Back in September, the CRA released a set of examples to better illustrate what is considered SR&ED eligible and what is not. These scenarios cover 3 major aspects of a SR&ED claim:
Before including these examples into the Eligibility of Work for SR&ED Investment Tax Credits Policy, the CRA requested feedback on whether the examples were clear enough, if anything was missing, and if there were any suggestions of new examples that could be added.
Below are a few insights that were included in our BeneFACT company submission to the CRA:
This case outlines a scenario involving pipes corroding earlier than usual at a chemical company. The supplier investigated and found a leak. They replaced the filters, fixing the problem. Standard practice was used, including existing trouble-shooting procedures, to find the solution.
We feel that if the paragraph had indicated that the service technician referred to a trouble-shooting guide then the case would have become extremely clear that the work is of a routine nature. It could explain that the client and technician undertake the task of determining the root cause of the filter failure with an underlying assumption that the filter was designed to withstand corrosive fluids.
Case 2 outlines the same problem, only the solution found did not actually fix the problem. In looking for a better solution, they started an experimental development project involving several redesigns of materials.
We feel that the key aspects to emphasize in the project description are the non-availability of material performance to withstand corrosive action of the fluid and performance data at elevated temperatures. As well as the inability to foresee that the shaft temperature could rise above the threshold limit.
Example 5 is an example of “formulation of a hypothesis to resolve a problem”. It explains how an R&D chemist needed to figure out how to improve bond strength in glue. With no exact previous research for the environments involved in the project, the chemist created a hypothesis based on similar previous research of what bonding material would work under their conditions.
Since the example illustrates a hypothesis that was based on known facts and the uncertainty is the specified conditions of preparing the product (will it succeed or fail in different conditions that have never been tested before) the uncertainties should have more emphasis. The known knowledge illustrated is not considered “base” knowledge to the industry. Therefore, there should be more detail in the uncertainty to show this. You could expand on the proof that industry standards were not working; expand on the underlining reasons why a new method was required. The introductory sentence indicates the company’s need to “compete with another product”, which is a business objective; the example could better demonstrate a technologically directed objective.
“This example shows that an SR&ED project usually occurs as a subset of a company project.” The scenario involves a company wanting to improve an electronic product using a specific component. A new budget was created, staff allocated, and project prep started. During the project a problem arose with the size of the new part (it would require knowledge of miniaturization of microelectronics). Not having any previous knowledge of this, the work was contracted out and the problem was solved.
In order to expand on the eligibility of the contract work, perhaps it should be mentioned that a contract was signed for the contractor to perform SR&ED and emphasize that the miniaturization was not routine work for the contractor. Perhaps mention who owns the IP. It could also make note of any internal employees who may have been involved in support work of the SR&ED the contractor was performing.