Product developers and engineers tend to have a certain vocabulary or frame of reference when it comes to their product development processes, which can vary slightly from industry to industry. These terms or concepts are commonly understood and form the background jargon for the work. However, these common industry phrases can be quite different from SRED concepts, and not knowing the kinds of information your SRED Unlimited consultant is looking for can cause you to miss out on valuable eligible refunds. So how can developers and engineers start thinking more SRED-ily and help their SRED consultant through the interview process? Keep reading…
“It’s not done yet” or “That wasn’t successful” vs. New Knowledge
We addressed the concept of failure in the SRED eligibility process in “F is for Failure”, but it’s worth bringing up again here. When compiling your list of potential projects to discuss with your SRED Unlimited consultant, it is actually a very good idea to bring up projects that are still being worked on or that weren’t successful and were abandoned. Even projects where only a conceptual “prototype” was considered are important for SRED.
Also, projects don’t have to be completed within the fiscal year or deemed “successful” to qualify for SRED. It’s okay for project development to be considered “ongoing” at the end of the fiscal year in SRED. Further, the SRED tax credit program is more interested in the journey you took to reach the final commercially viable product. They, quite honestly, don’t really care if your product ever reaches market. They don’t care about the success or “value add” or uniqueness of your product in your industry, city, province, country, continent or the world.
SRED is about developing new knowledge which is gained through the journey, the process of achieving your goals – not about the product itself.
“Trial and Error” vs. Systematic Experimentation
One of the most common phrases developers use when describing their projects to their SRED consultant is saying “trial and error” when they really mean “experimentation”. This is an automatic flag for your consultant to ask some more questions to uncover the experimental process you used. The overall SRED process is about the journey to achieving your goals and generating new knowledge along the way. SRED wants to know about the experimentation journey, the steps you had to take to achieve the new knowledge, and how you applied that new knowledge to the next step in the journey – this is systematic experimentation.
Trial and error, in terms of SRED, means that you decided to try something just for the heck of it with no real hypothesis as to why you decided to try that, or what kind of outcome you were looking for from the process. Your SRED Unlimited consultant will try to dig a little deeper to determine if there really was systematic experimentation.
Learning the difference between trial and error and systematic experimentation can also help you more easily maintain documentation about the work that you conducted, and perhaps discover more projects that you might not have thought to bring up.
Product Developmental Objective vs SR&ED Hypothesis
It is often difficult for product developers to understand that their commercially marketable product work may not actually be the SR&ED; in fact, the SR&ED part may be a component of the development work done on a product. While they may have an overarching goal for what they want to achieve with a product or how they want it to perform, a SRED hypothesis is more about what you need to do to get your product to do what you want or need it to do.
A product developmental objective or goal is, “We want to develop a product that does this or provides this specific service to this particular audience”.
A SR&ED hypothesis is, “To get our product or component of our product to do X, and to resolve the shortcomings of the standard methods or the existing knowledge, we hypothesize that using this component, material, code or process in this way, or changing this component, material, code, or process in this way will produce this result.”
If using or changing the component, material, code or process in this way doesn’t quite achieve the result(s) you were looking for, what results were produced instead, what did you learn from the experimental process and how did you apply that knowledge to the next experiment or prototype? If using or changing the component in this way solves your initial problem, technological roadblock or obstacle, but introduces a new, unanticipated problem, that is also new knowledge and also valid under SRED, and will form the hypothesis for the next development step.
Product Uniqueness vs. Technological Advancement
It is often difficult for product developers to switch out of the “we didn’t really do anything special” mindset, or from thinking about the uniqueness of the product in the industry to looking into the technological advancement. For a project to qualify for SRED, you don’t have to create something revolutionary or earth-shattering. By contrast, a project that’s the “only one of its kind in the world” does not, in and of itself, qualify for SRED.
SRED is not about the sales pitch. You don’t have to sell us on the uniqueness of the product/service/device. CRA doesn’t care why your product/service/device is better than the next guy’s product/service/device.
SRED wants to know how your product/service/device development journey generated knowledge and technological advancement. Current knowledge in the public domain and standard industry protocols can only take you so far. There is often a gap between the knowledge available (either online or from other human resources within your company) and what you need to achieve with the product or service you’ve set out to create. The knowledge you generate to bridge that gap is considered “new knowledge and technological advancement” under SRED.
Thinking SRED-ily can be very confusing because typically product developers think more in terms of value add, marketability and business logic issues rather than the actual innards that make the product do all the things they need it to do – but this is SR&ED. This is the information your SRED Unlimited consultant is looking for and can use to help you maximize the tax credits your company receives through the program.