Since it’s the start of a new year, it seems the perfect time to talk about how to better detect when your R&D project has become a possible SR&ED project. The earlier in the process you identify this transition, the greater the opportunities to maximize your claim. Although, if you’re like most people, you likely didn’t know about SRED before you started the project, or didn’t think your project could qualify for the SRED Tax Credit. This is a very common scenario for first-time claimants.
Once you get through your first time, identifying the starting point of SRED in current and upcoming projects becomes much easier, as does maintaining the supportive documentation and evidence that will help to back up your claim, should the CRA request it.
Stepping across the SR&ED Threshold
There are two main concepts that indicate the transition from routine R&D into SR&ED: technological uncertainty and knowledge gaps. Often these two concepts overlap in most SR&ED eligible projects, and some of the details of how they apply to a particular project or problem may or may not be obvious at the outset. Sometimes a development project could be going along just swimmingly and then something unpredictable happens during the development process or research and your project work takes a turn or comes to a stop.
Technological Uncertainty in SR&ED
Basically, technological uncertainty arises when you’re faced with a development project, or problem within a development project, which can’t be solved with an off-the-shelf tool or part or other piece of technology/machinery. You either have to modify something that already exists to make it work for your project’s application, or develop something yourself. Your case for SRED eligibility becomes even more intriguing if you’re trying to make a piece of technology/machinery do what it wasn’t designed to do. SRED is not necessarily what you do with the technology available to you, but more about what you do to the technology available to get it to do what you need it to.
You’ve reached the limit of what current technology can go for your project. What do you do now? Will you even be able to achieve your project objective because this limit has been reached, and you’re uncertain how to get from where you are to where you need to be?
Knowledge Gaps in SR&ED
The second concept, knowledge gap, is very similar to the technological uncertainty, except this time it’s more about the knowledge available to you from within your company, industry standards and experts, and through online or other research.
You’ve encountered a problem where no solution is found, or where you have to cobble suggestions from several different sources to try to find a solution with no guarantees. If you’ve contacted manufacturers with limited or unsuccessful resolution suggestions, or have been unable to find a definitive “this is how you solve this problem” video or article, then you have a knowledge gap. Even if a possible solution is provided, it’s not until you test it that you will learn if it actually works the way you need it to. If not, your research and experimentation will either continue, or you may decide to abandon your attempts altogether.
In SRED, failure is okay Failure is not just about having to throw away a whole batch of beer or vegan baked goods, or a machine. Failure can also mean not quite achieving your goal for your project. Your goal was to achieve a 50% increase in output, and hypothesis and test number one only improved your output by 2%. In this case, failure is important because you’ve learned something from the attempt, added to your knowledge about what might or might not work in this instance, and will apply that new knowledge to your next step of experimentation, investigation and analysis.
It’s not too Late!
If you have reached the end of your development project or initiative and recognize that there were technological uncertainties or knowledge gaps that you had to overcome to achieve your project goals, it’s not too late to talk to a SR&ED Unlimited consultant.
You can file an SR&ED claim up to 18 months after the end of any fiscal year. Obviously, the earlier you talk to us in the process, the more you’ll be able to remember about the work you did, and the easier it will be for us to prepare and maximize your claim.
If you’re trying to improve your products, services or technical processes, or trying to develop new ones, your work may qualify!