sred-claim-tips

Watch out for these “red flag” words in your SR&ED claim.

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:

  1. “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.
  2. “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.
  3. “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.
  4. “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.
  5. “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.
Also…
Non-quantifiable terms – Phrases such as “It was not evident that ….” and “It was extraordinarily difficult to…” raise the question “Why?” Why was it not evident? Why was it difficult? What resources did you use to determine it was not evident? There need to be statements that establish why something became a technological obstacle requiring a desired technological objective and experimental development.
These are just some of the keywords that are risky to use in a claim – there are dozens more! Often, they are terms that one would never expect, but if you ask yourself “does this sound commercial” you can avoid many of the non-desirable terms.

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. 

Remember to put appropriate time and effort into preparing these documents – the CRA wants to support R&D in Canada, make it easy for them to say “YES!”

These are just a few of the linguistic and stylistic choices to keep in mind while completing your SR&ED tax claim application – keep checking back to SREDucation.ca for more claim pitfalls and how to avoid them.


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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.


Elizabeth Lance

Elizabeth is known as the "SR&ED Maven" in the industry. With a love of documentation and the nuances of language, she is often engaged by multi-million dollar companies to help improve documentation and workflow processes. Her favourite sentence (which she hears regularly) is "Accepted as Filed". Find out more about her on LinkedIn.

4 Comments

Nathan · August 29, 2011 at 6:24 pm

Wow… this is incredibly useful information. Never in a million years would I have thought that something such as “Trial and Error” would cause issues. I thought that was the whole point of these claims. Outline the potential issues and overcome them through “trial and error”. Although, after writing that last sentence it does seem like I would be approaching my project in a hap-hazard way hoping that I solve it.

What would be a better word to use instead of “Trial and Error”. Would experimentation work better?

    Trevor Kempthorne · August 30, 2011 at 10:19 am

    Trial and Error has always been a red-flag in the CRA, but this will likely be an even greater issue in the future if the changes go through. In any case, yes experimentation is a much better word to use; even ‘testing’ has a routine flavour to it. Try to use definitive, scientific vocabulary whenever possible. The goal is to show that a systematic procedure was followed and that your changes in the testing environment weren’t random.

Mark Daugela · May 24, 2012 at 1:46 am

Even quantified incremental improvements are not SRED without the change in approach! In the work, don’t get bogged down by the minutia for high level advances. Get specific about the high level pivotal change to the design of the experiment/concept/investigation path/alternative solutions/etc. For early stage developments, the investigation technique comes across better if reported at the highest level. Provide the overall investigation plan and avoid the minutia of straight forward fixes. Consider reporting on the evaluations of the groupings of trials and pivotal changes in overall investigation approach that justify the costs. High level early stage qualitative developments for the design of experiments and concept development can be very strong SRED when ambiguity is avoided. Likewise, straight forward quantified tuning developments are not SR&ED – you need to show the change in direction and explain your insights gained about the trade-offs. Your insights can be about your evaluations of patterns and groupings of failed trade offs – but not a statistical reporting of data results. {i.e. 2 dimensional tuning of the trade offs may be needed to support SRED, but is not SRED in of itself.} Your conclusion must relates to high level issues. {Is it favorable to proceed on the current vs. alternative development paths? – and/or – was the work needed to validate previous work or was it needed to support future SRED work?}. Thus the details of trial and error may not be the SRED, the SRED can be the overall amalgamation of many sets of trials that can not be evaluated in isolaton.

    Elizabeth Lance · October 17, 2012 at 3:59 pm

    Great comments, thanks Mark! Love your insights. If you’d ever like to turn these into a post, we’d love to feature your writing!

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