Engineers and product developers use a specific frame of reference and vocabulary when they talk about their product development processes, and this tends to be slightly different between industries. Those concepts and terms are commonly understood and create background jargon associated with the work.
That common industry jargon is however often quite different from SR&ED concepts, and if you don’t know what type of information an SR&ED consultant requires you can fail to claim valuable eligible refunds.
In this article, we’ll explain how engineers and developers can tune into SR&ED terminology and help an SR&ED consultant gather the information they’re looking for.
New Knowledge versus “It wasn’t successful” or “That’s not done yet”
When you compile a list of potential projects you would like to discuss with an SR&ED consultant, it’s a good idea to list projects that are ongoing or were abandoned due to being unsuccessful. SR&ED even considers projects which aim at establishing a conceptual “prototype”.
To qualify for SR&ED, projects also need not have been completed within a fiscal year or seen as being “successful”. It’s acceptable if project development is seen as being “ongoing” at the close of a fiscal year. The SR&ED tax credit program is mostly interested in the journey that was taken to get to a final commercially viable product.
They actually don’t really care if the product ever gets to market or its uniqueness, “value add,” or success.
SR&ED is not about the product itself, but about gaining new knowledge which is accumulated along the way.
Systematic Experimentation versus “Trial and Error”
Developers often use the phrase “trial and error” when they describe a project to the SR&ED consultant when they actually mean “experimentation”. The difference lies in the experimental process that was used.
SR&ED is about the experimentation journey taken to achieve goals and what new knowledge was generated along the way. SR&ED wants to know about the journey, the steps that were taken to gain the new knowledge, and how the new knowledge was applied to the next step – that is systematic experimentation.
In terms of SR&ED, trial and error means that you tried something without any regard for a hypothesis as to why you decided to do it, or the type of outcome you wanted from the process.
Knowing the difference between systematic experimentation and trial and error will help you maintain proper documentation about the work done, and possibly discover additional projects that you may not have brought up.
SR&ED Hypothesis versus Product Developmental Objective
Product developers often have difficulty understanding that the work done to reach a commercially viable product may not be the SR&ED. The SR&ED part may in fact be some of the development work done to get to the product. An SR&ED hypothesis is about what you have to do to get the product to do what you need or want it to do.
“We will develop a product that provides this service to this specific audience, or that does this” is a product developmental goal or objective.
An SR&ED hypothesis looks something like this: “To get this component of our product or our product to do this, and to overcome the shortcomings of the existing knowledge or the standard methods, we hypothesize that if we use this material, component, process, or code in this way, or if we change this material, component, process, or code in this way, it will produce the required result.”
If changing or using the material, component, process, or code in the way you envisaged does not achieve the result(s) expected, what did you learn from the process, what results were produced instead, and how did you apply the new knowledge to the next prototype or experiment?
If changing or using the component in a new way does solve the initial problem, technological obstacle, or roadblock, but thereby creates new, unanticipated problems, this is also new knowledge that is valid under SR&ED, and it will form the basis of the hypothesis for the next development step.
Technological Advancement versus Product Uniqueness
Product developers often have difficulty switching out of the mindset that they didn’t really do anything special, or to not think about the product’s uniqueness in the industry but to see the technological advancement.
You don’t need to create something earth-shattering or revolutionary for a project to qualify for SR&ED. By the same token, a project that is the “only one of its type in the world” won’t necessarily, in and of itself, qualify for SR&ED.
To qualify for SR&ED you don’t have to sell the CRA on the device service/product’s uniqueness. They simply don’t care why it is better than any other product/service/device.
SR&ED is interested in knowing how your product/service/device development journey was used to generate technological advancement and new knowledge.
You can only go so far using standard industry protocols and current knowledge in the public domain. There is often a discrepancy between the available knowledge and what you want to achieve with the service or product you want to create. The knowledge you create to overcome this gap is seen as “technological advancement and new knowledge” under SR&ED.
Find Out How Much Money You Can Recover From The CRA
Book a conversation with one of our SR&ED tax credit experts.
Fill out the form to schedule a conversation, where we can help identify:
- What projects qualify and which R&D expenditures are eligible
- An estimate of the total return you can expect
- How to maximize the size of a claim & and to optimize for the success of that claim
- Potential eligibility for additional Government funding programs
- If you are already claiming, we will analyze your past claims to determine if anything was missed