When preparing a SR&ED technical claim for a project, it is generally advisable to start by putting every detail of the project to paper. This shows the entire scope of your process and makes it easier for the reviewer to understand the work performed. However, once the details have been established, strategic editing can be done to tighten up the SR&ED claim and lower the overall risk of an audit. Our Common SR&ED Claim Pitfalls will outline some of these strategies.
Trigger Words in SR&ED Claims
Certain words and phrases can make the scope of the research and development project seem larger (or less eligible for tax incentives) than it actually is. The key is to use language that accurately describes your project, as the wrong words can give the wrong impression. When possible, remove references to these from your titles and claim body:
- “Trial and Error” – Even though engineers often use this phrase to mean sophisticated experimentation, it should not be used in a SR&ED claim. The CRA tends to think this phrase implies unstructured guesswork that falls outside the realm of SR&ED. Re-examine the activities and see if it is possible to show a structure associated with them.
- “Product” – This word has commercial connotations that present the SR&ED work as a commercial good or finished product. SR&ED work generally ends once something is being sold.
- “Fine-tuned” – Similar to the word “tweaking”, this term is considered to be associated with minor adjustments after the basic SR&ED work is complete.
- “Application” – Unfortunately, this is another taboo word. Applying a principle suggests that the principle has already been established and is therefore standard practice. Where applicable, try replacing this word with developing methods, which indicates that there is a great deal of work still needed to get to the project’s principle stage.
- “Migration” – The implication here is that the work performed was a simple conversion process, as opposed to innovative development. Unless there was a significant technical obstacle that was overcome and clearly described in the SR&ED claim write-up, migration projects will be seen as standard practice.
We suggest that you have someone else read through your technical narrative before submission using this checklist. While it’s no substitutes for having a professional work on your claim, it will help reduce some of your risk. Remember – mistakes in this area typically cost companies thousands in terms of lost time and disqualified expenditures.
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This article is presented only for informational purposes and does not constitute legal advice. You should retain legal counsel if you require legal advice regarding your individual situation.