When preparing a SR&ED claim for a project that has taken a substantial amount of time, it is often natural to try to “sell” it to the Canada Revenue Agency by focusing on its features and why it is a great commercial product.
However, the Eligibility of Work for SR&ED Investment Tax Credits Policy states that “scientific research and experimental development” means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis […] but does not include work with respect to […] the commercial production of a new or improved material, device or product or the commercial use of a new or improved process.”
This problem often manifests itself in the confusion between a company project and a SR&ED project, and in the inclusion of product names in the SR&ED project narrative.
One key mistake that many first-time claimants make is focusing too intently on brand and product names when describing the work performed over the reporting period. This issue is easy to resolve; claimants should focus on the capabilities of a product used and why it was necessary in their experimental development.
As an example, a software company could have used a third-party application programming interface (API) tool to create a plugin for a piece of software. In this case, it is not the API name that should be mentioned, it is the specific capabilities of the API and why it was used in the development of the SR&ED project. Discuss specific features that were needed from ‘an existing API tool’, and why your company chose this tool over others.
It is essential that the technical features you discuss in the SR&ED project narrative are well explained. If multiple approaches were required, with different programs/equipment being used in each, you must clearly differentiate between the feature sets of the various alternatives.
Contact Pinnacle Consultants for guidance with your SR&ED project narrative.
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