The 3 Rules Which Determine Eligibility for a Scientific Research and Experimental Development Claim
Just in case you weren’t aware, the Canadian government provides an incentive program for any companies which are conducting research and development projects in Canada. The program is known as Scientific Research and Experimental Development and is often referred to simply as SR&ED. However, there is much confusion as to what type of project is eligible and therefore able to make a claim for SR&ED credits. With that being said, you should be aware that approximately 95% of all SR&ED claims are made for experimental development projects, rather than scientific research. In order for experimental development projects to qualify they must meet 3 specific criteria and this post will introduce you to these.
One of the key criteria for a SR&ED claim is that there is currently no known or obvious solution to a technological problem. Therefore, your company’s project is specifically aimed at trying to discover a solution to a specific technological uncertainty. However, you must distinguish between a technological uncertainty and a business uncertainty, for example. A business uncertainty may include that you have no idea of the overall costs to complete a research and developmental project, or you are struggling to ascertain which particular sales channel you should use. Yes, these are “uncertainties”, but they have nothing to do with technology and therefore have absolutely no bearing on a SR&ED claim. Basically, your company should be looking into a technological problem and the employees working on this project currently have no idea what the solution is.
You must perform systematic investigation into the technological problem in order to be eligible for SR&ED credits. You will typically encounter many different problems along the way and it is likely that you may need to try a variety of approaches to find a solution. If these are nothing more than random attempts, as opposed to using an actual systematic approach, you will not qualify for SR&ED credits. So, in other words, if you have attempted to find a solution and failed, you should then use the results of your failed attempt in order to help you towards your next solution. So, whatever knowledge you have gained from your failed attempt will now be used in your next attempt, hopefully getting you one step closer to a solution each time. To be completely honest, research and development typically takes a systematic path anyway and most employees who are skilled in this line of work will generally analyze their previous failed attempts and look for a successful outcome based on the knowledge they have previously gained.
Saying that your project must achieve a technological advancement may seem extremely daunting initially, but it is actually a lot easier than you probably believe. This is mainly because you can achieve a technological advancement without your overall project proving to be a success. A prime example of this is that you are looking to resolve a certain technological uncertainty and you use a total of five methods (attempts) to resolve this, but all methods are failures. Your technological advancement is that you have proved that these five methods do not work.