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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How do you define standard practice?

To be eligible for SR&ED, a company must demonstrate that it is seeking technological or scientific progress in its development. It is necessary to expose an experimental process that attempts to go beyond standard practice. Therefore, establishing what is standard practice, is an essential step for any SR&ED claim.[1]

However, certain prerequisites must be met:

• The R&D activity must require a creative operation for an individual normally competent in this scientific or technological field.
• This operation must have been launched following the absence of existing solutions, that is to say, be justified by a study of the state of the art.
• R&D can not be explained by a lack of internal technical know-how.
• The solution should not appear trivial for a domain expert.

To define the knowledge base one must consider its connexion to the technology or the progress sought.

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Establishing the state of the art – A matter of specialists!

The state of the art is the state of existing technologies. It consists of all the knowledge accessible at the beginning of the work and usable by an individual normally competent in the field. It can be compiled from a variety of sources, including scientific and technical publications, patents and technical databases.

The preparation of the state of the art is an iterative process in three stages:

1. Make a bibliography as complete as possible in relation to the object of study. You should also establish a list of keywords, collect relevant elements and of select them. Keywords are grouped from general to specific and structured. This organization is very useful for collecting and referencing articles, and specialized publications. The references thus found must be recent, but if there are relatively old reference articles in the field, they must also be considered.
2. Summary of relevant information contained in the references. The objective is to remove from publications or patents consulted what is important for the work to be done and to bring attention to the elements of analysis and interpretation: we must focus on what makes us think rather than at the mere presentation of the data. It is therefore a refinement of the network of keywords, its structure and its organization. For each reference, it is necessary to underline the problem it deals with, the solution it proposes and the results obtained. Then, a structured summary of the main definitions, consensus and standards is drawn up, orienting it more precisely on the research problem to be solved.
3. Write-up the state of the art. The researcher must synthesize the main elements of the content, classify approaches according to criteria to be set, draw conclusions and lessons, and finally suggest hypotheses and recommendations.

The state of the art makes it possible to position the problems as well as the R&D objectives in relation to other existing works in the same technological and scientific field. This confirms the originality of R&D ideas and the surpassing state of the art. Moreover, this makes it possible to verify that the uncertainties and technological walls have not been solved in previous R&D work and if so, how they have been. Do the R&D problem solving approaches you found meet the needs of the technological and scientific walls you encountered?

It is the attempt to go beyond the state of the art that demonstrates the eligibility for SR&ED credit.

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Documenting the state of the art requires more than just selecting the most relevant R&D items and work in the intended field. This also requires understanding these works and analyzing them so as to draw advantages, disadvantages, scientific and technological walls and to draw inspiration to develop new lines of research and hypotheses.

Establishing the state of the art ensures that the company has identified and exploited the knowledge available to carry out its project. It is the attempt to go beyond the state of the art that demonstrates the eligibility for SR&ED credit.

How to identify and remove technological walls?

According to information circulars issued by the Canada Revenue Agency, experimental development activities are eligible for SR&ED only after the identification of a scientific or technological wall.

There are two main families of walls in an R&D program: Scientific Walls and Technological Walls.

• The scientific wall is an obstacle coming from the very nature of domain science. For example a theory not applicable to answer a particular problem. This type of uncertainty is generally encountered in basic research, but also in applied R&D programs. The scientific wall justifies the need to design a new approach to meet the needs and problems of research, which surpasses the state of the art.
• A technological wall is a barrier related to a particular technology. The inability of technology to meet R&D needs is a technological barrier. The project will be qualified as SR&ED if the work done to achieve this alternative technology aims to lift the identified technological walls. The development of an alternative technology to achieve a level of performance comparable to that of an existing technology can also qualify as SR&ED.

It is therefore necessary to examine the existing scientific or technological knowledge base of the project. If a solution exists on the market or is an accessible result, then one does not go beyond the standard practice and this work can not be considered as SR&ED activities even if this solution was not mastered by the company at the beginning of the project.

It is then necessary to establish and quantify objectives to exceed this standard practice. .

Conclusion for qualifying SR&ED work

In conclusion, it does not matter whether or not one overcomes these objectives. What is important for qualifying experimental SR&ED work (scientific or technological) is:

• HOW are the activities executed in a systematic way?
• and especially WHY we do this  work. One must aim for an advancement,

 “which implies an attempt to resolve what is called scientific uncertainty or technological uncertainty. Basically, the advancement is the targeted outcome of the SR&ED work while the uncertainty is the impetus for the SR&ED work. Therefore, an attempt to achieve advancement is an attempt to resolve uncertainty. “

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[1] Note: In this text we use the terms “standard practice”, “knowledge base” and “state of the art” as interchangeable synonyms.

8 key questions to improve your R & D descriptions

The SR & ED project description is a short 1500-word (approximately 3-page) text inserted into Form T661 that describes your claimed project and is intended to provide the reader of the Canada Revenue Agency (CRA) with clear answers to his or her questions. .

This text is extremely important because it is on reading that these CRA advisers will decide whether they need additional information, or even trigger a technical audit. And you do not want a technical audit. Believe me.

“Explain your process as if you were running a boat in the middle of a storm but going on with courage”

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Selling ​​business benefits or technology challenges

Too often the taxpayer thinks he has answered well but he did not say the right things, he forgot the most important information. what do your descriptions look like? Is it case 1 or 2?

Case 1: Sales Description – Presenting the benefits of your technologies, or features that distinguish it from the competition. That’s how we are used to communicate to our customers.

Case 2: Scientific or technological description – The CRA seeks a “systematic scientific or technological investigation or search, carried out through experimentation or analysis, that is, work undertaken in the interest of technological progress in the creation of new materials, devices, products or processes or the improvement, even slight, of those that exist “.

Be critical

Even if you have a R & D consultant, you MUST take one last critical look at your text BEFORE submitting your SR & ED claim. If you write as case 1 you maximize your chances of a technical audit visit. If it is not this year, it will be soon. Believe me. You can not be lucky every year.

8 Questions

Here are 8 super-relevant questions and remarks to ask yourself while analyzing your technical descriptions. Your text must satisfy each of them: Have you:

1. Precisely defined the desired progress and associated technology.
2. Established your knowledge base, information, references and technologies which were available to you at the beginning of the project.
3. Insisted on an experimental development by studying and modifying known techniques in documented activities. TRIAL AND ERROR process IS NOT ELIGIBLE FOR SR & ED
4. Systematically brought definitions of policies that link uncertainty / objectives and knowledge base.
5. Said how, according to what approach, and not with what means.
6. Linked the uncertainty to the technology and not to the field where the technology is applied.
7. Attached the progress to the technology and not to the field where the technology is applied.
8. Linked the knowledge base to progress and technology and not to the field where the technology is applied.

Picture a boat in the storm

In summary, the reader must feel the technical challenges, the moments when you scratched your head because there was no current technological solution. He must understand your experimental process. As an inspiration, explain your process as if you were running a boat in the middle of a storm but going on with courage.

Conclusion

In conclusion, these are sometimes difficult questions to answer. But this is essential to minimize the risk of a technical audit that you really do not want to undergo.

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Writing Technological Advancements

Writing your project description in Part II of Form T661 is extremely important to obtaining your SR & ED credits. It can not be taken lightly.

This form is the only document that can give a favorable opinion to the CRT about your project. If he does not believe it, you will undergo an audit meeting. Additionally, the advisor will initially have an unfavorable opinion about the eligibility of your project.

In a previous article, we gave some tricks of writing technological uncertainties (line 242). Let us now consider how to formulate technological advancements on line 246.

« SR&ED Advancement is the discovery of knowledge in our understanding of scientific relations or technology »

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Advancement is defined by the CRA as the generation of information or the discovery of knowledge that advances our understanding of scientific relationships or technology.

Here are some questions to help you define and describe the desired progress:

1- Link progress to uncertainties and the experimental process described:

The title of question 246 is: “What scientific or technological advances have you made or attempted as a result of the work described on line 244? “. There must be a link between these sections.

1. What progress is being made in technology?
   • What were the problems or challenges that you could not solve using the commonly available experience and which made it necessary to seek advancement in the underlying technology to achieve the goal mentioned in 242?
   • What new scientific knowledge has been found in your work?
2. Describe the progress made and relate it to the corresponding overlap (or uncertainty) identified on line 242.
3. One of the consequences of advancement is that new knowledge can be generalized. So illustrate, if possible, the generic aspect of your technological advancement, that is, it is useful in other situations or circumstances beyond the project in which progress has been made.
4. As a general rule, work undertaken to resolve technological uncertainty ( line 242) through a systematic investigation or research process ( line 244) will result in technological advancement.
   • Similarly, when developing products or processes, if a new capacity has been incorporated into a product or process to improve its performance, it is possible to achieve technological progress.
   • Finally, the product or process may be new, or it may be an improvement of an existing product. On the other hand, this new capacity must be achieved by systematic investigation or research.

2- Avoid the functional or business side

5. Explain why the new capacity represents a technological breakthrough in terms of the underlying technology and not in terms of:
   • New functionality, or
   • Innovation in the application, or
   • The strategic advantage for your business.
6. Distinguish between:
   • Benefits arising from the success of the project (financial or marketing objectives related to innovation: originality, adding functionalities, functional improvement), and
   • The technological advances obtained from the realization of the project (new technological knowledge, understanding of the unexplained technological phenomenon).

The main difference is that the benefits are linked to the success of the project, whereas technological advances are not. In fact, new scientific knowledge can be gained even if a project is a failure.

3- Define progress against the knowledge base

7. It is very important to identify the technology for which advancement is being sought or obtained. An over-general definition of advances (eg, software, or civil engineering …) causes the auditor to consider your advances as common practice.
8. Advances must advance your company’s scientific or technological knowledge base to a higher level by increasing understanding of scientific relationships or technology. So :
   • Specify the difference between the capacity defined by the existing technology base at the start of the project and the new level achieved after SR & ED.
   • Describe the advances you have made in relation to your existing technology base and helped you achieve your goals.

4- Failures can be a source of progress

9. In the event of failure,
   • Clearly state the reason for failure based on technology limitations
   • Failure to achieve your goals or goals does not necessarily mean that there is no advancement. You learned something. Quantify scientific success, rather than business measures,
   • Understanding why a possible solution will not succeed or fail to achieve the desired goals can be an advancement of science or technology.
   • In other words, the rejection of a hypothesis may be considered advancement because it eliminates a possible solution.
10. Report the current status of the work (continued, abandoned or completed) at the beginning and end of the fiscal year
11. If possible:
    • Identify lessons learned and knowledge gained
    • Identify additional derived technologies (this is rare but possible)

5- Are NOT advances:

1. Novelty, innovation, being unique, improving features or increasing functionality does not, in itself, mean technological advancement. What is important is whether they result from technological advancement.
2. The resolution of technical problems or troubleshooting using generally available scientific or technological knowledge or experience does not meet the requirements of the program.
3. Create new materials, devices, products or processes, or improve existing ones, can be achieved without leading to technological advancement.

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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.

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Writing your SR & DE descriptions: 4 common mistakes

Claiming a SR & ED project cannot be botched up. Let’s look at some common mistakes of descriptions positioning. In future articles we will see how to write a SR & ED project description.

Having the right documents

If you present your products or services to prospective clients, you prepare your best arguments and adapt them to their needs. You bring your promotional flyers, not your financial statements or invoices. It is very important to make new sales.

« It seems that the CRA still has a lot to do regarding the R&D tax credit. Too many claimants have not had their lesson yet ! »

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Financing your R & D projects is just as important for a forefront, innovative company like yours. It is often essential to the pursuit of your development activities. For many SR & ED credits are the difference between a profitable year or not. Is this the case for your business?

Each professional service has its own requirements for supporting documents:

• The contractor requires plans and permits to build your house.
• The accountant wants contracts and invoices to prepare your financial statements.
• The pharmacist requires a doctor’s prescription before you deliver medicine.

So why so many businesses attempt to finance their technology with the CRA by presenting sales documents? Would you leave the country without your passport?

The right angle for your report

Over the last twenty years we read thousands of technical descriptions to claim SR & ED tax credits. Many of these descriptions did not meet CRA requirements. Why, in 2016, do we still see product and not technology descriptions ?

Like all claimants, I think there are too many audits by the CRA. But in reality, it seems that the CRA still has a lot to do. Too many claimants have not yet had their lesson!

The SR & ED project description in the T661 will be read by a technology expert (IT, telecom, mechanical, chemical, etc.). It must meet certain standards. Even if your past claims have been accepted, do not take this report lightly. It is often the last safety net that can prevent an audit.

The most common errors:

This is not a sales or marketing report. This is not just a technical report. This is not a bunch of technical buzzwords. Let’s look at some of the most common errors encountered:

1- Marketing Description

Too often the descriptions are more like a salesman’s car sheet : It emphasizes the characteristics of the product, its qualities and the feelings it inspires:

• This is the perfect car,

  

• It is beautiful and yellow,
• It goes fast (0-100km / h in 6 seconds …)
• It’s smooth driving is remarkable,
• Its leather seats are comfortable,
• It is equipped with diode headlights,

Transposed into a T661 it looks like this:

• We have developed a unique technology on the market,
• It allows you to trace a product in the database in 0.5 seconds
• With an error rate of less than .01%,
• We used MySQL XYZ because it contains a function that will be useful in our delivery,
• We have selected the ABC language for producing dynamic web pages.

Do you recognize some of your SR & ED project descriptions?

What is wrong here? It merely describes the characteristics of the solution. It’s like describing the beautiful yellow car. This is NOT what the Research and Technology Advisors (RTA) is looking for. He wants to know why this is R & D according to you. So you have to be technical about it. Open the hood and show what you have done !

2- Technical or product specification

Other writers understand the need to be technical. They prepare a sort of technical specifications of the product to be delivered.

“We want to deliver a technology that:

• Will be two times faster than the existing version,
• Will include an integrated database editor,
• Complies with the XXX user interface standard, etc.

What is wrong here? It merely describes what the technology will deliver, without specifying the anticipated or encountered challenges or uncertainties. The RTA wants to know where the R & D is according to you.

3- Business Project:

Several descriptions show the efforts of a company to improve its business, for example, to develop new products or new product line, to modify or upgrade equipment, processes or facilities, or to start engineering projects.

On the T661, this may look like this:

• We are the only (or first) to offer these features that speed and add to the accuracy of scanning through over 10 million records database…
• This will give us a unique competitive advantage in the market

What is wrong here? It describes the business project, or the commercial development, but without identifying where experimental development is happening. The RTA is looking for engineering challenges, technology constraints that make the development uncertain and difficult.

4 R & D or SR & ED?

Some writers describe very well the activities of research and development. For example, to expand the range of products, we need :

• To increase the cache size,
• To optimize and speed up the processing by doubling it so that we reduce the response time by 40%.

This is a technical description of your R & D project that suggests problems and uncertainties. But the RTA wants more than that. He wants clarification on the limits of the existing technologies to see where you tried to exceed those limits. He wants you to express what new knowledge you have learned or searched for during your systematic experimental process. Only then he will recognize the probable existence of a SR & ED process.

You must demonstrate that you understand the difference between R&D and SR&ED and that you have distinguished the SR & ED portion in your project from to your more common ones (R & D). If your systematic SR & ED process is documented properly, then the RTA will accept activities that are part of this SR & ED project if they are commensurate with the needs and they directly support the attempt to achieve technology progress.

We have illustrated four very common positioning errors. It is important to understand why they are inadequate before rewriting these projects.

In future articles we will move on to actually writing SR & ED descriptions. We will give you tips and techniques to boost your texts to satisfy the new CRA requirements.

And you, what does this demonstration inspire you ? Have you seen or encountered these situations? How did you overcome them?