A Quick Overview
A company may submit Scientific Research and Experimental Development (SR&ED) claims every year without regularly examining how the eligible work is identified.
The claims may be accepted by the Canada Revenue Agency (CRA), and the company may receive the expected tax benefits.
However, those outcomes do not establish whether every potentially eligible activity was considered.
A useful review should examine how the claim was prepared, which technical personnel were consulted, what evidence was considered and how the associated expenditures were determined.
The objective is not to assume that the claim should be larger.
It is to determine whether the claim accurately represents the eligible scientific and technological work performed during the relevant fiscal year.
The following seven steps provide a framework for that assessment.
1. Start With the R&D Work Performed During the Year
The first step is to establish the scope of your actual research and development activities.
Begin with the projects and technical programs undertaken during the fiscal year, including work that continued from earlier periods.
Relevant information may include:
- Research and development project lists
- Engineering and laboratory work plans
- Development schedules and project milestones
- Technical personnel and departmental responsibilities
- Records of experiments, tests and investigations
- Significant changes in project direction
This initial review should not be limited to the projects included in the SR&ED claim.
The purpose is to understand the work performed before deciding which activities may qualify.
For example, you may have submitted a claim covering the development of a mechanical system. However, during the same period, your controls team may have investigated an unexpected system response that was not included in the original project description.
That work may or may not qualify for SR&ED.
It should nevertheless be identified and assessed before a conclusion is reached.
2. Compare the R&D Activities With the Claim's Technical Scope
Once your development activities have been identified, compare them with the work described in the submitted SR&ED claim. This comparison can reveal whether relevant technical investigations were considered during claim preparation.
Questions to ask include:
Were all relevant research and engineering groups consulted?
A claim prepared through discussions with only one project manager may not capture the work performed by other technical teams.
Were investigations outside the original project plan considered?
Unexpected technical problems may lead to additional experimental work.
Were unsuccessful approaches examined?
A failed experiment may still be relevant to an eligible investigation, even when it does not contribute to the final commercial solution.
Were activities excluded because they did not appear in the final project summary?
Commercial reporting often emphasizes deliverables rather than the complete experimental process. The objective at this stage is to identify differences between the work performed and the work assessed. A difference does not automatically establish that an eligible activity was omitted.
It identifies an area requiring further technical examination.
3. Examine the Scientific or Technological Uncertainties
Not every activity described as R&D qualifies for SR&ED.
The assessment must establish whether the work was undertaken to achieve scientific or technological advancement through systematic investigation or experimentation.
For each potentially eligible investigation, begin with the uncertainty.
- What were you unable to determine using the scientific or technological knowledge reasonably available at the time?
- Why were established methods insufficient to resolve the problem?
- What advancement were you attempting to achieve?
These questions are particularly important when reviewing complex engineering or software projects.
A technical problem may be difficult, expensive or time-consuming without involving a qualifying technological uncertainty. For example, an engineering team may spend several weeks adjusting a machine to achieve a specified operating speed. If the adjustments involve established methods and known parameters, the work would generally be routine engineering. However, if the team encounters behaviour that cannot be explained or resolved using available technological knowledge, further investigation may be required.
Whether that investigation qualifies depends on its purpose, method and relationship to the advancement sought. The assessment should document this distinction rather than treating the entire development project as eligible.
4. Review the Experimental Work and Results
After identifying a potential scientific or technological uncertainty, examine how you attempted to resolve it.
A systematic investigation should involve a reasoned approach to testing possible explanations or solutions.
The review should establish:
- What hypotheses or approaches were considered
- What experiments or analyses were performed
- Which variables or operating conditions were examined
- What results were obtained
- How the results influenced subsequent work
- What scientific or technological knowledge was gained or sought
The investigation may not have produced the intended commercial outcome. That does not automatically disqualify the work. However, unsuccessful results alone do not establish eligibility either. The assessment must demonstrate that the work formed part of a systematic investigation aimed at scientific or technological advancement.
If you have substantial research programs, this review may require discussions with several technical personnel. A project manager may understand the commercial objectives, while the engineers or researchers can explain the technical decisions and experimental results. Both perspectives can be useful, but the eligibility assessment depends on the underlying scientific or technological work.
5. Examine the Available Technical Documentation
Once the potentially eligible investigations have been identified, review the records supporting them.
The relevant evidence will depend on the nature of the work.
For example:
Type of work
Potential supporting records
Mechanical engineering
CAD revisions, engineering calculations, test results, equipment measurements
Robotics and controls
PLC logs, motion profiles, sensor data, control revisions
Software development
Development tickets, code repositories, benchmark results, technical notes
Biological research
Laboratory notebooks, experimental protocols, observations, analytical results
These records can help establish when the work occurred, what was investigated and how the investigation progressed. However, documentation should not be assessed solely by volume. A large collection of technical files does not necessarily demonstrate SR&ED eligibility. The important question is whether the records support a coherent explanation of the uncertainty, investigation and results.
For example, a series of software commits may show that code was modified repeatedly. Without additional context, those changes could represent routine debugging, feature development or experimental work.
Technical discussions may be required to explain the purpose of the changes and their relationship to the investigation.
The assessment should also identify documentation gaps.
If an important technical conclusion cannot be supported, that limitation should be acknowledged rather than replaced with assumptions.
6. Review the Expenditures Associated With the Qualifying Work
After establishing the technical scope, examine the expenditures included in the claim.
SR&ED expenditure eligibility is governed by requirements that are separate from, but related to, the technical eligibility of the work.
Depending on the circumstances, potentially eligible expenditures may include qualifying labour, materials, contract expenditures and other amounts permitted under the applicable rules.
The assessment should examine:
Personnel
Which employees performed the qualifying work, and how was their time or involvement determined?
Materials
Which materials were consumed or transformed in the performance of eligible SR&ED activities?
Contracts
Which contracted activities were performed, and how were the applicable eligibility and expenditure requirements assessed?
Lease or Capital Costs
Did you buy or lease capital equipment necessary to perform the research?
Allocation methods
How were expenditures divided between qualifying investigations and routine activities?
Supporting records
What evidence supports the amounts claimed?
The financial review should be consistent with the technical assessment.
For example, an employee may have worked on a development project that included both experimental investigation and routine implementation. The full cost of that employee's work should not automatically be treated as eligible. The relevant activities, applicable expenditure rules and supporting records must be considered. Similarly, identifying a previously overlooked technical investigation does not automatically establish that additional expenditures can be claimed.
The financial treatment must be assessed separately.
7. Evaluate the Claim Preparation Process
The final step is to examine how you identify and document SR&ED activities throughout the year. This is particularly relevant for companies with continuing research programs.
Consider the following questions:
Who identifies potentially eligible work?
Is the process led exclusively by finance, or are the relevant technical personnel involved?
When are technical discussions conducted?
Does the assessment occur only at filing time, or are investigations reviewed while they are underway?
How are changes in project direction captured?
Can the company identify experimental work that was not included in the original development plan?
How are routine activities excluded?
Is there a consistent method for distinguishing qualifying investigations from standard engineering, testing and implementation?
How are technical records retained?
Can the company connect its documentation to the uncertainties and experiments described in the claim?
How are technical findings connected to expenditures?
Does the financial assessment reflect the actual scope and timing of the qualifying work?
These questions help evaluate whether the preparation process is capable of identifying eligible activities consistently.
They may also reveal areas where documentation or communication between departments could be improved.
A Practical SR&ED Claim Review Checklist
The following checklist can help management determine whether a more detailed assessment is warranted.
- We have identified the major R&D activities performed during the fiscal year.
- We have compared those activities with the technical scope of our SR&ED claim.
- Relevant engineering and research personnel participated in the assessment.
- Investigations outside the original project plans were considered.
- Unsuccessful experimental approaches were reviewed.
- Potentially eligible work was distinguished from routine activities.
- Technical records support the uncertainties, investigations and results described.
- Expenditures were assessed against the qualifying work and applicable rules.
- Documentation gaps and uncertain eligibility positions were identified.
- We have a process for identifying and documenting relevant work throughout the year.
A checklist cannot determine SR&ED eligibility.
However, it can help identify weaknesses in the process used to prepare a claim. If several questions cannot be answered, a more detailed technical review may be appropriate.
What If the Review Identifies Potentially Omitted Work?
A review may identify activities that were not considered during the original claim preparation.
The first step is to determine whether those activities meet the SR&ED eligibility requirements.
If they do, you must then assess the related expenditures, available evidence and applicable filing requirements. Whether a previously filed claim can be changed depends on the relevant statutory deadlines, claim status and CRA procedures. Accordingly, identifying additional eligible work does not mean that an existing claim can necessarily be amended. Even where a prior claim cannot be changed, the findings may help improve the company's assessment and documentation process for subsequent years.
Conclusion: Review the Process, Not Just the Result
The amount recovered through an SR&ED claim does not, by itself, establish whether the claim was complete. A meaningful assessment begins with the research performed during the year and examines how the eligible activities were identified. It then considers the scientific or technological uncertainties, experimental work, supporting documentation and associated expenditures. The review should also examine how the company distinguishes qualifying investigations from routine development activities.
The objective is not to produce the largest possible claim. It is to prepare an accurate, defensible claim that reflects the full scope of eligible research.
For companies conducting substantial ongoing R&D, this requires a consistent connection between technical work, documentation and claim preparation.
Review Your SR&ED Assessment Process
Checkpoint Research works with Canada based companies to assess the technical activities underlying their SR&ED claims.
Our team examines research and development activities, technical records and supporting information to help determine whether potentially eligible work has been properly identified and assessed.
If your company already files SR&ED claims and would like to review its current approach, contact our team.
