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. ***
How to effectively communicate with the CRA
In SR&ED project eligibility, the most important aspect is how the project has advanced technology or scientific knowledge. This often seems counter to a company’s instinct to sell its products or ideas.
SR&ED Project Eligibility
What does it mean for a company’s products?
Businesses often communicate in terms of the features and cost-saving benefits of their applications, products, ideas or technology, despite the Canada Revenue Agency (CRA) explicitly indicating that it is uninterested in this information:
Excluded work is identified in paragraphs (e) to (k) of the definition of SR&ED, namely:
- Market research or sales promotion
- Quality control or routine testing of materials, devices, products or processes
- Research in the social sciences or the humanities
- Prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas
- The commercial production of a new or improved material, device or product, or the commercial use of a new or improved process
- Style changes
- Routine data collection1
Programmers and engineers are often taught to change how they speak to others to ensure that they don’t discuss technological aspects of their work that may be difficult for others to understand. In SR&ED, however, it is this information that is critical to determining the eligibility of a project and therefore the success of a claim. The Eligibility of Work for SR&ED Investment Tax Credits Policy emphasizes:
It is important to distinguish between a systematic approach to carrying out work and the approach that is a systematic investigation or search called for in the definition of SR&ED. The latter approach includes:
- Generating an idea consistent with known facts, which serves as a starting point for further investigation toward achieving your objective or resolving your problem. Your idea may be expressed as a possible solution to a problem, a proposed method or an approach. This can be referred to as a hypothesis.
- Testing of the idea or hypothesis by means of experiment or analysis. The idea can evolve and change as a result of testing.
- Developing logical conclusions based on the results or findings of the experiment or analysis.
- Keeping evidence that is generated as the work progresses.2
What Can You Do to Effectively Communicate with the CRA?
1. Know the difference between a business project and an SR&ED project. Previously, and briefly above, we’ve outlined the key differences between a business project and an SR&ED project. This can be simplified as follows:
- A business project sells the features of a product or idea.
- An SR&ED project sells knowledge or scientific advancement.
2. Stay away from certain words. When writing your technical narrative in the T661 to claim SR&ED, ensure that you understand how the CRA interprets particular words or phrases. Certain “red flag” words can render your claim ineligible, so don’t get caught out.
3. Ensure that you’re speaking the CRA’s language. Similar to the above, the CRA communicates using a very particular language. In the T4088 – __ the CRA encourages claimants that:
Clear and concise descriptions of the work that directly address these questions will play an important role in the CRA deciding if further review of the claimed activities is needed. This could reduce or even eliminate the need for you to submit further information and, as a result, enable the CRA to expedite your claim. Descriptions that are vague, unnecessarily lengthy, or fail to address the questions in technical terms will increase the likelihood of a further review.3
The ability to communicate effectively with the CRA about your project and the SR&ED program is key to an SR&ED claim’s success.
In summary, the CRA can be very specific in its understanding of certain terms that would be acceptable in most other contexts. The Technical Narrative of the T661 form is one of the most vital aspects of an SR&ED claim. By communicating correctly and effectively with the CRA through the technical narrative, a claim may avoid a review and ultimately, be considered eligible.
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- Government of Canada. (August 13, 2021). Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives. (Accessed: January 17, 2023.) Retrieved from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/policies-procedures-guidelines/guidelines-eligibility-work-sred-tax-incentives.html. ↩
- Government of Canada. (August 13, 2021). Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives. (Accessed: January 18, 2023.) Retrieved from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/policies-procedures-guidelines/guidelines-eligibility-work-sred-tax-incentives.html. ↩
- Government of Canada. (December 14, 2020). T4088 – Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661:
Advantages of providing clear and concise information. Accessed January 18, 2023, from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4088/guide-form-t661-scientific-research-experimental-development-expenditures-claim-guide-form-t661.html#toc11 ↩