A Quick Overview
Receiving an accepted Scientific Research and Experimental Development (SR&ED) claim is a positive outcome. However, it does not establish that your company identified every eligible activity or expenditure.
The Canada Revenue Agency (CRA) assesses the work and expenditures submitted in a claim. It does not independently examine all the research your company performed to determine whether additional activities should have been included.
For companies conducting substantial R&D, this creates an important distinction between having a claim accepted and having a complete claim.
A useful assessment begins with three questions:
- Did we identify all the scientific or technological uncertainties investigated during the year?
- Did we assess the experimental work associated with those uncertainties, including unsuccessful approaches?
- Did we account for the eligible expenditures associated with the qualifying work?
A claim can be accepted while these questions remain worth examining.
1. What Does an Approved SR&ED Claim Actually Confirm?
When the CRA accepts an SR&ED claim as filed, it processes the work and expenditures that were submitted.
This does not necessarily mean the CRA conducted a detailed technical review of every claimed activity. It also does not mean the CRA evaluated research activities that were not included in the submission.
Accordingly, two separate questions should be considered.
The first is whether the activities and expenditures submitted were accepted.
The second is whether the submission accurately represented the full extent of the company's eligible research.
These are not the same question.
For example, a manufacturer may submit an SR&ED claim covering experimental work on a new mechanical assembly. The CRA may accept that claim as filed.
However, during the same development period, the company's controls engineers may have investigated a separate technological uncertainty involving the interaction between the assembly and its control system.
If that investigation was not identified during claim preparation, it would not have been assessed as part of the submitted claim.
Whether the additional work qualifies depends on what the engineers were attempting to determine, the knowledge available to them and how the investigation was conducted.
The acceptance of the original claim does not answer those questions.
2. Why Some R&D Activities May Be Missed
One reason activities may be overlooked is that commercial projects and SR&ED projects do not necessarily have the same boundaries.
A commercial project is usually organized around a product, process, contract or business objective.
SR&ED, however, is concerned with work undertaken to achieve scientific or technological advancement through systematic investigation or experimentation.
A single commercial project may contain both eligible and ineligible work. It may also involve several technical disciplines investigating different uncertainties.
Consider an automated production system.
The mechanical engineers are responsible for the equipment design. The controls engineers develop the operating logic. The software engineers handle communication between components.
During testing, the system performs as expected at 40 units per minute. At 80 units per minute, intermittent synchronization failures occur.
The engineers first check sensor calibration, communication settings and known operating limits.
If the problem is resolved through standard adjustments using existing knowledge, that work would generally be routine engineering.
However, suppose the failures persist because the interaction between the mechanical response and control logic cannot be predicted using available knowledge.
The engineers then formulate explanations for the behaviour, modify control strategies and conduct a series of measured tests to determine the cause.
That investigation may warrant an SR&ED assessment.
The relevant question is not whether the equipment was difficult to develop. It is whether the work was undertaken to resolve a technological uncertainty through a systematic investigation aimed at achieving technological advancement.
If claim preparation focuses only on the mechanical development project, the controls investigation could receive insufficient attention.
3. The Role of Technical Understanding
A complete SR&ED assessment requires direct examination of the work performed.
Project titles, departmental budgets and employee job descriptions are not sufficient to establish eligibility.
The assessment should identify:
The scientific or technological uncertainty
What was the company unable to determine using the scientific or technological knowledge reasonably available at the start of the investigation?
The proposed approaches
What explanations, hypotheses or possible solutions did the researchers consider?
The investigation
What experiments or analyses were conducted to test those approaches?
The results
What did the tests establish? Which approaches failed, and what was learned from those failures?
The boundaries of the eligible work
Which activities were part of the systematic investigation, and which were routine design, implementation, quality control or other excluded work?
These distinctions matter because not every activity associated with an R&D project qualifies for SR&ED.
For example, installing equipment according to established specifications would not generally qualify simply because the equipment forms part of a larger research project.
Similarly, routine software debugging does not become SR&ED solely because the underlying system is complex.
The technical assessment must establish why the work was performed and how it contributed to an attempt to achieve scientific or technological advancement.
4. What Your Existing Technical Records Can Reveal
A company may already possess much of the information needed to assess its research activities.
However, that information is often distributed across several systems.
Depending on the industry, relevant records may include:
- Engineering drawings and CAD revisions
- Laboratory notebooks and experimental protocols
- Software repositories and development tickets
- Test plans, measurements and results
- Equipment logs and operating data
- Technical meeting notes and investigation reports
These records can help reconstruct the progression of an investigation.
For example, a sequence of software commits may show that several approaches were attempted. Test records may establish how the system behaved under different conditions. Engineering notes may explain why an earlier approach was rejected.
However, the existence of these records does not establish SR&ED eligibility on its own.
A series of revisions could reflect routine optimization. A collection of test results could document standard quality control.
The records become useful when they can be connected to an identified scientific or technological uncertainty and the systematic investigation undertaken to address it.
This is why discussions with the people who performed the work remain important.
They can explain what was known, what was uncertain and why particular tests were necessary.
5. Five Questions to Ask About Your Current Claim
If your company already files SR&ED claims, a review of the preparation process can help determine whether potentially eligible work is being identified consistently.
1. Were all relevant technical departments consulted?
A claim prepared primarily through discussions with one project manager may not capture investigations conducted by other engineering or research groups.
2. Were unsuccessful experiments included in the assessment?
SR&ED does not require a successful commercial or technical outcome. An unsuccessful experiment may still contribute to scientific or technological advancement.
3. Were routine activities separated from experimental work?
A credible claim should identify the qualifying investigation without treating every activity in the commercial project as eligible.
4. Were technical records examined alongside the project descriptions?
Existing records may help establish the sequence of hypotheses, experiments and results. They may also reveal gaps that require clarification.
5. Were eligible expenditures assessed against the full scope of qualifying work?
Identifying an additional potentially eligible activity is only part of the assessment. The associated expenditures must also satisfy the applicable SR&ED rules and be supported by appropriate records.
These questions do not establish that a previous claim was incomplete. They provide a basis for evaluating how thoroughly the claim was prepared.
6. Why This Assessment Should Not Wait Until Filing Time
In companies with continuous research programs, technical investigations may begin, change direction and conclude throughout the fiscal year.
By the time the annual SR&ED claim is prepared, some of the relevant details may be difficult to reconstruct.
An engineer may remember that a particular approach failed but no longer recall the precise test conditions. Another employee may have moved to a different project. Supporting records may be spread across multiple systems.
Regular discussions with technical personnel can reduce these problems.
They allow potentially eligible work to be identified while the investigation is underway and make it easier to maintain records that explain the work.
This does not mean every engineering activity needs to be documented as SR&ED.
It means that when a scientific or technological uncertainty is identified, the company should have a practical method for recording the investigation and evaluating its eligibility.
Conclusion: Approval Is Not the Same as Completeness
An accepted SR&ED claim is a positive result. However, it should not be treated as independent confirmation that every eligible research activity and expenditure was identified.
For companies conducting substantial R&D, the completeness of a claim depends on the quality of the underlying technical assessment.
That assessment should examine the uncertainties encountered, the experiments performed, the knowledge gained and the records supporting the work.
It should also distinguish eligible investigations from routine engineering and other excluded activities.
The objective is not to increase a claim without justification. It is to ensure that the claim accurately reflects the full extent of the company's eligible research.
Assess the Scope of Your R&D
Checkpoint Research works with Canadian companies to assess the technical basis of their SR&ED claims and identify potentially eligible research activities.
If you would like to review how your company's R&D is being assessed, contact our team to discuss your current approach.
