Frequent and costly mistakes in SR&ED writing

Writing a project description to claim it as an SR&ED is a demanding exercise because it is the primary source of information used by the Canada Revenue Agency (CRA) Research and Technology Adviser (RTA).

Before submitting your descriptions, have your descriptions re-read by someone neutral and provide them with the following list of the most common errors. Better yet, call on SR&ED claims experts such as R&D Action. A quick and inexpensive analysis can save you a lot of trouble.

Is there an SR&ED project?

The vocabulary

First, often to do well and to comply with the requirements, one uses a vocabulary not adapted to the company. Of course these are words cited in the CRA policies. But if they do not match your reality, the vocabulary is confusing. Taken out of context, certain terms defined in the program may be suspect for the reader. For example, if “technological uncertainty” or “hypothesis” are not part of your current vocabulary, be careful before using them in each sentence because they have a specific meaning for the RTA. Similarly, for terms such as prototype, pilot plant, etc.

The project

Also, the RTA has a little interested in your commercial context and in your business projects, but he is mostly focused on your technological project. When you put too much emphasis on the business project or on topics that are not relevant to the experimental development project, it becomes like a background noise that masks the SR&ED eligible project.

Similarly, if you mix up the product with the technology involved (our machine will be more efficient, will cost less to produce, will respond to customer requirements, etc.). These are not the arguments sought by the RTA. Rather, you must emphasize the limitations of the technologies at our disposal, the standard approaches to address these limitations, and how your approach differs from these standard practices.

Section 242 of Form T661 asks for the definition of the technological objectives of the SR&ED project. Too vague a definition of these objectives may suggest that the project is too broadly defined. For example, “we want to get a higher rate”. Try instead to specify the current and desired rates, or mention by how much you want to grow.

Unnecessary details

Descriptions filled with superfluous details are also suspicious. It is best to describe the project and its activities in precise terms and to focus on the important elements. Too many unnecessary details can indicate an attempt to drown the fish, to hide the lack of eligible content. You must distinguish the essential from the superfluous.

Some descriptions regroup several small projects into one without clearly saying so and without specifying the activities for each sub-project. This approach is likely to attract the attention of the RTA, which may believe that it is a “catch-all” project that has nothing to do with experimental development.

Also, an identical description for the same project for two financial years, without segregating activities per exercise is a very bad indicator for the RTA.

The advancement

The technological advancement requested in section 246 of Form T661 is defined as:

“Production of information or the discovery of knowledge that advances our understanding of scientific relations or technology”

Too often the text only mentions the progress of the project, for example “this year we have built a prototype”, or the achievement of commercial objectives, for example “our unique technology stands out in the market”.

Advancement must be specified in relation to the technological base of the project and the technological uncertainties mentioned in section 242 of T661. What is the technological area where you intended to achieve an advancement? What have you learned, understood, demonstrated by your experimental work?

The uncertainty

Too often descriptions list product specifications as technological uncertainties eg “one needs to know which of the specifications has caused a technological uncertainty”.

Many people make their uncertainties more like concerns “we do not know if it will work”. The well-formulated technological uncertainties show the relationship with the uncertainties of the technological solutions sought and what was done to solve them, rather than with the success of the business project.

The systematic process

Also, describing a development process does not bring out the experimental and systematic process. The business project is often presented instead of the SR&ED activities.

You must show chronologically (dates or short periods) the work that has been done to resolve each technological uncertainty. It must be shown that the activities were carried out by experimentation using a systematic approach.

A systematic approach begins with the formulation of technological objectives, from which the desired advancements are derived. Uncertainties are then raised to achieve these advancements. Hypothetic solutions to these technological uncertainties are identified. Some of these hypotheses are tested, results are recorded and conclusions are drawn. Then you come back to the formulated problem and the hypothesis. You select another hypothesis or you use your new knowledge acquired during the previous tests and the results to formulate new hypotheses of solution which you put to the test, etc. This process continues until the conclusion, that is, technological uncertainty is solved, or that you find that you can not solve it. Both cases are acceptable. As a result of this process, what progress has been made towards achieving the stated technological or scientific objectives? This is the systematic experimental approach spiral process.

Other issues

Finally, several descriptions do not meet the RTA’s expectations:

• No distinction between SR&ED and conventional development of a commercial product;
• Difficulty in illustrating the work progress (for example, providing photos, schedules, etc.);
• Activities not presented chronologically;
• No mention of a documented systematic testing program;
• No indication of the beginning or the end of the SR&ED project;

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