Tax Insights: Does your documentation reflect the five questions?

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Issue 2013-02

After the federal government asked the Canada Revenue Agency (CRA) to improve the administration of the SR&ED program, and to conduct a comprehensive review of SR&ED policies and procedures, the CRA implemented an SR&ED Policy Review Project. The objectives, announced in November 2010, were to:

  • consolidate and clarify the SR&ED policy and related guidance documents that were current at that time
  • present the information in a user friendly way on the CRA website

The new format of the SR&ED policy documents will make it easier to update them regularly to reflect legislative and/or policy changes.

Information Circular 86-4R3, Scientific Research and Experimental Development, dated May 24, 1994, was a guideline developed by industry leaders and Revenue Canada (former name for the CRA) on how to apply the term “experimental development and scientific research.” It described three essential criteria to be satisfied before work could be considered SR&ED:

  • scientific or technological advancement
  • scientific or technological uncertainty
  • scientific and technical content

The three criteria became a guide on how to apply the term “experimental development,” especially in an industrial context, and a cornerstone for identifying whether work met the definition of SR&ED in the Income Tax Act. On December 19, 2012, the CRA released Eligibility of Work for SR&ED Investment Tax Credits Policy.

The principles explained in previous SR&ED publications have not changed, but the text has been made clearer and more readable, and the policies have been updated to reflect legislative changes and jurisprudence. In addition, the policy information has been reformatted and restructured to present it in a user-friendly way on the CRA website.