Product developers and engineers tend to utilize a specialized vocabulary related to their industry processes. This vernacular, while varying across industries, is universally understood and forms the background jargon for the work. However, these common industry phrases can be quite different from SR&ED concepts, and not realizing the kinds of information your SRED Unlimited consultant is looking for keeps you from bringing up projects in your discussions that may actually qualify.
So, how can you align your thinking with SR&ED perspectives, think more SR&ED-ily, and maximize your time with your SR&ED consultant? Let’s delve in.
“Successful” vs “New Knowledge”
We’ve previously explored the idea of failure in relation to SR&ED eligibility in “F is for Failure,” but it’s pivotal to understand that discussing ongoing or even failed projects with your SRED Unlimited consultant can be beneficial. Unsuccessful projects, abandoned projects, and even design concepts or prototypes under consideration could meet SR&ED eligibility requirements.
Projects don’t have to be completed within the fiscal year or even deemed “successful” to qualify for SR&ED. It’s okay for project development to be considered “ongoing” at the end of the fiscal year in SR&ED. The SR&ED tax program focuses on your developmental journey, not the final product’s market presence. They’re interested in the new knowledge gleaned during the process of development, not the product’s uniqueness or market value.
Perhaps in designing or developing an attempt to solve a problem, you hit a roadblock or knowledge gap between where current knowledge or technology could take you and where you needed to be to meet your project objective. There was no “plug-and-play” option. Or, perhaps you tried something that theoretically should have worked, but when the solution was applied, it resulted in some unexpected outcomes further downstream with other components of your process or technology, which then needed to be solved.
Perhaps, you really had no idea how to solve a problem at all.
SR&ED applications hinge on the presence of some sort of technological uncertainty or unknowns, which require you to think out-of-the-box because off-the-shelf solutions aren’t available or would be insufficient to help you achieve your project goals.
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, that you struggled to solve or are still struggling to solve, and were abandoned. Through the failure process, you generated new knowledge, and that new knowledge, even if it’s not “rocket science,” could mean tax credits for your company.
“Trial and Error” vs Systematic Experimentation
A frequently used term developers tend to use when explaining their projects is “trial and error”, which is an automatic flag for your consultant to ask some more questions to uncover whether you just randomly tried a bunch of things until you found something that worked or, more likely, whether you systematically experimented with different concepts or potential solutions.
Usually, even often subconsciously, there is an assumption about why trying a certain path might work or might bring you closer to the answer – “If we try to use this technology, we think this might happen” or “We think this approach might solve this problem.”
The experimental process you used is extremely important for SR&ED. The overall SR&ED process is about the journey to achieving your goals and generating new knowledge along the way. SR&ED 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. The distinction is crucial.
Understanding the fine line between random trials and systematic experimentation will not only enhance your project documentation but also potentially reveal overlooked projects worthy of discussion.
Product Developmental Objective vs SR&ED Hypothesis
For developers, differentiating between market-oriented product objectives and SR&ED objectives can be tricky. While a market goal focuses on the final product’s functionality, an SR&ED objective delves into the methods and strategies to achieve those functionalities.
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”.
An 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 SR&ED and will form the hypothesis for the next development step.
Unique vs. Technological Advancement
It is often difficult for product developers to switch out of the “we didn’t really do anything special”, or “It wasn’t rocket science” mindset, or from thinking about the uniqueness of the product in the industry to looking at their work in terms of technological advancement.
For a project to qualify for SR&ED, 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 SR&ED.
SR&ED 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.
The insights you generate that enable you to bridge the gap between available knowledge and your product’s objectives embody the “new knowledge and technological advancement” SR&ED seeks. 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 SR&ED.
While it might seem challenging at first, transitioning from a market-centric viewpoint to an SR&ED-oriented one is pivotal. Thinking SR&ED-ily focuses on the intricacies— those inner workings that empower a product’s capabilities. This is the intel your SRED Unlimited consultant needs to ensure that you can maximize the tax credits your company receives through the SR&ED program.