A couple of the most common questions we get asked is “what makes a good SR&ED project” or “how can I make sure that our SR&ED claim gets approved”. There is never a guarantee that any SRED tax credit claim submitted will always be “accepted as filed”. However, if certain fundamentals of scientific research and experimental development process are followed, you can increase the likelihood that CRA won’t decide to select your claim or a portion of your claim for review.
Building a SRED Tax Credit Web
The overall SRED process you engage in to achieve your objective is actually comprised of several different pieces. When these pieces are woven together, they build a stronger picture of the work conducted and the new knowledge gained.
The SR&ED claim process can be viewed as a spider web. In the web building process, a spider chooses a location, then starts with a strand between at least two supporting structures, with other foundation strands as needed. Once this foundation is laid, then the spider makes the main spines or spokes of the web before progressing to laying the spiral center strands, which increase the spider’s chances of catching its dinner.
Foundations of SR&ED: Supporting your SRED Case
In terms of SR&ED, the selected location for the web could be considered the hypothesis or theory you develop to solve a problem that you encounter during your work on a particular project/technology/product/process.
Why isn’t this selected location the actual development project? Because, officially, SR&ED-eligible work doesn’t start until your research or work on that specific project encounters an obstacle. This obstacle can keep you from progressing. It can be lack of information from within the company or from online documentation or consultation with other subject matter experts. It can also be something that you tried that was expected to work a certain way or produce a certain result but didn’t. If you don’t encounter a technological obstacle or knowledge gap, then you’re just doing standard R&D.
The “at least two supporting structures” or foundations of your SR&ED spider web are the key concepts of SR&ED eligible work – technological uncertainty and knowledge gaps – which lead you to formulate your hypothesis or direction for experimentation.
So at this point in the SRED spider web development process, you have the supporting structures or foundations for your SR&ED web—technological uncertainty and knowledge gaps to achieving what you need—which are joined by a hypothesis which will provide the focus of experimentation and development for your team.
Strands of Experimentation – Spokes
The spiral centre of your SRED tax credit spider web is supported by the spokes—or iterations/theories/approaches considered as you and your team attempt to fill in the knowledge gaps and solve the technological uncertainties. These spokes form the structure and backbone of the web, which join in the centre or heart of the web.
With each spoke – experiment/test/attempt – you gain new knowledge, which leads to the next spoke, which leads to the next spoke, and creates a stronger foundation both for the specific problem you’re trying to overcome, and the overall product/process you’re trying to create – and your eligibility for SR&ED.
The spiral itself is created as each new piece of knowledge is joined with the next in your attempt to achieve the overall objective of the experimentation. You do not necessarily need to successfully resolve your problem to have a complete “web”. The web is considered complete when you have reached a conclusion to your experimentation—whether positive or negative. Both kinds of results could be eligible for the SRED tax credit program.
Not Always a Spinner
Not every spider spins a web. A spider can actually spin a web of any size, and may not build the same exact web every time.
Each type of business and industry and each type of research project within an individual business or industry will involve different goals and generate different outcomes. While there are general guidelines as to what constitutes SR&ED, and commonalities between research projects, each business and SR&ED process requires a customized information gathering approach.
One particular spider creates a foundation line, waits for its prey to come along and then captures it by pouncing on it with a kind of web net. Not every SR&ED project is going to have many iterations or hypotheses. Some projects will only have one or two chances to capture the technological uncertainty and knowledge gap, and the knowledge needed to solve a project.
Other spiders use a trapdoor technique, where a lot of their work is done underground and when their unsuspecting prey get too close the spider jumps out and grabs them. Some people don’t really realize their underground work may qualify for the SR&ED tax refund, but it might either as a project on its own, or as supporting work for an “umbrella” project.
Why You Need SR&ED Unlimited
The SR&ED tax credit program is a kind of web unto itself. It’s a collection of interconnected lines and nearly invisible—or confusing—to unsuspecting business owners. Only the spider knows which of its lines are sticky. An experienced SR&ED Unlimited consultant can help you tiptoe around the stickiness of interpretation of SR&ED tax program guidelines, and show you where and how to build a stronger web particularly for future projects. Since a spider’s web is also extremely lightweight, your SR&ED Unlimited consultant can help you and your team develop a SR&ED process that will ease the burden for future projects.
Like the pouncing or trapdoor spider web approaches, other SRED eligible work may need the experience and patience of an individual who can recognize the right location, angle and unearth what aspects and unsuspecting nuggets of your work could help you capture the SR&ED tax refund for your work.
They can also help you avoid the “sticky lines” that can keep you from receiving the most refund possible for the hours and materials invested in the web building process.