The importance of Key Individuals in SR&ED (Lines 260 & 261)
Attention: Policies May Have Been Updated *** Some of the policies referenced were updated 2021-08-13. We are working to update this article and others. *** |
The T661 Scientific Research and Experimental Development (SR&ED) Investment Tax Credit application form requires that you enter in the names of the key individuals involved in the experiments or analysis of your claimed project in Lines 260 and 261. However, discerning who is a “key individual” is extremely important to your SR&ED report avoiding a CRA review!
Who is considered a key individual? Who is a qualified individual?
On Line 260, one is required to list “the names of key individuals directly involved in the project”.1 You can list up to three people who were a) directly involved in the execution of the claimed project, or b) direct supervisors of the work described in Line 244.
In the CRA glossary, a “key individual” is defined as “directly involved in the project” and is “essential to the progress of the project”.2 They will “have a good understanding of the scientific or technological aspects of the project.”3
Additionally, it’s important to display the individuals’ qualifications. Line 261 is where you enter your personnel’s “qualifications or experience and position title[s]”.4 This listed experience should be relevant to your claimed project and what scientific knowledge you were trying to obtain.
When assessing what makes a qualified individual qualified, one must assess the “qualifications and / or experience in science, technology or engineering” which are “relevant to the science or technology involved in the projects claimed.” 5
Why should I demonstrate my key individual is qualified to perform the work?
Your key individuals’ qualifications determine whether the CRA believes that your scientific advancement is legitimate. Ensuring the key individuals involved were qualified to do the work helps demonstrate that scientific or technological uncertainties were correctly identified.
The CRA will be confident that the uncertainty that led you to embark on the SR&ED was valid if your key individuals were qualified to recognize the uncertainty and realize there was no solution in the knowledge base of your claimed project’s field.
Recall the definition of scientific or 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.6
Therefore, if your key individual is not qualified to recognize uncertainty as they are not familiar with your field’s knowledge base, how can you claim that the advancement was actually an advancement? The CRA will be skeptical that your claimed project made a “discovery or gain in understanding of technological principles, techniques, and concepts beyond the existing scientific or technological knowledge base” if your individuals had little knowledge of the field to begin with.7
How can I demonstrate that my key individuals are qualified and are familiar with the existing knowledge base?
The CRA considers the knowledge base to be “the existing level of technology and scientific knowledge, and consists of the knowledge of the resources within the company and sources available publicly”. 8 A company’s knowledge base encompasses the “technical knowledge, education, training, and experience of its personnel”. 9
Thus, you should focus on your key individuals’ education, training and years of experience. For example, if you are working on manufacturing pumps, and one of your key individuals was an experienced senior mechanical engineer with an M. Eng in Mechanical Engineering, you would want to list this individual first in Lines 260 and 261. This person has an advanced degree, experience, and education in the relevant field, and the correct job title.10
However – you should avoid listing any individual who was administratively involved. To follow our previous example, you should not list the CEO of Pump Manufacturing Corp. with an MBA and one year of experience. This person doesn’t have relevant experience or education.
If your key individuals are qualified, they will have:
- education in the relevant field;
- experience in the relevant field;
- the correct job/position title.
Individuals who should not be listed will:
- Be involved primarily on an administrative or financial basis;
- Hold a degree in a field that is not scientific or technological and not relevant to the field of the claimed project;
- Have insufficient years experience if “experience is applicable to field.”11
While it is important to include if your individual has an advanced degree, it is not necessary if your individual gained experience elsewhere. For example, if your mechanical engineer only has a B. Eng, but has 20 years of experience in pump manufacturing, this will absolutely suffice.
Remember that when you are completing Line 261, list the experience, education or qualification first, and then list the job title or position. For example, a correct entry would be M.A.Sc. (Mechanical Engineer)/PEng, 20 Years’ Experience, Senior Mechanical Engineer.
It’s also important to note that if your key individual is a contractor, their position title is listed as “contractor”.
Summary: Key Individuals
Line 260 and Line 261 play an important part in demonstrating the eligibility of your SR&ED project. If your key individuals aren’t shown to be qualified, it draws confusion about whether or not your were learning (acquiring pre-existing knowledge) or addressing an uncertainty (generating new knowledge, as knowledge was missing in the public & internal domains), and thus whether there was an advancement to the knowledge base. It is important to properly complete Lines 260 and 261 to avoid further complications.