How do you know when SR&ED begins?
The key is understanding uncertainty.
One question we are frequently asked is this: Where does a Scientific Research & Experimental Development (SR&ED) project begin? What is included in the scope?
In any given Research & Development (R&D) project, there will come a time when the team runs into an obstacle and realizes the solution is not straightforward—specifically, the solution (or the method of arriving at the solution) is not readily apparent. The individuals involved are assumed to be appropriately skilled and experienced with access to generally known industry standards and techniques. Furthermore, they cannot overcome the obstacle using the company’s technology base or commonly available sources of knowledge.
This is when technological uncertainty is identified, and thus when the SR&ED project begins.
What is technological uncertainty?
Scientific or technological uncertainty means 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.
The lynchpin in determining project eligibility is this technological uncertainty. Once this is established and a hypothesis (i.e., a theory tied to a technological objective) is established, the company is on their way to answering the five questions that outline eligibility criteria:
- Was there a scientific or technological uncertainty – an uncertainty that could not be removed by standard practice?
- Did the person claiming to be doing SR&ED formulate hypotheses specifically aimed at reducing or eliminating that technological uncertainty?
- Did the procedure adopted accord with the total discipline of the scientific method including the formulation, testing and modification of hypotheses?
- Did the process result in a technological advancement?
- Was a detailed record of the hypotheses tested, and results kept as the work progressed?
What makes up the remainder of the SR&ED project?
A SR&ED project is the sum of all the activities required in order to answer the above five questions. This begins at the moment when the application of generally known techniques by appropriately skilled and experienced individuals failed, and therefore it was determined there was a technological uncertainty.
From that point on, the scope of the SR&ED project includes the following:
- Researching alternative solutions in the public domain;
- Developing thorough hypotheses tied to the technological objective[s];
- Testing a variety of approaches against the technological objective[s] in order to overcome the technological uncertainty; and
- Assessing the technological advancements you have made in quantifiable terms.
The final requirement—and perhaps the most important—is contemporaneous documentation. Referring to this as the “final” requirement is misleading, as by definition “contemporaneous” documentation means that records have been kept of each of the above steps throughout all the work performed. With the CRA reviewing more files than ever, having evidence to back up all claims made within the technical narrative is imperative.
When all of these steps come together, you have identified the scope of your SR&ED project.
Does your company have unique methods for mapping the scope of a SR&ED project?
- Government of Canada. (July 15, 2015.) SR&ED Glossary. (Accessed: September 8, 2017.) Retrieved from: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#ncrtnty. ↩