What Qualifies For SR&ED?

June 20, 2021

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5 Questions The CRA Uses To Determine What Qualifies For SR&ED

The CRA asks five questions to determine whether a project meets the SR&ED program criteria: Was there a scientific or a technological uncertainty? Any work claimed for SR&ED must solve for a scientific or technological uncertainty, which means that there is no generally available scientific or technological knowledge for the objective you are trying to achieve.

As a result, it is unclear whether or not you will be able to achieve your objective at all, which means your R&D efforts will advance the current state of technology by enhancing a characteristic or extending a capability.

1 Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty?

A hypothesis is defined as “an idea, consistent with known facts, that serves as a starting point for further investigation to prove or disprove that idea.” For the purposes of SR&ED, a hypothesis is simply referring to how you will attempt to resolve the technological unknowns identified before the experimentation begins.


2 Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?

The CRA is trying to understand whether you went through a well thought out process to identify the advancement you needed to achieve; you identified challenges that were associated with achieving that advancement; and that you followed through in an iterative process until you arrived at your hypothetical outcome or proved that it could not be achieved.

3 Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?

In the pursuit to prove, or disprove, your initial hypothesis, it’s likely that you will perform work that will achieve scientific or technological advancement to create new, or improve existing materials, devices, products, or processes. If you find existing solutions that solve your challenges, the work performed will not qualify for SR&ED.

4 Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?

The CRA is looking for the result of your iterative process and how that has advanced the knowledge base within your company. Keep in mind that this advancement needs to be on a technical level and not a business one. So, it can’t just address a ‘market demand’ knowledge gap, but a technical one. NOTE: Just because you didn’t achieve your technological objective due to unavoidable challenges doesn’t disqualify you from applying for SR&ED. After all, the failure has advanced your technical knowledge and you know where not to start in your next iteration of your testing.

What Can I Claim? SR&ED eligible expenditures and rates of return depend on the size of the company, ownership, and whether they are CCPC (Canadian-controlled) or non-CCPC (foreign-controlled or publicly owned). The rates of return also vary by province. Was a record of the hypotheses tested and the results kept as the work progressed? Documentation for all SR&ED-related projects needs to be contemporaneous. This means that it was “created at the time when the SR&ED work was done and produced as a result of performing such work.” It is expected that all work is documented. You must clearly demonstrate why each major element is required and how each fits into the project.

5 Take a look at the CRA’s Eligibility of Work for SR&ED Investment Tax Credits Policy