Tuna Temple Inc. has lost its appeal over research and development tax deductions and investment tax credits for 13 projects, after the Federal Court of Appeal ruled that a credible witness did not, by itself, establish that the work qualified.
In Tuna Temple Inc. v. Canada, 2026 FCA 175, decided October 21, 2026, the court upheld the Tax Court of Canada’s dismissal of the company’s challenge to reassessments for its 2005 through 2009 taxation years. The appeal was dismissed with costs; the reasons do not set a dollar amount.
Thirteen projects failed the eligibility test
The company undertook 14 projects during those years and treated them as scientific research and experimental development, commonly called SR&ED. It deducted project expenses and claimed investment tax credits under the Income Tax Act.
Following an audit, the Minister of National Revenue concluded that 13 of the projects did not qualify and disallowed the corresponding deductions and credits. The Tax Court upheld that result in 2025 TCC 183.
The appeal court said the Tax Court had correctly identified the established five-part framework for determining whether work qualifies as SR&ED. The problem was not a failure to use the proper legal test, but the company’s failure to meet it on the evidence.
For each disputed project, the Tax Court had found shortcomings in more than one criterion. There was no hypothesis; the work used existing technology and processes; the approach was trial and error rather than systematic investigation; records were inadequate; and the company had not established a gap in the industry’s knowledge.
Those were factual findings. To overturn them, the company had to establish a palpable and overriding error, a demanding appeal standard requiring more than disagreement with how the trial court assessed the case.
Credibility was not enough
The company’s central argument was that the Tax Court had found its witness credible. According to the company, the witness described the projects’ structure and methodology and explained that technological uncertainty arose because the company was trying to break new ground in its industry.
It argued that cross-examination had not displaced that evidence and that the Crown had not called a witness to contradict it. The appeal court held that this did not demonstrate an error in the Tax Court’s decision.
The distinction was between believing a witness and finding that the evidence actually answered the factual assumptions behind a tax assessment. The taxpayer initially bears the burden of refuting those assumptions, which it can do by presenting evidence that establishes a prima facie case that they are wrong.
Here, the Minister had assumed, among other things, that the company had not undertaken work to overcome technological uncertainties or scientific knowledge gaps through systematic investigation. The Tax Court had not treated those assumptions as evidence. Instead, it had examined whether the company supplied enough evidence to contradict them and found that it had not.
Crown did not need a competing witness
The appeal court also rejected the suggestion that the Minister had to introduce separate evidence. The Minister could rely on the taxpayer’s documents and witness testimony, including evidence obtained through cross-examination. The Tax Court’s task was to assess the whole evidentiary record, which it had done.
The result leaves the reassessments undisturbed for the 13 disputed projects. It does not establish that credible testimony is irrelevant to an SR&ED claim. Rather, it shows why credibility alone cannot substitute for evidence that addresses the eligibility criteria and the particular factual basis of the assessment.
