Do you really know what to add to Line 242 regarding your scientific or technological uncertainty? It may surprise you.

In the Canada Revenue Agency’s T661 SR&ED Tax Claim form, you’re asked to chart your technical narrative, beginning with your encounter with uncertainty. In Line 242, the T661 asks what “scientific or technological uncertainties did you attempt to overcome” during your claimed project.1  Possibly the most confused term in the SR&ED world, uncertainty is something you must understand the meaning of to create a strong, clear SR&ED report.

The CRA says a “scientific or technological uncertainty” is…

The CRA claims uncertainty occurs when whether a “given result or objective can be achieved or how to achieve it, is not known or determined on the basis of generally available scientific or technological knowledge or experience”.2 This would occur in the following way: first, you encounter a problem. Secondly, you realize, after exhausting the entire knowledge base available to you, that no solution exists or is available. You don’t even know if a solution can be “achieved at all”; you aren’t sure what “paths, routes, approaches, equipment configurations, system architectures, or circuit techniques” to use to find your solution.3

There are two different forms of uncertainty: in the area of basic/applied research, there is scientific uncertainty and in the area of experimental development there is technological uncertainty.4

The CRA says “scientific or technological uncertainty” isn’t…
  • Complexity: just because there was “complexity” at the onset of your project does not necessarily mean there was “technological uncertainty”.5 This said, if you are unsure how the “the integration of technologies” will result, despite the components being well-known, this is a type of valid uncertainty dubbed “system uncertainty”.6 Given that it is “impossible to predict how the integrated system will perform due to unforeseeable adverse interactions”, system uncertainty arises from “the modules or components acting as an integrated system”.7 Since you may undertake experimentation to establish how to resolve these uncertainties, this counts as SR&ED and is separate from complexity.
  • A cost target. While you may feel that your biggest problem is the bottom line, the CRA does not feel the same way. Despite the cost target sitting on your back, “cost targets on their own do not create scientific or technological uncertainty”.8 It is the methods that you take to meet the cost target that create uncertainty: for example, “although more costly and proven alternatives exist”, your cost target may force you to choose an uncertain technological route to meet your objective.9 However, if you’re uncertain how a product, process, material, device, etc., will fare in the market place, this doubt about commercial success is not scientific or technological uncertainty.10
  • A technical problem. A technical problem is where “the existing scientific or technological knowledge base is sufficient to resolve the problem” and no technological advancement occurs when you achieve your objective.11 In the case of the “creation of a new or improved product or process” where there were “no lacking scientific or technological knowledge or principles that prevented you” from creating the new-and-improved product/process, this would not be considered uncertainty. 12
  • Development work. Development work lacks the crucial uncertainty of SR&ED: it is the “application of the existing scientific or technological knowledge base”.13 Since the existing knowledge base provides sufficient information to solve the problem, development work is not working to overcome uncertainty.
When writing your response for Line 242, make sure you include:
  • The “objective of the project” is essential to include in Line 242. 14 The T4088 advises that you describe “the scientific knowledge or the new or improved capability you were seeking”.15 A complete Line 242 will address this detail. Plainly state what you were trying to achieve and how the uncertainty prevented you from achieving that objective.
  • Why it was not possible to reach your objective is also essential to include.16 You must establish “why something became a technological obstacle requiring a desired technological objective and experimental development.”17 This means including a description of the “scientific or technological knowledge base at the onset” and how the shortcomings or limitations” represented uncertainty in your SR&ED project.18
When writing your response for Line 242, make sure you leave out:
  • The word “product” or any commercial sounding language. An SR&ED report with commercial language is an SR&ED report with a target on its back. While it is difficult to write about basic/applied research or experimental development in a commercial setting without including any commercial language, you must be cautious and discerning when selecting your words. Red-flag words in your SR&ED narrative can cost your company thousands of dollars.19
  • Any more than 350 words. The CRA has a strong 350 word limit for Line 242: so be clear, concise, and make sure you format your narrative correctly.20 Due to disparities between the CRA’s tax software and the one you are using to write your claim (read more on that here and here), you may be able to fit approximately 425 words into the “50 lines” you are given by your professional tax software.21 Regardless, keep it short. There are multiple ways of decreasing your overall word count, like using acronyms, hyphenated words (which count as one word) or symbols.22 Ensure that you address the most important information first, just in case your words are truncated (cut off by the CRA’s tax software).23
Summary

Your technical narrative plays a big role in your SR&ED report. Eradicate any commercial language or excessive words, and ensure you focus on the big questions being asked. Your Line 242, where you address your uncertainty, points out the need for advancement, which you tried to achieve (in Line 244), and how the advancement helped overcome the uncertainty (Line 246). Keep the whole narrative in mind when writing Line 242 as you could easily consider it to be the opening of your SR&ED narrative.

What are your thoughts on Line 242? Let us know in the comments below.

 

Show 23 footnotes

  1. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim.” Canada Revenue Agency, 10 Nov. 2015, https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t661.html. Accessed 3 Sept. 2019.
  2. ”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#ncrtnty. Accessed 2 Sept. 2019.
  3. “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_1. Accessed 2 Sept. 2019.
  4. “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_1. Accessed 2 Sept. 2019.
  5. “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_1. Accessed 2 Sept. 2019.
  6. “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_1. Accessed 2 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_1. Accessed 2 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_1. Accessed 2 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_1. Accessed 2 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_1. Accessed 2 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_1. Accessed 2 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 2 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#2_1_1. Accessed 3 Sept. 2019.
  14. “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.
  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 4 Sept. 2019.
  16. Lance, Elizabeth. “5 Red Flags That Cost Thousands in SR&ED.” 22 July 2011,  https://www.sreducation.ca/sred-claim-stylistic-tips/. Accessed 3 Sept. 2019.
  17. Lance, Elizabeth. “5 Red Flags That Cost Thousands in SR&ED.” sreducation.ca, 22 July 2011,  https://www.sreducation.ca/sred-claim-stylistic-tips/. Accessed 3 Sept. 2019.
  18. “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.
  19. Lance, Elizabeth. “5 Red Flag Words That Cost Thousands in SR&ED.” sreducation.ca, 22 July 2011, https://www.sreducation.ca/sred-claim-stylistic-tips/. Accessed 4 Sept. 2019.
  20. “Scientific Research and Experimental Development (SR&ED) Expenditures Claim.” Canada Revenue Agency, 10 Nov. 2015, https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t661.html. 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. SRED, “SR&ED Hacks –  Hints for SR&ED Writing.” sreducation.ca, 18 May 2012, https://www.sreducation.ca/sred-hacks/. Accessed 4 Sept. 2019.
  23. SRED, “SR&ED Technical Narratives: The Truth About Words Limits.” sreducation.ca, 23 Jan. 2015, https://www.sreducation.ca/technical-narrative-word-limit-t661/. Accessed 4 Sept. 2019.

0 Comments

Leave a Reply

error: This content is Copyright The InGenuity Group Solutions Inc. Please contact the site administrator if you wish to use this content.
%d bloggers like this: