Don’t be deceived by the single question: “What scientific or technological advancements did you achieve or attempt to achieve…”

When applying to the Canada Revenue Agency for Scientific Research & Experimental Development (SR&ED) investment tax credits, the information you provide in each section can ultimately decide its fate in the hands of a discerning CRA agent. Make sure you are on target for a successful application by considering the information provided below.

T661 Line 246: Scientific or Technological Advancement

Line 246 gives you 350 words to explain the “new scientific knowledge you gained or the technological advancements you achieved, or attempt to achieve” throughout the duration of your SR&ED project.1

The CRA requests you focus on the “advancement in the underlying science or technology” and avoid focusing on “how the work advanced your business or business practices”.2

So what does the CRA mean by “advancement”? Let’s look at the SR&ED Glossary definition below:

“Scientific or technological advancement is the generation of information or the discovery of knowledge that advances the understanding of scientific relations or technology. This definition encompasses the definition of scientific advancement, advancement of scientific knowledge and technological advancement.”3

If advancement enriches the “understanding of scientific relations or technology”, it will expand the knowledge base.4 The knowledge base is composed of the “existing level of technology and scientific knowledge, and consists of the knowledge of” both company sources of “technical knowledge, education, training, and experience of” a company’s personnel, “capabilities typified by its current products, techniques, practices, and methodologies (for example, trade secrets and intellectual property)” and public sources such as “scientific papers, journals, textbooks, and internet-based information sources”.5

So, if you encountered a problem which the knowledge base did not have a solution to, and you either solved the solution or eliminated a possible solution, you contributed to the knowledge base and created advancement.

However, it is very possible that your “advancement” would not meet the CRA’s definition of advancement. Advancement is not:

  • Novelty/Innovation/Uniqueness/Feature Enhancement/Increased Functionality. These properties by themselves can be achieved without scientific advancement.6 While you should focus on writing about how these features arose when demonstrating your advancement, remember that these properties do not inherently signal advancement taking place.7 An example the CRA gives is that a glow-in-the-dark potato peeler can simply have phosphorescent powder added to the handle to make it glow in the dark: prior knowledge is available about phosphorescence and no advancement takes place in the process.8 This new novelty would not be considered eligible advancement.
  • Commercial success. If your process, product, material or device enjoyed market success, this, unfortunately, does not count as advancement. A work’s success or failure “is not relevant to its eligibility” in the SR&ED program.9
  • Process optimization. Process optimization on its own is not advancement as often process optimizations with aims of “improved efficiencies, better output quality, or financial or strategic advantages” are developed “based on the existing scientific or technological knowledge base”.8 If you worked towards securing optimal conditions – “improving the material, device, product, or process” with prior knowledge – then your work is likely ineligible for SR&ED. 9

Now that you have focused on your advancement and know clearly what it is, how do you demonstrate the advancement to the CRA agent? What are they looking for in your Line 246? Here are some things that you should mindful to include:

  • Any failures/rejected hypotheses. Just because your objective was not achieved doesn’t mean advancement did not take place. The rejection of a hypothesis “is advancement because it eliminates a possible solution” by adding knowledge to the current knowledge base.12 When you realize why a “possible solution will not succeed or will not meet the desired objectives” you have achieved advancement through the rejection of your hypothesis.13 Stating that something “didn’t work” without specifying why it did not work counts as trial-and-error, which is not eligible for SR&ED.14
  • How the advancement increased the knowledge base. One of the key things to address in Line 246 is how the knowledge you generated during the course of your project helped you understand the knowledge base better: focus on “what advances you made to your existing scientific or technological knowledge base that enabled you to achieve your goals”.15 I.e., there was uncertainty which triggered the entire project – how did you gain knowledge to help solve the uncertainty by adding more information to the previously lacking knowledge base? Now that the knowledge base has been expanded, is there potential that “the new knowledge could be useful to other situations or circumstances beyond the current project in which the advance was made”?16

What not to include in your Line 246:

  • Learning. Learning is not advancement. Learning is “the acquisition and/or internalization of pre-existing scientific or technological knowledge”. 17  Remember a key part of advancement is that it must “be useful to other situations or circumstances beyond the current project”, whereas learning will just be useful for the current project at hand.18
  • Functionality alone. While functionality may have played a large role in your advancement’s contribution to the knowledge base, it must be accompanied by the knowledge that enabled your company to perform the functionality. For example, you may have discovered the “optimal processing temperatures of chemicals used in paint manufacturing environments” (knowledge) which allowed you to “process chemicals commonly found in paint manufacturing environments” at a higher hourly rate (functionality).19 The CRA asks that you focus on “advancement in the underlying science or technology” and not “how the work advanced your business or business practices”.20
  • More than 350 words. There is a word limit of 350 words for Line 246: depending on your tax software, you may be able to stretch it to 425 words.2122 Regardless, remember to state the most important information first (in case your writing is cut off by the CRA’s tax software) and keep your word count down with acronyms, symbols, and hyphenated words.23
Summary

Your explanation of advancement is vital for your project being deemed eligible for the SR&ED tax credit. Here, you are demonstrating that you did contribute to the knowledge base and that you did discover new information that was not known, or available, prior. Remember to state achievements clearly and not be afraid to show your failures. And always, always remember to place the new knowledge gained – why or why not the objective was realized – at the forefront.

What is your biggest challenge when writing Line 246? The word count? Determining whether you achieved learning or advancement? Let us know in the comments below.

Show 23 footnotes

  1. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim Guide to Form T661.” Canada Revenue Agency, https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4088/t4088-15e.pdf. Accessed 3 Sept. 2019.
  2. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim Guide to Form T661.” Canada Revenue Agency, https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4088/t4088-15e.pdf. Accessed 3 Sept. 2019.
  3. “SR&ED Glossary.” Government of Canada, 15 July 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#dvncmnt. Accessed 3 Sept. 2019.
  4. “SR&ED Glossary.” Government of Canada, 15 July 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#dvncmnt. Accessed 3 Sept. 2019.
  5. “SR&ED Glossary.” Government of Canada  https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#tbslvl. Accessed 3 Sept. 2019.
  6. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim Guide to Form T661.” Canada Revenue Agency, https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4088/t4088-15e.pdf. Accessed 3 Sept. 2019.
  7. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  8. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  9. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  10. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  11. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  12. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  13. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  14. SRED, “Learning vs. Advancement: Considerations for Line 246.” sreducation.ca, 14 Nov. 2018, https://www.sreducation.ca/learning-vs-advancement-considerations-for-line-246/. Accessed 4 Sept. 2019.
  15. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim Guide to Form T661.” Canada Revenue Agency, https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4088/t4088-15e.pdf. Accessed 3 Sept. 2019.
  16. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 3 Sept. 2019.
  17. SRED, “Learning vs. Advancement: Considerations for Line 246.” sreducation.ca, 14 Nov. 2018, https://www.sreducation.ca/learning-vs-advancement-considerations-for-line-246/. Accessed 4 Sept. 2019.
  18. “Eligibility of Work for SR&ED Investment Tax Credits Policy.” Government of Canada, 24 Apr. 2015, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html#s2_1_4. Accessed 4 Sept. 2019.
  19. SRED, “Determining if the Knowledge Base Has Been Advanced: CRA Perspective.” sreducation.ca, 19 Sept. 2018, https://www.sreducation.ca/determining-knowledge-base-advanced-cra-perspective/. Accessed 4 Sept. 2019.
  20. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim Guide to Form T661.” Canada Revenue Agency, https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4088/t4088-15e.pdf. Accessed 4 Sept. 2019.
  21. SRED, “SR&ED Hacks –  Hints for SR&ED Writing.” sreducation.ca, 18 May 2012, https://www.sreducation.ca/sred-hacks/. Accessed 4 Sept. 2019.
  22. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim Guide to Form T661.” Canada Revenue Agency, https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4088/t4088-15e.pdf. Accessed 3 Sept. 2019.
  23. SRED, “SR&ED Hacks –  Hints for SR&ED Writing.” sreducation.ca, 18 May 2012, https://www.sreducation.ca/sred-hacks/. Accessed 4 Sept. 2019.

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