What is SR&ED?
SR&ED is a government tax incentive program to support and motivate Canadian companies that conduct R&D in Canada. Some of the indicators of an eligible SR&ED project include:
- New application of existing technology
- Capital spends
- Budget overruns
- Developing or improving products and processes
- Technical issues
- Consulting studies
- Cost reduction strategies
- Environmental/regulatory compliance
- Integration of new technologies within old facilities
Scientific or technological criteria for SR&ED eligibility
- New knowledge gained from the development of new or improved products or processes
- Small, incremental knowledge gains or improvements are eligible
- Both successful and unsuccessful projects are eligible
- Technological problems resolved, leading to technological advancement
- Can often look like routine work but it is the context that matters. SR&ED occurs when you are moving beyond your existing knowledge base.
- The project must be executed via a systematic investigation vs. “trial and error”
- Work must be supported by some form of evidence and performed by qualified people
Characteristics of a SR&ED project
Determining if a project is eligible for a SR&ED tax credit means showing a systematic investigation or search that’s carried out in a field of science or technology by means of experiment or analysis and that the work performed involves basic research, applied research or experimental development.
Establishing this involves answering the following five questions:
- Was there scientific or technological uncertainty?
- Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
- Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing hypotheses by means of experiment or analysis?
- Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
- Did you keep a record of the hypothesis tested and the results as the work progressed?