At SREDucation, we’re taking the time to document all of the changes that have occurred to the SR&ED program over the years. In our “From the Archives” series, you’ll be able to see how the program has evolved since its inception in 1986.
The origin of “SR&ED”
Canadian income tax documents first began mentioning “scientific research” in the 1960s; section 2900 of Income Tax Regulations employed the term, though definitions of the main tenets of Scientific Research & Experimental Development (SR&ED)—basic research, applied research, and experimental development—had yet to be defined. These terms were not used until an amendment in 1967—though it’s important to note that the document did not use the phrase “experimental development,” choosing only to refer to this activity as “development.”
The birth of “experimental development”
The definition of SR&ED remained static until 1985, when an important distinction was made. The Department of Finance recognized that simply using the word “development” was insufficient for distinguishing between SR&ED-eligible development and ineligible routine work. Thus, the term was adjusted to “experimental development” to reinforce that only work performed that followed the scientific method would be eligible for SR&ED.
In 1986, Income Tax Regulations officially used the term “SR&ED” for the first time.
The definition of SR&ED today
Aside from some adjustments in the 1990s—most importantly introducing the term “commensurate with the needs” as a test for SR&ED eligibility and expanding the scope of “support work”—the definition of SR&ED has gone largely unchanged since its inception. Today, the term is explained in section 248(1) of the Income Tax Act, which reads as follows:
“Scientific research and experimental development” means 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, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view,
(b) applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view, or
(c) experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto,
and, in applying this definition in respect of a taxpayer, includes
(d) work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b), or (c) that is undertaken in Canada by or on behalf of the taxpayer,
but does not include work with respect to
(e) market research or sales promotion,
(f) quality control or routine testing of materials, devices, products or processes,
(g) research in the social sciences or the humanities,
(h) prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,
(i) the commercial production of a new or improved material, device or product or the commercial use of a new or improved process,
(j) style changes, or
(k) routine data collection.
This article is based on a page on the CRA website: A brief history of the definition of SR&ED.