One of the most challenging questions your SR&ED Unlimited consultant will answer during their consultation with you is the difference between a company project and a project that might qualify for the Scientific Research and Experimental Development tax credit or refund for your corporation.
It’s a challenging question to answer because so much of a corporation’s product development process is focused on developing a marketable product. But SRED is about all the steps within the actual development process to produce a marketable product.
Product developers tend not to think in SRED terms when they’re working on a project – at least not for their first SRED claim. It’s often challenging however for some companies, and whoever’s consulting with the SRED consultant on the company’s behalf, to make the mental switch between what constitutes a company project and what constitutes an SR&ED project that can be claimed.
Avoiding CRA Red Flags
The details needed to describe an SR&ED project in a claim are quite different than the product value-add details that would normally be used for marketing purposes –and CRA SRED claim reviewers are well-versed in understanding the difference. This is where you can help your SRED consultant (and ultimately CRA to decide in your favour) by being prepared with the needed details about your SR&ED work.
If a CRA SRED reviewer sees that your description of a project appears to be a description of a company project rather than an SR&ED project, then they will likely propose that claim for review. Most company representatives are used to answering marketing questions for their clients—Why is this product or service better than someone else’s? What sort of value-add does this product or service bring to the market?
But CRA wants to see answers to very different questions.
Definition of a Company Project
A company project is a project/product/service that is either generated or inspired by an external source (market trend, customer need) or based on internal decision. If it’s generated by an external request, that means you likely have a contract or potential of a contract with someone to deliver a product, process, or material for which you would receive an amount of money. A company project is a project which starts either with a contract, or with an internal decision, and ends with a monetary benefit for a company.
Company Project versus an SRED Project
SRED does not care about the marketing potential of your product/project. They don’t care about the “value-add” of your product/process or material for your specific industry or clientele. They don’t care that it’s cutting edge. They don’t care that no one else on the market has this exact product or offers what your product does. CRA also doesn’t care whether you actually even succeed at making the product/process you set out to do. None of these things qualifies a project for SRED; though, indeed, the designing, development and testing of this particular product might.
CRA cares about any new knowledge that you generated during the development of that project/product or material. They care about whether you knew how to get from point A to point B at each development milestone, and if you didn’t, how you filled in those knowledge gaps. If those knowledge gaps were filled in using existing knowledge from others within the company, experts/consultants outside the company, or public domain (Internet, literature) and those recommendations worked kind of “plug-and-play” there’s no SRED project there.
But, if the knowledge you collected from all available sources wasn’t able to get you all the way from point A to point B, and you weren’t sure exactly how you might get to the end, then that is the starting point of your SRED project. If you had to figure out the rest of your product development journey by modifying your process or machinery, and each attempt brought you a little bit closer to the finished product/process or material – that is SRED. If you attempted to solve your development problem and ultimately decided to abandon an approach, or the development work altogether, this might also be the perfect project for SRED.
One Company Project = Multiple SRED Projects
The process of product development is usually quite linear. It starts when the decision is made to initiate a project and ends when the payment is made for the final product. But in between the decision and final commercial benefit of the project, companies may face an obstacle or two—or perhaps many more. They solve one problem, but that creates another obstacle which may lead to another obstacle which prevents them from reach their end goal.
The end goal ultimately for the business is a marketable product, but in SRED, the end goal or objective is more centered on what you learned about your technology/process along the journey to create that marketable product – and there may be more than one of these moments over the course of product development.
When you reach the point in your product development where you don’t know how to get any further in that development process, then, in SRED terms, you’ve hit your technological wall. Your “technological objective”—which is one of the 6 questions a project claim must answer—then, is solving that technological problem. That may take several steps along the way. One of those steps may even introduce a completely new technological problem that was totally unexpected and unpredictable.
It is in fact possible for an overarching, umbrella company product development project to not have any SRED in it just by itself, but generate several smaller projects, or technological obstacles along the way to developing that overarching project. Some projects are broken into phases, which may also have multiple technological challenges. As long as there is a separate technological problem, there is a potential for a separate SRED project claim.
Bumps in the Road are Stepping Stones for SRED
The reality of product development is that, more often than not, there are bumps in the road. Some bumps mean that you’ve made and tested a prototype and your customer changes the requirements. So you end up having to go back to the design phase. That in itself is not SRED. It’s highly annoying and inconvenient, but not SRED.
But if the change in requirements introduces additional constraints (time/technology/target price point), or bring you to a point where you really don’t know how to get the product to do what the customer is requesting, then that bump in the road may just be your SRED.
If there was a point in time in your development process or engineering that was based on an assumption or hypothesis that was proven incorrect through prototyping and analysis, and there’s no information in the public domain to get you any further along, this knowledge gap or technological uncertainty is your “bump in the road” and a potential stepping stone to SRED.
Once you’ve identified this technological uncertainty, what is missing in your development process to get where you need to go, then you may be at the start of an SR&ED project.
Your SRED Unlimited consultant is very well aware and well versed in what sort of details the CRA is looking for in submitted claims. They will ask questions during their consultation with you to help unearth those details that will best help your claim succeed. Navigating all the SR&ED eligibility requirements can be confusing, that’s why you need the expertise of SRED Unlimited to maximize your claim.