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. ***
What is the difference between “learning” and “advancement” when writing for line 246 in the T661?
Line 246 of Scientific Research and Experimental Development (SR&ED) Investment Tax Credit (ITC) applications asks “What scientific or technological advancements did you achieve or attempt to achieve as a result of work described in line 244?” 1 In our review of hundreds of projects, this is the section that is often filled in incorrectly. So what, exactly, is an advancement within the context of the SR&ED program? This article discusses the distinction between learning – which is not eligible – and advancement.
Learning vs Advancement in Line 246: Defining the Terms
To begin, we establish the construct of “knowledge” and “knowledge base” as, once an organization understands how the Canada Revenue Agency (CRA) defines a knowledge base, it is then possible to determine whether the work is considered “learning” (not eligible) or an “advancement” (eligible).
Merriam-Webster defines knowledge as “the fact or condition of knowing something with familiarity gained through experience or association.” 2 Knowledge can be obtained through education and work experience.
The SR&ED Glossary defines scientific or technological knowledge base as follows:
The scientific or technological knowledge base consists of the combined knowledge of the resources within the business and those sources that are reasonably available publicly.3
While each company has varying resources and experts, the publicly available sources of knowledge are the same across the board. An important step in the SR&ED process is to ensure that the current knowledge base is insufficient to solve the scientific or technological uncertainty. Establishing the knowledge base is critical for determining whether your work is eligible for SR&ED.
Learning vs. Advancement
Merriam-Webster defines learning as “knowledge or skill acquired by instruction or study.” 4 As noted in the definition of a knowledge base, this is the acquisition of knowledge that already exists – either publicly or within an organization. Within the context of SR&ED, learning is the acquisition and/or internalization of pre-existing scientific or technological knowledge. If the answer to the scientific or technological uncertainty identified can be found in the existing knowledge base, it is probable that learning has occurred.
The SR&ED Glossary defines scientific and technological advancement as follows:
What is critical to note are the two phrases that are bolded: generation of information & discovery of knowledge. In both cases, the language indicates that this is the creation of new information or discovery of new knowledge. This may be specific to the SR&ED being conducted and the hypotheses being tested but must also apply the underlying technology.
The CRA explains:
Work must be conducted for the advancement of scientific knowledge or for the purpose of achieving technological advancement (contained in paragraphs (a) to (c) of the definition). The key to both is the generation or discovery of knowledge that advances the understanding of science or technology. The type of knowledge in this context is conceptual knowledge, such as theories or prediction models, rather than just factual knowledge, such as data or measurements.6
Learning vs. Advancement: Broader Applicability
As stated above, advancement is “the generation or discovery of knowledge that advances the understanding of science or technology.”7 In the Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives, the CRA explains “The recognition that scientific or technological uncertainty exists marks the starting point for the SR&ED work, while the advancement is the targeted outcome of the work. Therefore, an attempt to resolve scientific or technological uncertainty is an attempt to achieve scientific or technological advancement.” 8 The knowledge base within the organization must be increased due to the scientific or technological advancement, but the knowledge generated should be applicable to more than the current project.
Trial and Error vs. Advancement in Line 246
The CRA states you may list the advancement you achieved or attempted to achieve in Line 246. As a reminder, knowledge can be discovered and information can be generated even if a hypothesis was disproven because it eliminated a solution. That said, the analysis of the failure must go beyond stating “it didn’t work” and attempts to analyze the reasons for the failure. If the only new knowledge generated is that an approach didn’t work, it is considered ‘trial and error’ and it is not considered eligible work. The elements required for work to be considered a proper systematic investigation, and therefore not ‘trial and error’ is explained in the Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives:
- Generating an idea consistent with known facts, which serves as a starting point for further investigation towards 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.9
It can be challenging to “develop logical conclusions based on the results or findings of the experiment or analysis” (explain how the knowledge base was increased) within the restricted word count limits of a T661 form when the hypotheses were disproven; however, it is critical to explain what new knowledge was generated when the hypothesis was disproven to demonstrate the eligibility of your work.
In conclusion, learning and advancement are both vital to a company; however, when it comes to SR&ED ITCs from the CRA, it is critical to articulate the scientific or technological advancements you achieved or attempted to achieve as a result of the work described in line 244. Only those projects with advancements (or attempted advancements) should be submitted.