Characteristics of SR&ED
The law says several things about SR&ED. There has to
have been a scientific or technological uncertainty. This means that the scientific
or technological challenge was not resolvable by only using methodologies
(techniques and procedures) that are standard practice for competent practitioners
in the knowledge field to which the project pertains. It also means that the
solution is not available in the current knowledge of your organization or in
the public domain. Second, the solution to the uncertainty must be sought via systematic
investigation. Third, your knowledge and expertise, in the field of knowledge to
which you project relates, must increase. This doesn’t mean you need success
(as you might define success), because even failing to solve the problem can be an
increase in knowledge: you now know what doesn’t work.
From these requirements, CRA has determined 5 questions
When you have a SRED audit, the CRA technical reviewer
(known as an “RTA”) is looking to satisfy himself that your project meets the
requirements determined from the legislated definition of SR&ED.
If the answer to any of these questions is No, CRA believes
you don’t have SRED.
The first question is whether there was a scientific or
technological uncertainty. That makes sense because the legislation requires
it. (See also
http://gordon-feil-sred.blogspot.ca/2017/01/uncertainty.html)
http://gordon-feil-sred.blogspot.ca/2017/01/uncertainty.html)
The second question is whether you formed an hypothesis
aimed at resolving the identified uncertainty. To CRA this question is appropriate because they
think that the only way to systematically investigate a problem is with the
scientific method. At getsred.ca we follow that guideline, but in this blog I
confess that I think there are methods of systematic investigation that are not
the scientific method.
The third question is whether what you did a systematic
investigation that included forming an hypothesis and testing it. Bit of
duplication there, and consistent with the scientific method. But I observe
that an alchemist also systematically investigates using a process that is
quite different from the scientific method. The scientist will basically
experiment by keeping everything constant except a control variable which he
changes so that he can observe what happens with each change. Then from those
experiments he forms a statement of a principle being observed. The alchemist
does the same experiment over and over, with no change in variables, until
something different happens. Then he works at explaining why. Not the
scientific method, but it is systematic.
Question 4 is whether the PURPOSE of the work done was to
obtain a scientific/technological advancement. This is in keeping with the
legislation.
The final question is whether a record was kept of hypotheses
and test results as the work progressed. I see nothing in the law that would
require this of SRED. But CRA administers the program and they don’t easily
budge from these five questions, so we write claims designed to answer all five
questions affirmatively.
Great info to have! Do you feel that these requirements have been adequate in determining who deserves the incentive? Have there been any cases in which these requirements stopped a deserving company from getting the incentive, or vice versa?
ReplyDeleteThere are times when a deserving project does not obtain the SR&ED credits on account of a paucity of records or because the scientific method cannot be demonstrated to have been followed. There is widespread ignorance about the SR&ED program, and many companies undertake eligible work without even knowing that the work is eligible, so they do not keep adequate records. Some RTAs would insist that they should keep records anyway consistent with practices that are the norm for scientific experimentation. BUT THE LAW DEFINES SR&ED WITHOUT REGARD TO RECORD KEEPING OR THE SCIENTIFIC METHOD. The law doesn't say that work is SR&ED only if it was conducted with the scientific method with adequate records. No, the law says that SR&ED consists of a systematic investigation.
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