SR&ED and “Technological Uncertainty”

On a daily basis, we review Scientific Research and Experimental Development (SR&ED) technical narratives with the word “uncertainty” peppered liberally throughout. The document authors are well-meaning individuals who are trying to answer the question on Line 242:

The difficulty is that few writers have a true understanding of what this phrase means within the context of the program. In this article, we discuss the various definitions of uncertainty and what it really means within the context of SR&ED.

Regular English: Definitions of Uncertainty

There are slight variations in how “uncertainty” is defined throughout different dictionaries. The Merriam-Webster dictionary, for instance, defines “uncertainty” as follows (emphasis added):

• the quality or state of being uncertain
• something that is doubtful or unknown : something that is uncertain ¹

The Oxford English Dictionary offers up this definition (emphasis added):

• The state of being uncertain
• Something that is uncertain or that causes one to feel uncertain ²

As a final comparison, the Macmillan Dictionary defines “uncertainty” in this manner (emphasis added):

• a nervous feeling that you have because you think bad things might happen
• something that you cannot be certain about or cannot depend on ³

CRA English: “Scientific or Technological Uncertainty” (SR&ED)

In their SR&ED Glossary, the CRA defines uncertainty as follows:

Scientific or technological uncertainty / scientific uncertainty / technological uncertainty / technological obstacle

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. This definition encompasses the definition of scientific uncertainty, technological uncertainty and technological obstacle. The only difference is that scientific uncertainty relates to science whereas technological uncertainty and technological obstacle relate to technology.⁴

There is more context provided in the CRA’s Eligibility of Work for SR&ED Investment Tax Credits policy document:

[. . .] Specifically, it is uncertain if the goals can be achieved at all or what alternatives (for example, paths, routes, approaches, equipment configurations, system architectures, or circuit techniques) will enable the goals to be met based on the existing scientific or technological knowledge base. There is scientific uncertainty in basic research or applied research. There is technological uncertainty in experimental development. Recognition of the uncertainty is an integral step in the systematic investigation or search and implies recognition of the need for advancement.

Technological uncertainties may arise from shortcomings or limitations of the current state of technology that prevent a new or improved capability from being developed. In other words, the current state of technology may be insufficient to resolve a problem.⁵

“Uncertainty” vs. “Knowledge Base” in SR&ED

Now, let’s look at the Meriam-Webster definition of “unknown”:

• not known
• not well-known : not famous
• not known or not well-known; also:  having an unknown value <an unknown quantity>⁶

Notice how nicely this aligns with the concept of “Knowledge Base” and “Advancement”? As a reminder, the CRA defines these terms as follows:

Scientific or technological knowledge base 

Scientific or technological knowledge base refers to the existing level of technology and scientific knowledge, and consists of the knowledge of the resources within the company and sources available publicly.⁷

Scientific or technological advancement / scientific advancement / advancement of scientific knowledge / technological advancement

Scientific or technological advancement is the generation of information or the discovery of knowledge that advances the understanding of scientific relations or technology. This definition encompasses the definition of scientific advancement, advancement of scientific knowledge and technological advancement. The only difference is that scientific advancement and advancement of scientific knowledge relate to science whereas technological advancement relates to technology.⁸

… and this is how the technology base or level is conceptualized by the CRA:

So, I ask my readers, why do we allow this term’s continued use, even though it is incorrect? Why are so many taxpayers subjected to unclear terminology? How many incorrect usages of “uncertainty” must the CRA be subjected to, and must the courts argue over, before we realize we’ve been using the wrong word for 30 years?

There is no reason why thousands of taxpayers should be punished because one judge used “uncertainty” when “unknown” would have been a better term.

The SR&ED program does a lot of good for science and technology in Canada. It supports both small and large enterprises through criteria that reward good research, benefitting not only applicants but Canadian scientific understanding as a whole. Despite the program’s strengths, funding amounts have decreased in recent years.

Commentators in the media have often called for the program to be replaced or completely overhauled. We disagree. Incremental improvements to the SR&ED program–such as changing confusing terminology–will improve the application process and reduce points of contention that cost time and money. Rather than reducing funding to the companies that make good use of it, we suggest that the CRA consider reducing expenses through other means. Changing unclear terms like “uncertainty” would be a great place to start.

 

Do you find the CRA’s terminology confusing or unhelpful? Contact your local tax centre or: 

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