Quality Control and Routine Testing in SR&ED Claims

Quality Control and Routine Testing in SR&ED Claims

Quality Control and Routine Testing are excluded from SR&ED claims because work of this nature does not result in technological advancements. The Eligibility of Work for SR&ED Investment Tax Credits Policy1, lists some exclusions for SR&ED claims. Quality control and routine testing are among those excluded items. This blog post will describe what those two terms entail and why they are excluded from SR&ED claims.

SR&ED Investment Tax Credits

By its very nature, the SR&ED Tax Credit program provides Research and Development (R&D) funding for “systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is (a) basic research […] (b) applied research […] (c) experimental development”1.  The key is the achievement of an advancement. SR&ED work is not repetitive or comprised of standard tasks that do not evoke significant material changes.

Quality Control

In the course of reputable product development work, there should always be a Quality Control Plan to ensure that the outcome of the work being done meets expectations. While QC is an essential component to the success of many projects, any time spent on work done in relation to QC is exempted from the SR&ED tax credit program. QC work is defined in the SR&ED Glossary3 as:

Quality control is the techniques and work that sustain the quality of a product or service to satisfy given requirements.

Quality control consists of data collection, data analysis, and implementation, and applies to all phases of the product life cycle: manufacturing, delivery and installation, and operation and maintenance.

Quality control is usually concerned with the functional merits of a material, device, product (for example, conformity to design specifications, including defining testing procedures and minimum quality standards), or process (for example, determining what changes must be made to achieve or maintain the required level of quality).

Quality control work is essential and important for sustaining a product or service but it is not generally considered part of an R&D process or testing for new or improved products or services. Any prospective claimant should carefully note what portion of time is spent on SR&ED work versus  Quality control in the event of a claim audit. Remember – documentation in SR&ED is key! 

Routine Testing

Routine testing is considered support work that allows the developer to ensure that results will remain consistent over time. According to the SR&ED glossary 4

The term routine testing refers to testing performed during the course of normal business operations, for example, testing carried out primarily to determine user acceptance, suitability, marketability, or competitive assessment. Work with respect to routine testing is specifically excluded from the definition of SR&ED . Only the testing work that is commensurate with the needs and directly in support of basic researchapplied research or experimental development is eligible.

Conclusion

Quality control and routine testing are important aspects in many product development environments, but this type of work is not considered SR&ED or eligible support work. It is important to understand the difference between time spent developing the technological advancement that forms the basis of your SR&ED claim and the more routine and mundane tasks in experimental development.

Do you have proven methods of differentiating your R&D research from QC and routine testing? Share your thoughts by commenting below, or adding to the conversation in our LinkedIn group, Facebook page or Twitter.

Show 4 footnotes

  1. Government of Canada. (2015, April 24). Eligibility of Work for SR&ED Investment Tax Credits Policy  Retrieved December 22, 2019, from https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html
  2. Government of Canada. (2015, April 24). Eligibility of Work for SR&ED Investment Tax Credits Policy  Retrieved December 22, 2019, from https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html
  3. Government of Canada. (2015, July 15). SR&ED Glossary Retrieved December 22, 2019, from https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#xcldd
  4. Ibid

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