Identifying Sr&ed Projects

You may have already heard about the Scientific Research and Experimental Development (SR&ED) program that the Canada Revenue Agency (CRA) developed

. It was created to support and encourage technological development and innovation in Canada. But theres a very good chance that even if youve heard of the program, you arent currently claiming for it it is estimated that about 50% of eligible companies dont actually claim for the program.

One of the reasons why companies dont claim for the SR&ED program is because it can be difficult to know exactly what kinds of activities are eligible for the SR&ED program.

The CRA has given us guidelines to help us with identifying SR&ED projects, but these guidelines can sometimes be a little confusing. Lets take a look at what they are and what they mean in laymans terms.

First of all, a project needs to have Technical Uncertainty that means that you dont know how to get to the final objective in a project. Secondly, a project needs to have Technical Advancement that means that you learned something new when trying to reach the final objective. Thirdly, there needs to be Technical Content meaning, that there has to be some sort of systematic investigation done while trying to reach the objective. In the most basic terms, you advance your scientific knowledge while using experimentation to accomplish something that you didnt previously know whether it could be done.

Lets take a look at an example:

Youve recently taken on a job for a client, and this client wants you to develop a product that youve never developed before and its something that you may not be able to manufacture it with the machinery that you have on your plant floor. You do a bit of research, but cant find any information on whether this is possible. So you do some testing, you develop a prototype, make some adjustments, continuing in this process until you have either developed the product your client wants, or until you decide that its not possible to create the product your client wants. All this time you have also been keeping documentation about what has been happening test sheets, engineering designs, etc. The development process that has occurred in this example is what the CRA considers as SR&ED-eligible activities.

When identifying SR&ED projects, you can typically find eligible activities in the following areas:

New product development

Product improvements

Manufacturing process improvements

Software design and development

Prototype development

An in-house R&D department

Engineering, design, testing, data collection, etc.

Sometimes it can be hard to see that what you are working on is an SR&ED activity. When you are working on the same project day after day, and when the development takes a long time, you may not realize that you are increasing your technological or scientific knowledge. For this reason, it can be important to have an outside consultant come in and help you with the process of identifying SR&ED projects. Ensuring that you arent missing out on any eligible SR&ED expenditures is one of the first ways to taking advantage of the SR&ED program.

by: SRED Canada

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