Determining Eligibility

For those new to SR&ED, determining eligibility is one of the most challenging aspects of the process. Quite often the uncertainty regarding the criteria leads filers to significantly underestimate their eligibility, and therefore their refund. Our SR&ED experts have years of experience and training which they use to maximize the claim to which the law entitles you. Learn more about how The Resonant Advantage can help you get the most out of SR&ED.

The SR&ED eligibility criteria are different depending on whether you are making a Scientific Research claim, or an Experimental Development claim. Since the vast majority of claims by businesses are for Experimental Development, this page will focus on those criteria.

For work to be eligible for SR&ED it must:

  1. Seek a Technological Advance.
  2. Present a Technological Uncertainty.
  3. Involve a Systematic Approach.

Also, work which is done to support that work is also Eligible.

The terms used above can have many meanings, but for SR&ED, their meaning is very specific. Common SR&ED Myths stem from the fact that people assume their understanding of “advance” and “uncertainty” are the ones defined in the tax law. Below is a brief description of the three SR&ED criteria, which can help clarify their meaning.

Technological Advance

This is the most commonly misunderstood of the criteria. The Technological Advance does not mean that the work has to create an innovative, novel, or patentable technology. Whether or not somebody has achieved the exact advance before you is not relevant!

Instead, there must only be some advance from the Base Level of technology specific to your business. Your Base Level of technology only includes methodology and information which is readily available to you. If a solution to a technological problem exists, but you do not have access to it, then achieving that solution constitutes a Technological Advance.

The size of the advance need not be great, even the work done for “infinitesimally small” Technological Advances qualifies for SR&ED. Some examples of elligible Advances:

  • integrating components into a system
  • extending the abilities of a system or component
  • improving performance of a system, device, or workflow
  • reducing the resources required to manufacture a product
  • developing a banana bread recipe which lasts longer before turning brown

Technological Uncertainty

The second component in determining eligibility is also often misunderstood. Technological Uncertainty does not mean an uncertainty in whether you think you can achieve the overall goals of the project. Most, if not all businesses should feel confident that they can achieve that which they attempt to do, given the time and resources needed to perform their experimental development.

Technological Uncertainty is very specific when it comes to SR&ED. There is Uncertainty when you are not certain which specific approach will achieve the Technological Advance. A useful guide to determining if there is uncertainty is to answer the following question:

Were you certain of how exactly to achieve the goal, or were you sure that you could ‘figure it out’?

If it is unknown which path will take you from A to B, then there is uncertainty, even if you were confident that you could ‘figure it out’. This is most often the case during development. To achieve any goals, you usually have to figure out how to achieve them by first developing a plan of action, then by implementing the plan, analyzing the results, and adjusting your plan to overcome any new obstacles or challenges. This process is SR&ED Experimental Development.

However, if you know exactly the path to take to go from A to B, whether because you have travelled the route before, or because a map is readily available to you, then there is likely not uncertainty. This is what is considered ‘routine development’ relating to SR&ED. For many, their idea of ‘routine development’ includes much of the work for which there is Uncertainty. With SR&ED however, this is not the case, routine means no uncertainty in approach.

Also, just because you have figured out how to go from A to B, does not mean that going from A to C or from C to D no longer has uncertainty. While knowledge gained from previous Experimental Development can help in new, similar Advances, frequently each new path you take will have its own challenges and constraints which lead to Uncertainty. For example, the lessons learned from integrating one component into your system do not necessarily give you certainty in how specifically to integrate a similar component into your system.

Systematic Approach

This criteria is usually met by all the development work done by a commercial business. The Systematic Approach requires that you identify your objective and any obstacles you may encounter, and then attempt to overcome those obstacles through an experimental process of attempting to achieve the goal, testing, and reassessing your plan of attack as new challenges present themselves. There is no special documentation or paperwork required in the Systematic Approach, very likely all the work you do meets this criteria.

More Information

Determining your SR&ED eligibility is the most challenging and important aspect of claiming your refund. Our SR&ED experts have years of experience with the written and unwritten expectations of the CRA SR&ED staff. Contact us if you have any unanswered questions, or if you would like to arrange a meeting with one of our SR&ED experts to discuss your eligibility in greater detail.