The Scientific Research and Experimental Development (SR&ED) program is Canada’s largest federal tax incentive program, designed to encourage businesses of all sizes and in all sectors to undertake technological risks and to conduct research and development in Canada. However, many non-technology companies – breweries, wineries, distillers, food producers, cosmetic science often overlook their eligibility for these credits.
But SR&ED tax credits are not just for tech companies or medical laboratories. In fact, any Canadian corporation that faces technological uncertainties and tries to overcome them through experimentation or a systematic developmental approach could potentially qualify. This includes experimenting with integrating non-standard ingredients into a recipe, improving production processes, or enhancing product quality and shelf life.
Identifying SR&ED Opportunities in Your Business
Consider the daily challenges and innovations in your brewery, winery, distillery, or food production facility: are you experimenting with new fermentation techniques, trying out unique ingredients, or developing environmentally friendly packaging? These activities, aimed at improving your products or processes, may qualify for SR&ED tax credits.
SR&ED tax credits are an untapped resource for many businesses in the food and beverage industry. By understanding the scope of SR&ED and its applicability to everyday challenges, which cannot immediately be solved by everyday means, companies can reclaim a portion of their experimentation cost, aiding in growth and development.
For non-technology companies, “system uncertainty” exists when there is uncertainty about how certain ingredients or components of a production system will react to one another.
In the words of the Honourable Justice Susan Wong in her recent decision in Buehler Versatile Inc. v. The King:
[57] …the integration of non-trivial combinations of established (well-known) technologies and principles carried a major element of technological uncertainty. When all the individual parts were combined, their individual uncertainties were merged into a system uncertainty and the system uncertainty was the entire tractor. All of the constituent parts needed to function in unison to achieve the appellant’s objective.
Further, if there is work to combine standard or well-known technologies, devices, and/or processes in non-standard ways where those new technologies bring with them a major element of technological uncertainty; this may be called a “system uncertainty”. (The Honourable Justice Susan Wong)
Let’s look at a few other examples of where “system uncertainty” may lie for non-technology companies.
New Ingredients and Recipe Development vs SR&ED
It is imperative in SRED to clearly delineate between routine recipe development and what could be considered experimentation with unknown elements in that recipe development process. There needs to be very clear uncertainty about how the ingredients or components you’re working with, will work together. There needs to be unpredictability about the outcome that can’t be determined through simple analysis or by reading information published by outside industry sources, or by repeated standard tests.
For example, there is an inherent uncertainty to the process of adding fruit extract to a brew. Experimentation is needed to determine whether fresh extract, or rind, or from-concentrate juice will work within a particular brew. This information cannot be known from information in the public domain.
Sometimes adding these extra sugars in these various forms can result in secondary fermentation, which requires further experimentation to resolve. There is often no “off-the-shelf” solution in these cases, and they can only be resolved through experimentation.
System Uncertainty SRED in Food Production Science
The utilization of unique ingredients for gluten-free or vegan production often present inherent uncertainties to the outcome of a product and can be a fertile ground for a SR&ED tax credit claim. The challenge of replacing conventional ingredients with gluten-free or vegan alternatives in food production is not merely a matter of substitution; it often requires extensive research and multiple trials to achieve similar taste, texture, and quality – aligning with the SR&ED program’s focus on resolving technological uncertainties.
In gluten-free production, the primary uncertainty lies in finding suitable substitutes for gluten, which plays a critical role in texture and elasticity, particularly in baked goods. Ingredients such as rice flour, xanthan gum, or almond flour behave differently than traditional wheat flour. Businesses experimenting with these alternatives to replicate the qualities that gluten imparts must engage in systematic experimentation. This process of experimentation to achieve a desirable product without knowing for certain what the outcome will be aligns with the kind of work that may qualify for SR&ED.
Similarly, in vegan production, replacing animal-derived ingredients like dairy, eggs, or gelatin with plant-based alternatives involves significant R&D. These alternatives need to perform similarly in terms of taste, texture, and cooking properties, which is not always straightforward when combined with more standard ingredients. For instance, developing a vegan cheese that melts and stretches like dairy cheese, or an egg substitute that binds ingredients in baking, requires innovative approaches to food science. The uncertainty in achieving these outcomes with new or unconventional ingredients and the systematic research undertaken to resolve these challenges can be a basis for an SR&ED claim.
System Uncertainty SR&ED in Cosmetic Science
A lot of experimentation in the cosmetic science world involves finding vegan alternatives (for example not using beeswax) but with the goal of achieving the same skincare results as non-vegan products.
Consumers have become hyperaware and wary about the inclusion of certain elements in products applied to the skin. Companies can find their product development constrained by a demand to include natural colouring agents, or providing an unscented product, while still ensuring desired benefits to the skin.
There is often no way to predict how these non-standard ingredients or components will react when introduced to other ingredients used to create a cream, balm, or hair growth concoction. This would also fall under system uncertainty.
The SR&ED program can be a valuable tool for supporting innovation and technological advancement.
Companies engaging in such innovative work could potentially be eligible for SR&ED tax credits. These credits can offset some of the costs associated with the research and development needed to overcome the technological uncertainties inherent in developing successful new products and processes. This includes experimentation to develop products or processes that failed or introduced new, unpredicted challenges.
To explore how your company’s R&D efforts could qualify for SR&ED tax credits, book a complimentary consultation session with SRED Unlimited. SRED Unlimited’s consultants are interactive and provide customized SR&ED claim preparation and submission. We bring a more personal touch to a very impersonal process to help your business get the most out of your claim.