The Manning Canning Case: A Blueprint for SR&ED Success in Food Development

The distinction between routine engineering and experimental development in SR&ED is particularly challenging in the food and beverage industry. A recent court case, Manning Canning Kitchens Inc. v. The King, highlights this fine line and underscores the difficulties companies face when claiming SR&ED credits in this sector.

Case Summary

Manning Canning Kitchens Inc. challenged the denial of SR&ED expenditures for their project aimed at developing a vinegar-based, cold-pressed juice drink. The project aimed to achieve shelf stability without pasteurization, a challenge that resulted in failures like microbial growth causing cans to explode.

The Canada Revenue Agency (CRA) disallowed the claim, asserting that the project did not involve technological uncertainties that could not be resolved through routine engineering or standard procedures. Refrigeration and the use of available preservatives were cited by the CRA as examples of available solutions.

The court ruled in favor of Manning Canning. The solution of refrigeration proposed by the CRA was quickly dismissed by the court after the claimant explained that temperature was a variable in their testing. The case therefore hinged on whether Manning Canning’s use of a novel preservative, Chiber—an extract from white button mushrooms previously used only in dairy products. The use of Chiber in a non-dairy application was deemed innovative, and the systematic approach taken by Manning Canning, including hypothesis formulation, testing, and modification, aligned with the scientific method required for SR&ED eligibility.

The Fine Line: Routine Engineering vs. Experimental Development

The Manning Canning case illustrates the challenges in distinguishing between routine engineering and experimental development in the food and beverage industry. Key factors that influenced the court’s decision included:

Technological Uncertainty: The use of Chiber, a preservative not previously applied in this context, was critical to establishing uncertainty.

Scientific Methodology: A systematic approach to problem-solving, including hypothesis formulation, testing, and modification was established by the involvement of experienced food scientists and detailed records of experiments.

Routine Engineering: Standard preservatives, such as potassium sorbate and sodium benzoate were tested. However, it was the use of Chiber—a preservative not standard for non-dairy applications—combined with a systematic approach, that went beyond routine engineering.

Challenges in Claiming SR&ED in the Food and Beverage Industry

The food and beverage industry faces unique challenges in claiming SR&ED credits. The burden to prove that the work was not routine is higher than other industries. Therefore, claimants must emphasize the novel use of ingredients and collect and analyze quantified data.

In contrast to Manning Canning, the court in Biscuiterie Dominic Inc. found the work to be routine development, citing the use of commonly available additives, reliance on supplier-provided solutions, and insufficient documentation as reasons for denying SR&ED eligibility. The court reiterated that the lack of knowledge must exist in the broader scientific or technological base, not just within the claimant’s own understanding.

Key Takeaways for Food Industry SR&ED Claims

Document Technological Uncertainties: Clearly articulate the technological challenges faced and why they could not be resolved through standard procedures.

Adopt a Systematic Approach: Ensure that the project follows a scientific methodology, including hypothesis formulation, testing, and modification. Detailed records of experiments and results are essential.

Go Beyond Routine Engineering: Testing typical ingredients and methods can be part of the project. However, having a few key elements that are novel is essential.

Leverage Expert Knowledge: Involving internal or external food scientists or technical experts strengthens the claim. The distinction here is that they drive the experiments as opposed to providing known solutions.

Conclusion

The Manning Canning case highlights the fine line between routine engineering and experimental development in the food and beverage industry. While the court’s decision provides clarity on what constitutes SR&ED eligible activities, it also underscores the importance of thorough documentation, a systematic approach, and genuine technological innovation. Companies in this sector must carefully navigate these requirements to successfully claim SR&ED credits and continue driving innovation in Canada’s food industry.