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  • Writer's pictureCurtis Driedger

Unlocking Innovation: SR&ED Technical Eligibility Concepts (Part 1)

Updated: Feb 9

In the dynamic landscape of research and development, the Scientific Research and Experimental Development (SR&ED) program in Canada stands as a beacon, offering tax incentives to businesses that embark on qualifying R&D activities. The heart of this initiative lies in its commitment to fostering innovation and technological advancement. To navigate the terrain of SR&ED successfully, understanding the technical eligibility criteria becomes imperative. This blog post aims to provide a detailed exploration of SR&ED technical eligibility, offering insights into the nuances of eligibility concepts and specifics.


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Understanding Key Concepts of SR&ED Technical Eligibility:


Scientific or Technological Uncertainty:


The SR&ED uncertainty eligibility requirement is a foundational criterion that underlines the essence of the initiative. In the context of SR&ED, uncertainty refers to situations where the knowledge required to achieve a particular technological advancement is not readily available or easily accessible.


To qualify for SR&ED, claimants must engage in projects that attempt to address technological uncertainties. This entails tackling challenges where the knowledge required for advancement is either absent or not readily accessible in the public domain. This requirement encourages claimants to not only take on riskier work that they may not have otherwise explored, but also to foster a culture of innovation and experimentation. By delving into areas where the answers are not readily available to them, claimants contribute not only to their own technological evolution but also to the broader landscape of scientific knowledge, aligning with the overarching goals of the SR&ED program.


Systematic Investigation or Experimentation:


The SR&ED systematic investigation requirement expects that businesses engage in a structured and organized approach to their research and development activities. To be eligible for SR&ED incentives, claimants must demonstrate a methodical process of investigation or experimentation aimed at resolving scientific or technological uncertainties. This involves planning, documentation, and execution of activities, ensuring a systematic progression toward project goals. Equally crucial is the need for contemporaneous record-keeping and documentation throughout the SR&ED process. Claimants must maintain detailed documentation of their methodologies, experimental protocols, test results, and any unexpected challenges encountered. These records not only substantiate the systematic nature of the investigation but also play a vital role in demonstrating the legitimacy of the SR&ED claim during reviews or audits. The systematic investigation requirement, coupled with comprehensive record-keeping practices, forms the backbone of a successful SR&ED application, providing transparency and credibility to the research and development efforts undertaken.


Advancement of Knowledge:


At the core of SR&ED is the drive to contribute to the overall advancement of scientific or technological knowledge. Projects should aim to push the boundaries of understanding within their respective fields or actively seek solutions to existing problems. This criterion emphasizes the program's commitment to driving innovation, as projects must be designed to advance a claimant’s knowledge within a specific domain. This criterion requires claimants showcase how their research and development activities contribute to the understanding of scientific or technological principles or solve specific problems in innovative ways.

 

The ”Why” and “How” Requirements:


In 2021, the CRA updated their “Guidelines on the eligibility of work for SR&ED” policy to include details on the following technical eligibility requirements:


The “Why” Requirement:

The key to both scientific and technological knowledge advancement is the generation or discovery of knowledge that advances the understanding of science or technology. The type of knowledge in this context is conceptual knowledge, such as theories or prediction models, rather than just factual knowledge, such as data or measurements.


The need for new scientific or technological knowledge arises when uncertainty exists with respects to achieving a specific result or objective due to insufficient available knowledge. This uncertainty is the starting point for SR&ED. If an attempt is made to address uncertainty and generate new knowledge, it meets the eligibility criteria for SR&ED, whereas circumventing the uncertainty with existing knowledge likely makes the work ineligible. Note that the success or failure in meeting your objectives is not relevant when assessing whether your work meets the “Why” requirement.[1]


The “How” Requirement:

Businesses typically employ established design methods, procedures, and standards to solve problems systematically. However, merely adhering to systematic work processes doesn't automatically qualify for SR&ED. It's crucial to differentiate between a systematic approach to work and the systematic investigation or search required for SR&ED eligibility. Systematic investigation typically involves the following:


  1. Generating an idea consistent with known facts, which serves as a starting point for further investigation towards achieving your objective or resolving your problem. Your idea may be expressed as a possible solution to a problem, a proposed method or an approach. This can be referred to as a hypothesis.

  2. Testing of the idea or hypothesis by means of experiment or analysis. The idea can evolve and change as a result of testing.

  3. Developing logical conclusions based on the results or findings of the experiment or analysis.

  4. Keeping evidence that is generated as the work progresses. In the creation or improvement of materials, devices, products, or processes, challenges arise when balancing the need for specific characteristics against constraints. When existing technological knowledge is insufficient, addressing these challenges through experimentation or analysis leads to the generation of new technological knowledge.


Below are examples that could demonstrate technological knowledge is insufficient:


·       Existing design methods are not applicable;

·       Requirements or specifications do not conform to existing standards;

·       Too many variables or unknowns;

·       Parameters or conditions are outside of the normal operating range;

·       Nature of the problem is evolving;

·       Data is not readily available; and

·       There are interlocking constraints (including cost uncertainty).


The attempt to generate new technological knowledge for the purpose of creating new, or improving existing, materials, devices, products or processes can occur in different situations. It can occur when there is a need to:


·       Generate entirely new technology to meet your objective;

·      Make improvements to existing technology; or

·       Take existing technology and apply it in a new environment or context to meet your objective.


Note that acquiring available knowledge or know-how, for example, through training, on-the-job learning, hiring expert employees or consultants, or by purchasing proprietary knowledge does not meet the requirement of attempting to achieve technological advancement.[2]

 

Conclusion:


In the dynamic realm of SR&ED, understanding the technical eligibility details is paramount to unlocking the full potential of government incentives for research and development. As we conclude this exploration into SR&ED eligibility concepts, it's clear that a nuanced comprehension of the program's criteria is instrumental. By applying these insights to your innovative endeavors, you can strategically position your projects for optimal success in claiming SR&ED. Remember, the pursuit of overcoming uncertainty through systematic investigation to achieve knowledge and technological advancement is at the heart of this program, and by aligning your efforts with these principles, you're not only contributing to your organization's growth but also remaining competitive in the Canadian and global marketplace and advancing the frontiers of innovation on a broader scale. Stay curious, stay inventive, and let SR&ED become a catalyst for transformative progress in your R&D journey.



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