How to write uncertainties for SR&ED

Writing the technical description of a SR & ED project should not be taken lightly. It is true that the descriptions included on T661 Form are not always read by the RTAs. But when they are read, these descriptions make the difference between convincing the RTAs of the eligibility of your project and … the audit meeting.

In previous blogs, we presented some of the most common project positioning errors, we made general comments on the positioning and writing of SR & ED project descriptions. We now turn our attention to the heart of what will form your T661 Form: line 242 is where you detail the technological uncertainties that are the core of your argument, why you believe your project is SR & ED.

It is such a vast subject that we shall come back to it again and again in future articles. Today we are talking about managing the available space. We have only 350 words to convince the reader in this key section. We must therefore be precise and complete.

Remember that the CRA provides its T4088 guide to explain what to put in T661 Form. This is a good presentation of WHAT to say. Following is our presentation of HOW to produce this content.

Uncertainties

« If you want your R&D tax credits you must nail down these important items: the context, the objectives, the knowledge base and the uncertainties »

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“What scientific or technological uncertainties have you tried to overcome? “. To determine SR & ED, one must first show that there are uncertainties that can not be eliminated by standard practice. You must therefore limit yourself to presenting the scientific or technological side of the project. It’s no time to talk about the customer’s constraints, nor those of the products or of the commercial environment. Make good use of the limited space available if you nail down these four important elements: the context, the objectives, the knowledge base and the uncertainties.

1- Context (max one sentence per following item)

1. Start with a (very) brief introduction to the business context, project and objectives,
2. Clearly state the technological scope of your project. What do you want to do with the technology?
3. Formulate a high-level description of the technology project,
4. If the project is a continuation of last year, indicate the level of technology reached at the end of the previous year and what you will be focusing on this year.

2- Technological objectives

1. Technological objectives can be expressed in terms of:
   • New technological capabilities integrated into the product or process being developed,
   • Progress in the application of technology, eg.: use in new areas, under different conditions, etc.
2. Specify how each objective relates to the technology (not business).
3. The stated technological objectives must be precise and measurable.
   • Identify the key indicators or measures you will use to determine whether you are meeting the technological goals.
   • Indicate, for each of these indicators, the initial measure and the target.

3- Knowledge base / current practice

« This is your opportunity to properly position the relevant angle to grasp your vision »

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One of the most common arguments used by the RTAs is to reject the claimed project by declaring it to be standard practice. This is your chance, you have a few lines here to define what you think is the standard practice. Remember, everything is a matter of point of view and perception. It is up to you, here, to properly position the relevant angle to grasp your vision.

1. Explain what your company could do with the technology before SR & ED was started or what the technology was capable of at the beginning of the project.
2. What were the technological limitations of your products or processes to overcome before starting your project?
   • For an experimental development project (90% of SR & ED claims), this means attempting to exceed or increase the knowledge base or technology. Identify the technological barrier (s) encountered at the outset.
   • If your project was more of a scientific research, give a perspective in terms of the scientific knowledge you were looking for before starting your work.
3. Experimental development work should be undertaken with the aim of seeking technological progress. Your definition of the knowledge base must therefore highlight the progress sought:
   • Example: We want to increase the performance of the X component by 20% in the Y context, and increase the reliability of the results to 99%.
   • An overly broad definition of the knowledge base is useless (eg. we want to advance mechanical engineering in the factory).
4. You can use the information you provided the previous year if your project is a continuation and if the objectives are not met or are unchanged.

4- Formulate the uncertainties

1. Each uncertainty must be related to the ability or not to achieve a technological objective defined above.
2. What problems have you tried to resolve and for which the uncertainty resolution approach is unknown and can not be determined on the basis of your technology or based on your knowledge base.
3. Clearly identify all the technological uncertainties, obstacles and difficulties encountered, and for each of them:
   • The underlying technological limitation (why it is uncertain),
   • The limited technology and what we seek to advance,
   • The current practice and why it fails to resolve this limitation.
4. Were the problems caused by design constraints that you had to overcome? What constraints?
5. Include enough details to show that these issues were not routine problems.
6. Often the obstacle was not clearly defined before the experiment. It is often preferable to specify technological uncertainty only through the experimental process rather than at the beginning of the work.

And you, do you have any comments or recommendations on how to write SR & ED uncertainties in order to convince the CRA RTAs? Did you like your reading? Tell us so. What should be added? What topics are you interested in? You did not like this reading? Tell us so. What is it you did not appreciate in this text?

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How to write SR&ED description : the beginning

You must fill a T661 form to write SR&ED descriptions. The CRA provides many information to facilitate the preparation of claim files and prepare this form:

• The T4088 guide explains how to complete this form line by line.
• The “Eligibility of Work for SR&ED Investment Tax Credits Policy” proposes a methodology to determine if there is SR & ED and how to identify what work constitutes SR & ED.
• Several other documents are also available on the CRA website.

1- Too much detail kills clarity

Despite the desire of the Agency, the more you read these documents and the more you are confused. Why the confusion? We see two main reasons:

• These are all very academic papers. They are intended for scientists from the ARC and expert consultants who prepare these files on a full-time basis. These documents have a legal side, they have several important definitions, provide subtle detail, but they stick to formally describe what is expected, the WHAT.
• The typical taxpayer’s feet are grounded in reality. He has a scientific base, is an engineer, a technician or a computer expert. But the reality of companies remains the same: a team of production and development which has to satisfy constraints from delivery, technology and business. The writer needs a guide, to be provided with a recipe explaining HOW to produce the text.

The CRA requirements have evolved toward more science and documented systematic experimentation. The enterprise development constraints require it to optimize processes, limiting the scope of the analysis and documentation as soon as a solution is found. The gap keeps growing between requirements and reality.

That’s why we wrote this practical guide to drafting the technical description of the T661 form.

2- The importance of the technical description

The T661 form is prescribed, that is to say, it is absolutely necessary to claim the SR & ED credit. The number of words used in lines lines 242, 244 and 246 can not exceed 350, 700 and 350 respectively. You must be centered on the technical facts and formulate your answer in a technical language and style.

These texts will be read by those research and technology advisors (RTAs) as part of the preliminary assessment of the risk associated with your file. If the risk is deemed sufficient, your claim will be selected for a request for additional information and, in most cases, for an audit meeting.

We cannot avoid an occasional audit, but a good description can certainly create a good impression with the RTA and thereby minimize negative impacts. It is a very important document that can trigger or avoid such an audit.

« You must sell to the CRA tax credit your technical problems and your systematic resolution process »

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3- Project positioning

In a previous article, we identified four common positioning mistakes that we find in the SR & ED projects descriptions. Here is how to maximize your chances of being accepted by positionning your project properly.

3.1 This is a sale

Our texts usually sell the benefits of our technology to potential customers. You can see the SR&ED project description as a different kind of sale. Let’s see some important differences:

– Instead of selling the benefits (outcomes) of our technology, we will sell our experimental process, the fact that we followed the scientific method. The results (success or failure of our products) are of little importance.

– Our target audience is made up of some RTA and their managers at CRA, instead of selling to potential customers.

– The success of our sale will be measured by accepted projects and tax credits earned and not in new sales.

3.2 Selling an experimental process

Take the analogy of the automobile. To sell a car, the seller insists on the characteristics of the product, its features and the feelings it inspires:

• It is beautiful and red,
• It goes fast,
• Its leather seats are comfortable.

What must be present in our SR & ED description are not the characteristics of the car, but rather what you changed in that car. We must

• lift the hood and explain your technological goals and the limits of the technologies in place in relation to the objective.
• explain that in order to achieve our goal, you need to overcome the limits of the existing technology (and not simply replace it).
• illustrate the systematic process followed and each of the identified assumptions during the experiment.

4- How to write: general comments

Let’s start with some general comments on how to write a technical description of the project.

• Detail your content. Start by putting all the details of the project on paper. You will see all of your processes and this will facilitate your description and the reader’s job.
• Cut the SR & ED project. Once the details are established, strategically edit the content description to tighten around the most relevant SR & ED aspects of the project. Eliminate the useless details as they confuse your argument.
• Focus on the key steps and difficult or uncertain activities in order to include quantifiable measures, statistics, findings and other evidences.
• Logical and concise communication. The progression of ideas must gently arise between sections, allowing the reader to go through the document quickly without searching for other information.
• Technical language. Write in the technical language and style of those who do the actual work or who understand and are familiar with the work.
• No useless “buzzwords”. Restrict using jargon, buzzwords or other technical sounding phrases or abbreviations. The RTAs see them all the time. Technical details must be specific and restricted to those needed to ease the document. Avoid to take the reader in too much detail, as this can lead to misconceptions about the work done and the advancements sought.
• Systematic investigation. The explanation should focus on the technical facts illustrating the experimental or analytical work. You have to show an experiment or a systematic search by means of analysis. It must also show that the purpose of the work was to achieve progress in a field of science or technology.
• Keep details. Given the space limitations for writing, it is smart to prepare in parallel a documentation (a binder or a working document), containing more detailed explanations, and ready to show at a possible audit.
• Continuity between projects. Projects rarely end by fiscal year-end.

1. For projects that are still active, present them in the same sequence as the previous year. This simplifies the references for the RTA. Remember, the goal is that they read it as quickly as possible, reducing the time spent on your file and the likelihood of other issues.
2. For completed projects, clearly establish why the projects from previous years were not continued or claimed in the current year.

• Keep things simple. It is not necessary to separately itemize all the small projects. We can combine projects, provided they have similar technologies (eg in different fields of application).
• Technological titles, not the customers name. Technology projects have different titles for business projects. The same technology is sometimes used in different customer projects. In this case, an integration concept as technology axis can be understood by the CRA. We will come back to this in a future article.
• No R & D project is “eternal”. Pay attention to projects that last more than three years. The CRA seeks to cut projects they believe endless. Reassess current projects to see if a new technology could help to present a new angle. If not, stop claiming the project and go on under a new name more appropriate to the new objectives and uncertainties.
• Support activities. Project descriptions are short. Avoid detailing support activities. Their effect is to focus as lenses on different aspects of the project. You risk giving the reader the impression that your claim is mostly made up of support activities and therefore there is surplus to cut out.
• External Reviewer. If your description is reviewed by someone not familiar with the material, it is always a good idea. This will highlight gaps in the reasoning and explanations. Sometimes the creator of the technology is too close to the material and some of the steps are neglected or links between the steps are not well explained.
• Get involved. Spend the time and effort needed to prepare these documents. Help the CRA to say “yes” to your R & D. It’s worth it.

So these were our general comments on writing your SR & ED project descriptions. In future articles, we will explain in more details how to write the sections 242,244 and 246 of the T661.

And you, do you have any comments, suggestions and experiences to share about this  ?

Did you like reading this article? Tell us so. What should be added?

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