Characteristics of SR&ED
The law says several things about SR&ED. There has to have been a scientific or technological uncertainty. This means that the scientific or technological challenge was not resolvable by only using methodologies (techniques and procedures) that are standard practice for competent practitioners in the knowledge field to which the project pertains. It also means that the solution is not available in the current knowledge of your organization or in the public domain. Second, the solution to the uncertainty must be sought via systematic investigation. Third, your knowledge and expertise, in the field of knowledge to which you project relates, must increase. This doesn’t mean you need success (as you might define success), because even failing to solve the problem can be an increase in knowledge: you now know what doesn’t work.
5 SR&ED questions
From these requirements, CRA has determined 5 SR&ED questions. When you have a SRED audit, the CRA technical reviewer (known as an “RTA”) is looking to satisfy himself that your project meets the requirements determined from the legislated definition of SR&ED.
If the answer to any of these questions is No, CRA believes you don’t have SRED.
1. The first question is whether there was a scientific or technological uncertainty. That makes sense because the legislation requires it.
2. The second question is whether you formed an hypothesis aimed at resolving the identified uncertainty. To CRA this question is appropriate because they think that the only way to systematically investigate a problem is with the scientific method. At SRED Consultants Inc. we follow that guideline, but we confess that there are methods of systematic investigation that are not the scientific method.
3. The third question is whether what you did a systematic investigation that included forming an hypothesis and testing it. Bit of duplication there, and consistent with the scientific method. But I observe that an alchemist also systematically investigates using a process that is quite different from the scientific method. The scientist will basically experiment by keeping everything constant except a control variable which he changes so that he can observe what happens with each change. Then from those experiments he forms a statement of a principle being observed. The alchemist does the same experiment over and over, with no change in variables, until something different happens. Then he works at explaining why. Not the scientific method, but it is systematic.
4. Question 4 is whether the PURPOSE of the work done was to obtain a scientific/technological advancement. This is in keeping with the legislation.
5. The fifth and final question is whether a record was kept of hypotheses and test results as the work progressed. I see nothing in the law that would require this of SRED. But CRA administers the program and they don’t easily budge from these five questions, so we write claims designed to answer all five questions affirmatively.
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