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Are you SR&ED eligible?
Two questions to determine SR&ED eligibility

The CRA only takes 120 calendar days to process refundable SR&ED claims from the day they are submitted and they meet this SLA most of the time.

The CRA (Canada Revenue Agency) on August 13, 2021, finally made official new guidelines they had been piloting with organizations for several months. They introduced the new guidelines to their Scientific Research and Experimental Development (SR&ED) policy and removed the old “5 Questions” methodology.

It should be noted that the definition of SR&ED contained in the Income Tax Act hasn’t changed. The new guidelines do however contain clear guidelines on the eligibility of work and simplified explanations of the program requirements.

What work is eligible has NOT changed. The new guidelines only provide a framework that is more flexible to evaluate SR&ED.

The guidelines on the eligibility of work for SR&ED tax incentives policy have now been split into two sections. To determine whether a project meets the criteria, you need to ask yourself two simple questions: Why is the work is conducted How. These two key requirements must both be met for work to be eligible as SR&ED.

The "Why" Requirement

The work that is to be done must aim to achieve technological advancement or advance scientific knowledge. The key to both is the generation or discovery of knowledge that advances the understanding of technology or science.

A key objective of the SR&ED program is technological advancement, be it incremental or radical. A technological or scientific or uncertainty must exist. This means it is not known or not certain whether a given objective or result can be achieved due to insufficient technological or scientific knowledge sources that are available reasonably to you within your business or publicly.

An attempt to resolve technological or scientific uncertainty rather than trying to circumvent it with a workaround that uses available knowledge is therefore seen as an attempt to achieve technological or scientific advancement.

If you attempt to resolve the uncertainty and your work tries to discover or generate new technological or scientific knowledge, your work will meet the "Why" requirement.

It should also be noted that the failure or success in meeting the objective is not relevant when evaluating whether the work meets the “Why” requirement.

The "How" Requirement

Even though businesses follow their own internal standards, procedures, practices, techniques, and design methods, this on its own doesn’t meet the eligibility requirements for SR&ED tax incentives.

A systematic search or investigation called for in the SR&ED includes:

  • Generating an idea that is consistent with known facts. This serves as the initial point for further investigation towards resolving the problem or achieving the objective. The idea may be expressed as an approach, a proposed method, or a possible solution to a problem. This is then referred to as the hypothesis.

  • Testing of the hypothesis or idea through analysis or experimentation. The idea may change and evolve due to the testing results.

  • Developing logical conclusions based on the findings or results of the analysis or experiment.

  • Keeping evidence that is compiled during the progress of the work.

The work must be undertaken in the form of a systematic investigation. The CRA wants to see that the scientific method’s principles are followed, including hypothesis formulation, hypothesis testing, and conclusions drawn. This process is iterative, and although documentation is not submitted together with a claim, it is crucial to keep a record of it in case the CRA wants to review or audit your claim.

What Was Replaced?

The new “Why” and “How” requirements for work to qualify for SR&ED tax incentives replace what is commonly referred to as "The 5-Questions," i.e. the Eligibility of Work for SR&ED Investment Tax Credits Policy methodology.

  • Determine If There Is SR&ED

Previously, the eligibility of work done was determined and evaluated based on these 5 questions:

  1. Was there a technological or scientific uncertainty?

  2. Did the hypotheses that were formulated specifically aim to reduce or eliminate that uncertainty?

  3. Was the approach used consistent with a systematic search or investigation, including the formulation and testing of the hypotheses via analysis or experiment?

  4. Was the approach used to achieve a technological or scientific advancement?

  5. Were records kept as the work progressed of the hypotheses tested and the results?

What Stayed The Same?

  • Determine the Eligible Work’s Extent

This step has remained the same. Once the CRA is satisfied there was SR&ED eligible work done, the claimant must also show that all the work that is including (and its associated costs) was related to the SR&ED project(s) that was claimed for. Evidence of the extent of work is crucial to demonstrate that the extent of work claimed for is accurate.


 Written by: 

Bryan Watson  

Partner, Flow Ventures

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