Qualified Personnel in SR&ED (Lines 260 & 261)

October 19, 2016 SRED

Updated to Reflect New Policies (2022)

* Some of the policies referenced were updated 2021-08-13. This article has been updated and is accurate as of 2022. *

You know your workers are qualified – does the CRA?

Who you have on your team can be as important as the research itself. In order to clearly communicate your expertise to the CRA – and reduce your risk of review – this article outlines how to use lines 260 and 261 correctly.

Why do qualifications matter?

The CRA clearly states that identification SR&ED should be performed by your internal team:

An “SR&ED project” must fall within the definition of SR&ED contained in the Income Tax Act. An SR&ED project comprises a set of interrelated activities that collectively are necessary to resolve the scientific or technological uncertainties in the attempt to achieve the specific scientific or technological advancements defined for the project. This is pursued through a systematic investigation or search in a field of science or technology by means of experiment or analysis performed by qualified individuals.¹

In order to establish a technological uncertainty, a company has to first establish its knowledge base:

Scientific or technological knowledge base consists of the combined knowledge of the resources within the business and those sources that are reasonably available publicly.

The resources within the business include both:

its personnel’s scientific or technological knowledge, education, training, and experience;

its technical capabilities represented by its current products, techniques, practices, and methodologies (for example, trade secrets and intellectual property).

Publicly available sources could include:

scientific papers;

journals;

textbooks;

internet-based information sources;

expertise accessible to the business (for example, through suppliers, recruiting employees or hiring consultants or contractors).

The scientific or technological knowledge base may vary from business to business because:

their internal resources are different;

some of the public sources of knowledge may not be reasonably available to all businesses.²

…and in order to establish your knowledge base, you need to have individuals qualified to discuss the selected field of science or technology. The CRA Glossary defines “Qualified Individuals” as:

Qualified individuals are personnel who have qualifications and / or experience in science, technology or engineering. The qualifications and experience must be relevant to the science or technology involved in the projects claimed.³

Consequently, demonstrating you have qualified personnel is an important part of demonstrating you have a clearly established knowledge base and the associated uncertainties.

How do I determine if my team consists of “qualified individuals”?

If this definition of a qualified individual seems a little vague, that’s because it is – there is no set-in-stone rule concerning what constitutes a qualified individual.

That said, the interpretation is relatively straightforward: if the individual has an advanced degree in the same field of science or technology in which you are claiming an advancement, an individual is qualified to conduct the research and/or experimental development. If they do not have an advanced degree, that’s not an issue – provided they have relevant experience in the field of science or technology in question.

How do I demonstrate my team is qualified?

Clearly communicating the expertise of your team on your T661 helps establish your credibility and minimizes your chance of review. If you are selected for a review, correctly conveying this information will give the CRA confidence that those individuals who “performed, are familiar with, or are responsible for the work” will be able to discuss the complexities of the work and the importance of the associated advancements. In short, your credibility with the CRA will be higher than if the individuals in the meeting are “unqualified” or the CRA cannot determine from your forms if they are qualified.

The CRA has conveniently provided a way of communicating your expertise. Applicants have the opportunity to place up to 3 qualified personnel on lines 260 and 261:

The instructions from the T4088 – Guide to the T661 are as follows:

Lines 260 and 261 – Key individuals

Line 260 – Provide the names of key individuals directly involved in the project. You may list up to three individuals. A directly involved individual is a person that performed or directly supervised the SR&ED work described at line 244.

Line 261 – Provide the qualifications or experience and position title of the individuals listed on line 260. If any of the individuals are contractors, use contractor for their position title. The experience listed at this line should be relevant to the SR&ED work performed. ⁴

Lines 260 / 261 – Examples

Your organization has identified you are claiming an advancement in “2.02.09 – Software engineering and technology” in Line 206. You have two individuals you could list first on the form. They include:

CEO, 2 Years’ Experience, LLB (Law)
MEng (CompSci), 14 Years’ Experience, Senior Programmer.

Which do you choose?

The correct answer is: MEng (CompSci), 14 Years’ Experience, Senior Programmer. This would not raise red flags at the CRA for the following reasons:

Advanced degree (Masters)
Degree in a related field (Comp/Elec)
Relevant experience
Appropriate job title

Some individuals will argue to include the CEO, as they are the ones overseeing the project. This would be incorrect. Including CEO, 2 Years’ Experience, LLB (Law) will raise eyebrows – and possibly contribute to being selected for review – for the following reasons:

Degree does not align with field of science or technology in which advancement is being claimed
Job title implies primarily administrative/executive
Unclear whether the experience is in related field (software) or in another field (law)
Insufficient years experience if experience is applicable to field
Order does not match instructions on form (job title listed first)

(In case anyone is wondering, the example above is from an actual application. It was selected for review by the CRA. We were called in after they had been denied in full and were able to argue that they had misunderstood who needed to speak with the CRA.)

Line 260/261 – Considerations

A quick list of considerations:

Don’t:

List administrative or financial professionals whose expertise does not relate the technical aspects of the project
List employees who helped on the project, but whose qualifications are insufficient, or in another domain from the research you are doing.
Leave out qualified personnel with substantial work experience because they lack academic experience.

Do:

List technical personnel who had an important role in the SR&ED project.
List all of their qualifications, including academic and work experience.
Show how their qualifications relate to your particular field of research (be specific: an M.Sc in chemistry has a completely different skill set from an M.Sc in computer science).
Ensure the experience listed at this line should is relevant to the SR&ED work performed.

Your Success Depends on Your Credibility

The SR&ED program places an emphasis on qualified personnel because it is difficult to clearly demonstrate that you achieved an advancement to science or technology (“generation or discovery of knowledge that advances the understanding of science or technology”)⁵ if your team cannot demonstrate their knowledge base is on par with or exceeds publicly available information.

Remember: it’s not about “innovation” – that loosely used term without a clear definition, thrown around in political discussions. This is about SR&ED and demonstrating compliance with the SR&ED program parameters (specifically, that you have met the five questions). Ensuring your employees are qualified – and demonstrating their qualifications to the CRA – will help ensure a successful SR&ED application.