You may have heard that there are three criteria to the SR&ED Program, but there are actually four!
Technological uncertainty or obstacle; Technological advancement; Systematic Investigation
Even if you have a project that meets those definitions, you cannot forget about the fourth criteria – technical content.
Technological uncertainty is the term used in the Income Tax Act of Canada. However, the SR&ED form T661 refers to this criterion as Technological Obstacle. Technological Uncertainty happens when standard practice fails. Standard practice is a highly contentious topic, but generally revolves around the methods and practices that can be applied directly, or adapted and tweaked, for a given technological problem with highly predictable results. If an applicant is going to argue about anything with CRA, it’s probably going to be this subject.
Technological advancement is really the flip side of technological obstacle. If there was an obstacle, then there must have been an advancement in knowledge in attempting to overcome that obstacle through a systematic process. The important thing to remember that the advancement is the knowledge, and it is not the embodiment of the knowledge, such as a device or machine. By asking yourself what did you learn or determine, you can get closer to identifying a technological advancement.
Systematic Investigation represents the logical steps taken towards solving the problem. A systematic investigation involves the scientific method and technical records. You will need to show CRA that work progressed, contemporaneous documents were retained, and new knowledge was obtained as a result of this process.
Technical content is the evidence that demonstrates that your project meets the fundamental criteria of the program. This can include technical and financial evidence, such as time sheets, trial records, design of experiment, due diligence, statements of work, and much more.
Bond Consulting Group has a YouTube channel with a series of short videos (1-3 minutes in length each) that introduce and review many different subjects relating to SR&ED. Watch our video about the criteria of SR&ED.