CRA 2013 Software Seminar – Part 1: ‘Cutting Edge’ Software

September 27, 2013 SRED

Reference Article (>5 Years Old)

Please note that the information herein may be outdated, links could be inactive, and policies discussed may have evolved. For the most current data, consult our latest publications. If you would like us to refresh this article as it is of interest to you, please contact us.

Learn how next-generation software can be claimed as SR&ED!

In March 2013, the local CRA office of Ottawa, in combination with local business leaders, hosted an industry-specific seminar that was designed to show how software development fits within the SR&ED program. The CRA recently posted some SR&ED examples on their website, but they didn’t include any mention of software. With that in mind, below is a software case study described at the seminar.

Part 1 of this series will cover ‘Cutting Edge’ technology, part 2 will cover ‘Trailing Edge‘ software, and part 3 will provide an overview of the recent financial changes and applications to software development.

Organized by the CRA SR&ED Software Committee, the four-hour F2013 Software Seminar took place in downtown Ottawa. The committee was a bipartisan task force consisting of represented by both of the SR&ED offices, local software developers, accounting firms, and SR&ED consultants; their goal was to help communicate any potential policy changes to other Canadian companies who may be interested in claiming software under the SR&ED program.

The overall theme of the seminar was to examine ‘Trailing Edge‘ (i.e., legacy software integration/development) as well as more modern ‘Cutting Edge‘ technology. The most common suggestion the CRA received from last year’s proceedings was to create example files which could be discussed and elaborated upon. Find below a ‘Cutting Edge’ software case study.

SR&ED Case Study – ‘AppCreator’

As shown in this scenario description, this describes the development of a modern application. When reading the description, it is easy to dismiss this project as routine development because of its focus on user-related features. As style changes are explicitly excluded from SR&ED, it would be difficult to accept this project as potentially eligible. Upon further interrogation of the developers, the following information was discovered:

Rules Engine: Initially, the rules engine appeared to be eligible, as a complex series of rules was needed in order to create the associated recommendation engine with various combinations of colours/styles. However, it became apparent that there was little uncertainty in how the algorithms were structured. Yes, it required a large amount of time to create and define the rules and various scenarios, but there was very little uncertainty as to whether it would be possible to create.
Cloud Integration: There were a number of potential issues with integrating with the cloud. The CRA noted that cloud computing is becoming more commonplace, with many tools available to assist with this integration. Depending on when the work was done and what was publicly available, discussing the specific activities related to cloud computing could increase or decrease the eligibility of the claim.
Avatar Generation: Normally user interface work is not an eligible activity, but the rendering of the avatar was a necessary step for the entire project. When the company was experimenting with various clothing designs and attempting to map the images to a 3D image, they encountered a number of technological issues with respect to clipping errors in the mesh. In this scenario, the development that was required to modify and dynamically adapt the rendered image to a specified avatar size could potentially be eligible. However, the company encountered a large difficulty as the developer no longer worked at the company, and had not kept comprehensive notes on his investigation.

Cutting Edge Software – SR&ED Discussion Points

Business Logic vs. Technological Advancement: To successfully claim SR&ED, the claimant will have to be able to clearly distinguish how their rules engine/processor is different from a series of business rules which are tied together. As an example, if the engine has to recognize or learn from the input data and dynamically adapt, then there is more potential for technological advancement.

Importance of Documentation: In the example the CRA provided, there may have been some eligible work done, but the company could not confirm this as the employee no longer worked at the company. This highlights the importance of documentation to a project, so that the work can be explained and passed on to other employees or for the purpose of claiming SR&ED. In the above scenario, the company lost potentially eligible work because the employee was not following the company’s own internal processes.