SR&ED Research and Knowledge

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 an advancement.

Learning vs Advancement in Line 246: Defining the Terms

Knowledge

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.

Knowledge Base

The SR&ED Glossary defines scientific or technological knowledge base as follows:

Scientific or technological knowledge base refers to the existing level of technology and scientific knowledge, and consists of the knowledge of the resources within the company and sources 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.

(For further discussion on the knowledge base of a company, please see our blog posts on the Missing SR&ED Question and The Importance of Due Diligence.)

Learning vs. Advancement

Learning

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.

Advancement

The SR&ED Glossary defines scientific and technological advancement as follows:

Scientific or technological advancement is the generation of information or the discovery of knowledge that advances the understanding of scientific relations or technology.5

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:

Technological advancement moves the scientific or technological knowledge base of a company to a higher level through an increase in the understanding of technology. In other words, it is a discovery or gain in understanding of technological principles, techniques, and concepts beyond the existing scientific or technological knowledge base.6

Learning vs. Advancement: Broader Applicability

As stated above, an advancement is “the generation of information or the discovery of knowledge that advances the understanding of scientific relations or technology.”7 In Eligibility of Work for SR&ED Investment Tax Credits Policy, the CRA explains “One implication of advancement is that the new knowledge could be useful to other situations or circumstances beyond the current project in which the advance was made.” 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, it’s critical the analysis of the failure goes beyond stating “it didn’t work” and attempts to analyze the reasons for the failure. If all 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. This is explained further in Eligibility of Work for SR&ED Investment Tax Credits Policy:

The lesson learned in each attempt of trial and error is simply that ‘an option did not work.’

There is no further analysis of the reason why it did not work to make the lesson applicable in a broader sense.9

It can be challenging to 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 in order to demonstrate the eligibility of your work.

Summary

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.

Do you have any tips for fellow readers on how your company differentiates learning from knowledge?

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Show 9 footnotes

  1.  Government of Canada. (November 10, 2015.) T661 Scientific Research and Experimental Development (SR&ED) Expenditures Claim.  (Accessed: April 4, 2018.) Retrieved from: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t661-scientific-research-experimental-development-expenditures-claim.html.
  2.  Merriam-Webster Dictionary. (Accessed: May 6, 2018.). Retrieved from Merriam-Webster: https://www.merriam-webster.com/dictionary/knowledge.
  3.  Government of Canada. (2015, July 15). SR&ED Glossary. (Accessed: April 18, 2018.) from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#g19.
  4. Merriam-Webster Dictionary. (Accessed: April 4, 2018.). Retrieved from Merriam-Webster: https://www.merriam-webster.com/dictionary/learning.
  5.  Government of Canada. (2015, July 15). SR&ED Glossary. (Accessed: April 18, 2018.) from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#g19.
  6.  Canada Revenue Agency.  (April 24, 2015.) Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?  In Eligibility of Work for SR&ED Investment Tax Credits Policy (Chapter 2.1.4).  (Accessed: April 4, 2018) Retrieved from: https://canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html/#s2_1_4.
  7.  Government of Canada. (2015, July 15). SR&ED Glossary. (Accessed: April 18, 2018.) from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#g19.
  8.  Canada Revenue Agency.  (April 24, 2015.) Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?  In Eligibility of Work for SR&ED Investment Tax Credits Policy (Chapter 2.1.4).  (Accessed: April 4, 2018) Retrieved from: https://canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html/#s2_1_4.
  9.  Canada Revenue Agency.  (April 24, 2015.) Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?  In Eligibility of Work for SR&ED Investment Tax Credits Policy (Chapter 2.1.4).  (Accessed: April 4, 2018) Retrieved from: https://canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html/#s2_1_4.

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