October 27 and 28, 2025, before the Honourable Justice Jenna Clark. Counsel for the appellant was Mark Grossman, and counsel for the respondent was Allan Mason. Justice Clark delivered judgment and reasons on December 5, 2025, cited as 2025 TCC 183.

Facts about the business and the projects

Stavros Tripis, president, chief executive officer, and 45% shareholder of the appellant, was the only witness. He had worked in the tuna processing industry since 1999, with experience in grading and selling fresh tuna, but held a bachelor’s degree in history and had no formal education in food processing. His family had been involved in the food industry. In the early 2000s, he expanded the company’s business to “super frozen” fish. Super frozen fish is frozen in a blast freezer on the fishing boat shortly after capture and kept in super freezers at -64 degrees Celsius, whereas regular frozen fish is generally stored at -18 to -25 degrees Celsius. Mr. Tripis testified that this super freeze process reduced degradation of the fish during catch and transportation, and that it had been used extensively in Japan before he brought the process to North America.

Initially, the appellant had difficulty introducing super frozen fish to North America. Early butchering attempts were problematic: super frozen tuna, normally a bright red, would turn brown or black if not cut correctly. Over time, Mr. Tripis learned how to cut the fish and sell it in quarters or “loins” to on-sellers. He then decided the company would learn to cut the fish in-house to sell directly to fish mongers and restaurants, which led to a series of projects.

The 13 projects undertaken involved: (a) developing cutting techniques to maximize usable portions; (b) producing uniform fish products (such as uniform steaks or sushi-sized slices); (c) using waste product to create items like fish burgers, sausages, or rib-type products; and (d) determining whether specialized equipment could be used effectively. One project from 2005 (Project 3 – 2005) had already been recognized by the Minister as SR&ED and was therefore not in issue.

The SR&ED legal framework applied

The Court reviewed the definition of SR&ED in subsection 248(1) of the Income Tax Act. The relevant portion for this case was “experimental development,” defined as work undertaken for the purpose of achieving technological advancement for creating or improving materials, devices, products or processes, including incremental improvements. The definition also excludes certain work, including quality control or routine testing of materials, devices, products or processes, and commercial production of a new or improved material, device or product or commercial use of a new or improved process.

Justice Clark applied the five criteria from Northwest Hydraulic, as approved in RIS-Christie and CW Agencies:

1. whether there was a technological risk or uncertainty that could not be removed by routine engineering or standard procedures;
2. whether hypotheses were formulated to reduce or eliminate that uncertainty;
3. whether the procedure followed the scientific method, including formulation, testing and modification of hypotheses;
4. whether the process resulted in technological advancement; and
5. whether detailed records of hypotheses and results were kept as the work progressed.

The Court emphasized that technological uncertainty must be assessed objectively, by considering what competent professionals in the field would know. The question was whether the problems addressed in the projects represented a search for information unknown in the industry, rather than unknown only to the appellant.

Findings on technological uncertainty and routine engineering

Justice Clark concluded that none of the projects in issue identified a technological uncertainty that could not be resolved using existing technologies and routine engineering. For example, in the 2005 projects involving cutting super frozen tuna to create high-end restaurant products and uniform-weight steaks, the Court found that determining the most efficient cutting patterns with equipment purchased from Japan did not amount to identifying a technological uncertainty. The specialized equipment was already in use in Japan. The Court compared the exercise of maximizing yield from a fish to the way a home baker might decide where to place cookie cutters on a sheet of dough to maximize the number of cookies.

Similarly, projects involving adding ingredients such as oil, rosemary, or oregano to swordfish to maintain a marketable red colour, or using antioxidants and other additives to extend shelf life of tuna, were found not to address technological uncertainties. The Court noted that super frozen tuna was already widely and successfully processed and sold in Japan, and there was no evidence that competent professionals in the field would have considered shelf life of super frozen tuna, or the use of such ingredients, to be an unresolved technological problem.

Projects aimed at cutting specific product formats—such as 5 mm “neta sushi” slices, “butter stick” pieces, or rib-in products—were also characterized as efforts to solve practical business problems (how to butcher fish to maximize usable product or meet customer specifications) by trial and error within the scope of existing knowledge and tools. The Court saw no basis to conclude that patterns or methods of cutting to maximize usable portions were unknown to competent professionals or beyond routine engineering.

Projects involving machinery, such as the custom multi-blade sushi-cutting machine and the electrostatic defrosting machine, were assessed in the same way. The appellant did not design or build these machines. The Court treated the projects as attempts to see whether purchased or custom-made equipment could be made to work for the appellant’s purposes. The fact that shafts bent or that initial use produced frozen, brown spots in the middle of the tuna did not, in the Court’s view, establish technological uncertainty. Rather, the appellant was learning how to use or adapt the equipment, which was seen as routine engineering and troubleshooting.

Use of hypotheses, scientific method, and records

The Court accepted that the appellant kept handwritten batch logs for nearly all projects. These often recorded the date, a brief description of the method used (including diagrams of cutting patterns), approximate worker time, and results (for example, yields or comments such as “Great” or “try again”). In projects involving product development with ingredients, the logs recorded which ingredients or combinations were used and whether the products were acceptable in taste and texture.

However, Justice Clark found that these records did not show that the appellant formulated hypotheses specifically aimed at reducing or eliminating an identified technological uncertainty. The logs did not present a clear, scientific hypothesis for each project, nor did they show how each new batch was designed in response to conclusions drawn from previous tests to refine or test that hypothesis. The Court described the appellant’s trial-and-error approach in many projects (including 1-2005, 2-2005, 4-2005, 1-2006, 2-2006, 4-2006, 5-2006, 1-2008, 2-2008 and 1-2009) as haphazard rather than systematic. The approach was generally: if one attempt did not work, another approach or ingredient was tried, without a clearly articulated rationale linked to a formal hypothesis.

Assessment of technological advancement

On technological advancement, the Court found that the appellant produced no evidence that its work added to the knowledge of specialists in the field. Justice Clark concluded that, in all 13 projects, the appellant’s work used existing technologies and processes and resolved problems that were “objective” only in the sense of the appellant’s business needs, not in the sense of advancing technological understanding in the tuna-processing industry.

The Court noted that the super frozen product and its processing were already well known in Japan. The appellant needed to learn how to market and sell super frozen fish products in North America and how to use or adapt existing tools and ingredients for its own operations. Justice Clark described these projects as part of a learning curve. The Court held that technological uncertainty pertains to the relevant industry rather than a single participant, and there was no evidence that any of the 13 problems identified by the appellant represented technological uncertainty at the industry level.

Project examples illustrating the Court’s reasoning

Throughout the reasons, the Court used project-specific examples to illustrate why SR&ED was not established. In Project 1 – 2005, the appellant experimented with cutting methods to create tuna products for high-end restaurants, using machinery sourced from Japan and ultimately achieving a 32% yield. The Court accepted that the appellant faced a genuine problem and engaged in trial-and-error testing but held that there was no technological uncertainty beyond what existing technology could solve.

In Project 2 – 2005, the appellant developed a way to cut super frozen tuna into uniform-weight steaks (150 to 175 grams) for a major supermarket chain, achieving a 37% yield and concluding the project was “done.” The Court found no technological uncertainty and no scientific hypothesis; the problem was a straightforward commercial one, resolved by trial and error.

In the “shelf life” project (Project 1 – 2006), involving defrosting tuna in 102-degree Fahrenheit water with 3% salt content and testing combinations of vegetable oil, rosemary, oregano, and vitamin E as antioxidants, the Court found insufficient evidence that the problem of extending shelf life involved technological uncertainty unknown to competent professionals. The batch records did not set out a clear hypothesis or address the scientific causes of oxidation.

Similarly, projects in 2008 that aimed to use waste product to produce tuna sausages and burgers involved experimentation with combinations of previously unused tuna parts and various spices and binding agents, with staff taste-testing outcomes. The Court held that developing a recipe that satisfied the appellant’s taste and texture criteria did not amount to addressing technological uncertainty, particularly where service providers had already demonstrated an ability to make such products, even if the appellant found the initial versions unsatisfactory.

Summary of the Court’s SR&ED conclusion

Justice Clark summarized the SR&ED conclusion by stating that the appellant’s work in all 13 projects used existing technology and processes to solve problems that were subjective to the appellant’s needs and learning. The judge stressed the distinction between information unknown to the appellant and information unknown in the field. In each case, the Court found that resolution of the problems was reasonably predictable using standard procedures and routine engineering, and that there was no evidence of new technology, new processes, or technological advancement beyond what specialists in the field would already know.

The Court also observed that, while the appellant maintained trial-and-error records, these generally lacked clearly formulated hypotheses and detailed conclusions from each test. Notations such as “try again” reflected an iterative commercial approach but did not amount to the disciplined scientific method required for SR&ED.

Expenditures, ITCs, and quantification issues

The appellant had elected the proxy method under section 37 of the Income Tax Act, with qualified expenditures as defined in subsection 127(9), and the prescribed proxy for salary set out in subsection 2900(4) of the Income Tax Regulations as 65% of salary or wages of employees directly engaged in SR&ED. Section 127.1 governed refund of ITCs.

The Minister disallowed SR&ED expenditures for the taxation years ending July 31 of 2005, 2006, 2007, 2008 and 2009 in the amounts of $378,843, $706,131, $173,516, $459,183 and $126,557, respectively. Corresponding disallowed ITCs were $141,633, $267,609, $71,130, $184,889 and $49,883 for those same years. The Court upheld these disallowances because none of the projects (other than the one already accepted and not in issue) met the SR&ED criteria.

On quantification, the Court found that Mr. Tripis’s estimates of hours worked were not reliable. He admitted that he estimated the total time spent on a project and then divided this time evenly among batches. The Court was not satisfied that this method accurately reflected the time employees spent on SR&ED activities. Although the Court did not see documentation to substantiate materials, subcontracting payments or capital expenditures, it accepted Mr. Tripis’s testimony as credible regarding material expenses. Justice Clark stated that, had any of the projects qualified as SR&ED, the appellant would have established that material expenses were incurred, but would not have discharged its burden regarding wage expenses for the relevant years.

Overall outcome and successful party

In conclusion, Justice Clark dismissed the appeals. The appellant was not entitled to deduct the claimed expenditures as SR&ED under section 37, and the corresponding ITCs under subsection 127(9) and related provisions were not available. The Court remarked that the appellant would have been entitled to expenses related to these projects as business expenses, as they were undertaken to maximize productivity and profit, but not as SR&ED.

The respondent, His Majesty the King, was therefore the successful party. The judgment did not state any exact monetary amount ordered or granted in favour of the respondent beyond upholding the disallowed SR&ED expenditures and ITCs in the amounts specified for each year. The parties were granted 45 days from the date of the judgment to file written submissions on costs, with each side’s submissions limited to 15 pages.