On a primary level, you need to be involved in scientific and technological R&D . You need to be working towards uncovering scientific or technological knowledge that has not been known previously within the public or industrial domains and/or, you need to be developing or improving products and processes to advance technology .

Let’s take a closer look now. According to the definition of SR&ED in the Income Tax Act, you need to take a methodical approach to your research. You need recording and evidence of all the steps you have taken and all the results you achieved. Your research should overcome a scientific or technological problem, known as an uncertainty, or it should achieve answers not previously available due to a lack of scientific or technological knowledge.

It is also vital to understand that your R&D project doesn't have to have succeeded and you don't have to have sold your findings in order for it to be eligible for an SR&ED refund. As long as you took all the necessary steps to resolve a valid roadblock regarding science or technology, your R&D is eligible.

Filing your claim

You need to file your SR&ED claim within 18 months after the fiscal year has ended. We recommend filing it six months after the year end, which is typically in June, if your fiscal year ends in December. If you fail to file your claim in the given time frame, then unfortunately it becomes time barred. CRA does not allow late submissions.

Eligibility

The main factors that determine if any work is eligible for SR&ED are the purpose and method of the work along with the outcome it produces.

These factors are explained in detail in the following bullet points.

Uncertainty:

The project for which you are claiming SR&ED needs to meet a scientific or technological uncertainty. A scientific uncertainty arises in basic or applied research. A  technological uncertainty arises in experimental development. Uncertainty means that there is a problem with no solution in currently available scientific knowledge or technology.

It's important to understand that a technological problem is different from a technological uncertainty.

A technological problem can be solved using the existing knowledge and methods. Although, such a problem may lead to an uncertainty, it is not the same. An uncertainty may also be caused by lack of resources. For example, if a business is unable to perform a certain task at hand due to economic limitation, it may produce a new, or improve an existing procedure or device in order to meet a cost target rather than using an existing more expensive substitute. The first step when making your SR&ED application is to locate this uncertainty.

Consequently, it has to be carefully planned how to cater to this uncertainty which is the next point, motivation and plan.

Motivation and Plan:

The ultimate goal for R&D needs to be for the removal of the uncertainty. A scheme has to be drawn up to terminate the uncertainty through attentive observations, concerning the root of the uncertainty. The aim should be to understand the uncertainty in order to reach a reliable solution. Then, this plan needs to be implemented through experiments and analysis. Every failed attempt should contribute to the progress of the next attempt. Random attempts to solve a problem are not systematic, hence, they are not eligible for SR&ED.

Proof:

There needs to be sufficient evidence to proving that these experiments were carried out in an organized and systematic way. The evidence you use to support your SR&ED application needs to include all tests, recordings and results. Your evidence should show how every element fits into the program. The detailed account can also help others understand and repeat the work, resulting in advancement of science and technology.

Achieving advancement:

This might sound like the most intimidating part but is the easiest to fulfil. A successful project achieves advancement -- but a failed project is also advancement as it eliminates a certain approach or helps in understanding why a method does not work.