When it comes to SR&ED claim preparation, it’s essential to understand the key differences between an SR&ED project and a company’s R&D activities. Below is a brief summary of the differences between SR&ED projects versus company R&D projects.

SR&ED Project vs. Company R&D Project: Key Differences

SR&ED Projects focus on achieving scientific or technological advancements, aimed at resolving scientific or technological uncertainties. Company R&D Projects tend to be broader in scope. Company R&D projects may contain eligible SR&ED work but also include other aspects that are not SR&ED eligible such as market assessment of the new product being developed, researching existing solutions in the marketplace and commercialization activities of the new product development including customer feedback, ramping up production, pricing and dealing with costing with suppliers. 

A SR&ED project is framed by the technological uncertainty. This means a SR&ED project starts when the technological uncertainty has been identified, and the project ends when the technological uncertainty is resolved.

It is therefore important to carve out the eligible SR&ED work from the overall company R&D project.

What Qualifies for SR&ED?

The SR&ED program has been in place since 1985. The definition of SR&ED is based on the definition contained in the Frascati Manual. The Frascati Manual is a document that collects international statistics on R&D using an internationally accepted definition of R&D. The Canadian Income Tax, Canada Revenue Agency (CRA) and the courts have generally accepted this definition.

The SR&ED claim preparation process is defined by five key eligibility tests:

• Was there scientific or technological uncertainty?
• Did the effort involve formulating hypotheses to resolve this uncertainty?
• Was the approach systematic, including hypothesis testing through experiments or analysis?
• Was the effort undertaken to achieve a technological advancement?
• Were records kept of the hypotheses tested and the results?

Recently CRA has soften these tests and tried to convey the eligibility requirements in simpler terms. CRA now ask “Why and How” did you carry out this project? In our opinion, however, it is the test of technological uncertainty that is the most important criteria.

We say this because it is the technological uncertainty that starts and ends a SR&ED project. It is the resolution of the technological uncertainty that creates the technological advancement and resolving the uncertainty gives rise to systematic investigation. Identifying the technological uncertainty is key, it is also the most difficult test to determine and explain in writing.

Business Problems vs. Technological Uncertainty

One of the most misunderstood aspects of what qualifies as a SR&ED project is that it is not “what” you develop but “how” you develop it.

When developing a new product or process, a business problem would be what functionality should the product or process have and how do we make it at a cost to be profitable?

A SR&ED project requires a company to identify and overcome the technical barriers and obstacles through prototyping and testing required to meet those challenges. It is not what you develop, but how you develop it.

Routine vs non- Routine

Typically, the first question CRA will ask in a review of a SR&ED claim, is what steps the company took to determine if the technology developed was already in the public domain? It is important that the key technical staff carry out due diligence to see what is in the public domain before they embark on a R&D project and note how and when this was done.

The Importance of Technical Content

Even though a company may successfully identify the technological uncertainty and advance, if the project is not properly documented, CRA will have no evidence the work was done. In this case CRA will deny the claim.

The good news is that a company does not need reams of documentation. What is important is knowing what and how much to document. This is where RDP’s Innovation Connection Program (ICP) comes in. With RDP’s ICP, an average company only requires one staff member to spend 20 minutes each month updating the documentation for the SR&ED project.

By ensuring that all SR&ED activities are properly categorized and documented, you can avoid costly mistakes and maximize SR&ED claims.

How RDP Can Help

RDP’s service and process are designed to minimize a company’s staff time. Our proprietary process including our ICP and “maximizer” checklist ensures all eligible SR&ED projects, activities and costs are claimed. RDP also ensures the SR&ED claim is prepared in accordance with the client’s timeline so that the SR&ED refund is received as soon as possible.

Having prepared over 10,000 SR&ED claims since 1987, RDP has the knowledge, skill set and expert staff to handle any SR&ED claim.

Feel free to contact us for any assistance with SR&ED claim preparation.