This article is by Bruce Madole who kindly agreed to provide some interesting materials related to SR&ED.
have come to the world of SR&ED expecting that the CRA will treat
you and your claims in a manner consistent with their published
information, you will be sadly disappointed, and probably frustrated.
It’s no wonder companies look to the assistance of consulting firms for
help. It certainly doesn’t help matters when the definitions applied to
words are being shifted, and loaded up with some unwelcome and extra
freight in the form of additional meanings and implications that most of
us just wouldn’t use.
I attended a CRA public information session recently, just to see
what the current training session includes, and I noticed them applying a
particular set of definitions and interpretations that could really
spoil your day.
When we speak of technology, we usually refer to the set of tools,
equipment, systems, networks, machinery, and so on, with which the
business creates or delivers the goods, products or services on which
the business is based. (Note that we are not speaking here about the
goods, products or services themselves, but the technology set that
underlies or enables them.)
To most people, talking about “technical uncertainty” would appear to
mean the same thing as “technological uncertainty”. To the CRA,
currently, these phrases carry materially different meanings. (I’m not
sure if the rest of the world embraces these definitions and
assumptions.) However, we need to equip ourselves for the discussion.
Are the different definitions, discussed below, purely a clarification
of old intentions? Do they represent a mostly academic debate about
historically equivalent expressions? Or is this some kind of a semantic
shell game designed to slash the definitions of eligible work, and
organized around a nuance of language that CRA is alone in perpetuating?
What technical means… to CRA
What the CRA is teaching now is that the word “technical” refers
generically to a domain of activity – technical content, technical
issues, technical questions, and technical uncertainty – many of which
are perhaps purely routine in nature. (Though, perhaps not, although CRA
now tries to taint the word “technical” with an implied additional
meaning of “probably routine”.)
What technical uncertainty means… to CRA
Technical uncertainty, as they now characterize it, means “not
knowing what to do next,” or “how best to approach” an un-clarified
problem or a technology issue that is not yet fully understood. The
phrase implies a need for more detailed investigation to more fully
penetrate to the specific technology gap or barrier that represents what
CRA calls the “technological uncertainty.” So to CRA, technical
uncertainty means ambiguity, unrefined or unfocussed enquiry, doubt,
ignorance, confusion, lack of clarity. It implies ineligible work or due
diligence activities, carried out in hope of finding some root cause or
problem that can then be tackled as a SR&ED project. Technical
uncertainty, to the CRA, means that you don’t yet know what you’re
To CRA (I paraphrase here), you have not penetrated to the real
SR&ED project until you have “moved beyond the technical uncertainty
and have uncovered and fully understood all the dimensions of the
“underlying technology gap”. In CRA’s opinion, you have to move beyond
the pursuit of “know what” to the pursuit of “know-how”, as in, “How do
we experimentally approach the solution to this very specific technology
gap or barrier?”
Until the problem is fully understood, they would argue that your
efforts are reconnaissance, and due diligence (using standard
approaches, probably), and not experimental development.
Canada Revenue Agency’s current position, there is a long history of
claiming SR&ED projects on the basis of “technical uncertainty”, and
the scope of such projects was larger because the starting point for
the SR&ED was significantly less restrictive.
The tax authorities themselves have historically used “technical” and
“technological” more or less interchangeably when talking about the
more vital part of that phrase: uncertainty. Part 2 of this article
will examine that aspect in more detail, along with some other troubling
implications of this new approach.
Other articles by Bruce Madole in SRED Unlimited blog
Dealing with technology? You might be eligible for government funding
SR&ED (Scientific Research & Experimental Development) is an incentive program by the Canadian government that refunds companies involved in Research and Development (R&D). (See the information about the program on the CRA website.) Canadian companies that spend money on creating or modifying products or processes through experimenting are eligible for SR&ED. Any company that deals with technology (software and hardware development, machinery, printing etc.) may qualify. If you created an entirely new industrial process or improved an existing one, if you took a database driver and rewrote it so its performance doubled, if you came up with a fuzzy logic algorithm to facilitate scheduling - all of this may be eligible. Innovation, uncertainties you overcame, and technological advancement are the criteria for eligibility. Even failed experiments may qualify. Non-Canadian owned companies also qualify, if they pay salary in Canada.
The SR&ED program is available to companies involved in Research and Development (R&D). Eligible expenditures include your time, employee and subcontractors labour, materials and equipment. SR&ED money is given as a refund for work already done.Read more about SRED