Some SR&ED claims do get rejected, and a common reason is that they concern work that the Canadian Revenue Agency (CRA) doesn’t consider to be experimental development.
Got questions about your SR&ED eligibility? Contact us and we’ll advise.
Experimental development is just one aspect of eligibility for SR&ED, and it’s best understood in context. So, here’s a quick explainer.
Are your projects eligible for SR&ED?
To benefit from the SR&ED program, your company must be doing work that is:
- conducted for the advancement of scientific knowledge or to achieve a technological advancement
AND
- a systematic investigation or search carried out in a field of science or technology.
The advancement of scientific knowledge is the why of SR&ED.
It is worth noting that even research projects that don’t achieve their goal are still considered to have advanced scientific knowledge for the purposes of SR&ED, so you can still claim for this work. The work must advance science, but it doesn’t have to advance your business.
Systemic investigation is the how of SR&ED. Systemic investigation should:
- define the problem
- put forward a hypothesis about a solution to that problem
- test the hypothesis through experimentation or analysis
- develop logical conclusions based on the results
Basic and applied research and experimental development
The SR&ED program covers basic and applied research, and experimental development.
Basic research advances scientific knowledge with a specific practical application in view. An example of basic research is investigating the mechanism by which a bacteria culture ferments a food product.
Applied research is carried out with a practical application in view. An example would be developing a bacteria culture that turns milk into yoghurt.
Experimental development aims to discover knowledge that will improve products and processes, or devices and materials. Experimental development includes incremental improvements – that is, very small steps toward a larger goal. An example of experimental development might be optimizing a yoghurt-making process ready to scale up production.
Fields of work that are eligible for SR&ED
Fields of work that are eligible for SR&ED include: computer programming, data collection, design, engineering, mathematical analysis, operations research, testing and psychological research.
Work that is ineligible for an SR&ED claim
One of the most important criteria for SR&ED projects is that they need to be in the field of science or technology – so companies cannot claim for project work in humanities and social sciences.
You can’t make an SR&ED claim for routine quality control work, nor for routine data collection. Market research and style changes are not eligible for SR&ED.
Prospecting for minerals, petroleum and natural gas is not an SR&ED activity. Neither is commercial production of a new or improved material, device, product or process.
You can’t claim for work to get knowledge already in existence. So, none of these are eligible for SR&ED: training, on-the-job-learning, consultancy services and purchase of proprietary knowledge.
Do you have questions about whether your R&D work is eligible for the SR&ED scheme?
Canadian SR&ED have an excellent claim success rate, so we’re ideally placed to offer advice and guidance on the suitability of your work for the program. Get in touch to organise your free initial review.
Supporting business that contribute to the world through R&D