Tuna Temple, 2026 FCA 175: a credible witness does not displace the Minister's SR&ED assumptions

2026 FCA 175 · Federal Court of Appeal

Author: Sas Tullo

This is an appeal from a Tax Court decision that denied scientific research and experimental development deductions and investment tax credits to a fish processor for thirteen projects carried out between 2005 and 2009. The Federal Court of Appeal dismissed the appeal from the bench. The taxpayer’s main point was that its only witness had been found credible and had not been contradicted, so his evidence had to be accepted. The Court held that this does not follow: the question is whether the evidence was sufficient to displace the Minister’s factual assumptions, and the Tax Court was entitled to find that it was not. The case is a short, clear statement of how the burden of proof operates in SR&ED appeals.

Facts

Tuna Temple Inc. undertook fourteen projects over its 2005 to 2009 taxation years, treated them as SR&ED, deducted the expenses, and claimed investment tax credits (para 1). After an audit the Minister concluded that thirteen of the projects did not qualify and reassessed to disallow the deductions and credits associated with them (para 2). The Tax Court dismissed the appeal from those reassessments in Tuna Temple Inc. v. The King, 2025 TCC 183 (para 3).

The decision under appeal

In the Tax Court, Clark J. heard one witness, the company’s president and 45 per cent shareholder, who had been in the tuna trade since 1999 and was found credible when testifying within his area of immediate experience (TCC para 4). The company had expanded into “super frozen” fish, frozen in blast freezers on the boat and kept at minus 64 degrees Celsius, a method already used extensively in Japan (TCC para 6). The thirteen disputed projects involved cutting techniques to maximise usable portions, uniform steaks and sushi slices, additives to keep swordfish red and extend tuna shelf life, a custom slicing machine that never worked, a defrosting machine, tuna ribs and tail meat, and tuna sausages and burgers made from waste product (TCC paras 9, 23-58). The disallowed expenditures totalled $1,844,230 and the disallowed credits $715,144 over the five years (TCC para 3).

Applying the five criteria from Northwest Hydraulic Consultants Ltd. v. The Queen, approved in RIS-Christie and CW Agencies Inc. v. Canada, 2001 FCA 393 (TCC para 14), the judge found that technological uncertainty is judged by what a competent professional in the field would have known, not by what the taxpayer knew (TCC para 17), and that every project presented a problem unknown to the appellant rather than to the industry (TCC paras 59, 61). None of the batch records stated a hypothesis, the trial-and-error testing in most projects was haphazard rather than systematic, and there was no evidence of technological advancement (TCC paras 62-64). She characterised the work as a learning curve in bringing a known Japanese product to North America (TCC para 61); the expenses were ordinary business expenses, not SR&ED (TCC para 65). Had any project qualified, the wage claims would still have failed because the president had estimated project time and divided it evenly among batches (TCC para 67).

Issues

The Court had to decide whether the Tax Court made an error of law or a palpable and overriding error of fact or mixed fact and law (para 4), and in particular whether the appellant’s argument about its credible and uncontradicted witness disclosed one (paras 5-6).

Holding

The appeal was dismissed with costs (para 13). The Tax Court applied the correct test, its findings on each of the thirteen projects were findings of fact that could not be overturned absent palpable and overriding error, and it did not treat the Minister’s assumptions as evidence (paras 7-11).

The court’s reasoning

Monaghan J.A., for a panel that also included LeBlanc and Biringer JJ.A., took the standard of review from Housen v. Nikolaisen, 2002 SCC 33, at paragraphs 8, 10, 33, and 36 (para 4). The appellant’s principal argument was that the Tax Court found its witness credible, that he described the projects and the technological uncertainty involved, that his evidence was not displaced on cross-examination, and that because the Crown called no witness the evidence must be accepted (para 5). The Court answered that “accepting that argument does not establish that the Tax Court erred” (para 6).

The Tax Court had properly identified the five SR&ED criteria first articulated in Northwest Hydraulic Consultants Ltd. v. The Queen, [1998] 3 C.T.C. 2520, at paragraph 16, and approved by the Court of Appeal in RIS-Christie Ltd. v. Her Majesty the Queen, [1999] 1 C.T.C. 132, and CW Agencies Inc. v. Canada, 2001 FCA 393, at paragraph 17 (para 7). For each project it found that more than one criterion was unmet: no hypothesis, existing technology and processes, trial and error rather than a systematic approach, inadequate records, and no established gap in industry knowledge. These were findings that could not be overturned absent palpable and overriding error, “a very difficult standard to meet”, citing Benhaim v. St-Germain, 2016 SCC 48, at paragraph 38, and H.L. v. Canada (Attorney General), 2005 SCC 25 (para 8).

The Court then explained the burden. The Minister relies on assumptions of fact in assessing, and the taxpayer has the initial onus of demolishing them: Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, at paragraph 92, citing Johnston v. Minister of National Revenue, [1948] S.C.R. 486, and Kennedy v. M.N.R., [1973] F.C. 839, and Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, at paragraph 63. The taxpayer can do so by adducing evidence that raises a prima facie case that the assumptions are wrong (para 9). The Minister’s reply had assumed that the appellant did no work to overcome technological uncertainties or to dispel knowledge gaps through systematic investigation, with project-by-project detail (para 10). The Tax Court did not treat those assumptions as evidence; it asked whether the appellant had led sufficient evidence to contradict them and concluded it had not. In those circumstances “it does not matter that the witness was credible”, citing Bykov v. Canada, 2025 FCA 103, at paragraph 9 (para 11).

Nor is the Minister required to adduce evidence: Jefferson v. Canada, 2022 FCA 81, at paragraph 27, and Laliberté v. Canada, 2020 FCA 97, at paragraph 56. The Minister may rely on the taxpayer’s own documents and witnesses, including on cross-examination: Jefferson at paragraph 29 and Grenon v. Canada, 2025 FCA 129, at paragraph 262. The Tax Court considers all the evidence to determine whether the assessment is correct, as it did (para 12).

The consolidated text on the Justice Laws website shows that the SR&ED definition in subsection 248(1) and section 37 have both been amended since the 2005 to 2009 taxation years; the judicial test applied here is unchanged.

Practical implications

The decision settles nothing new about what SR&ED is, but it corrects a common litigation strategy. Claimants often assume that if their technical witness is credible and the Crown calls no expert, the Court must accept the characterisation of the work as experimental development. The Court of Appeal has said plainly that credibility and sufficiency are different questions. A witness may be entirely truthful about what the company did and still fail to show that the problem was unknown to competent professionals in the field, that a hypothesis was framed, or that the testing was systematic. Those are the Minister’s assumptions, and they stand until contradicted.

In my view SR&ED appellants therefore need evidence of the state of industry knowledge, not only of their own efforts. The Tax Court’s observation that technological uncertainty pertains to the industry rather than to a single participant (TCC para 61) is the point on which all thirteen projects failed, and nothing in the president’s testimony addressed it. Contemporaneous records that state a hypothesis and why each change was made remain the most important document in these claims.

The Crown’s choice not to call a witness carries no adverse inference where the taxpayer’s own evidence can be tested on cross-examination. Whether an application for leave to appeal was made is not verified here.

For a business owner, an honest account of hard work and many attempts is not enough. The claim has to show that the problem was one the industry could not solve with its existing knowledge, and the paperwork has to show the scientific method being followed as the work went on.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Citation and links

Tuna Temple Inc. v. Canada, 2026 FCA 175. Judgment delivered from the bench at Toronto on October 21, 2026. LeBlanc, Monaghan, and Biringer JJ.A.; reasons by Monaghan J.A. Docket A-23-26. Reasons on the Federal Court of Appeal’s site. Also on CanLII.

Decision under appeal: Tuna Temple Inc. v. The King, 2025 TCC 183, Clark J., judgment dated December 5, 2025 (heard October 27 and 28, 2025, at Oakville). Reasons on the Tax Court’s site. Also on CanLII.