Summary: Software/IT SR&ED Guidance
New guidance has been developed for Scientific Research and Experimental Development (SR&ED) in software and information technology, for the use of claimants and CCRA technical reviewers. The guidance uses terms and concepts familiar to the industry, and is the product of extensive consultations with industry representatives and CCRA. The guidance follows the definition of SR&ED in the Income Tax Act.
This definition covers scientific research (both pure and applied) and experimental development. Scientific research is the pursuit of new scientific knowledge. For experimental development, the test is attempted advance, a step forward in the technology however large or small. Attempted advance is best clarified by contrasting the technological objective with the claimant's record of the state of the technology at the start of the work. Determining this starting point is part of a systematic investigation, and it establishes the technology base accessible to the company at that time. This approach avoids any later uncertainty about whether the work was standard practice for the company at the time.
Technical constraints, such as conflicting technical requirements and limitations of capacity or technique, may lead to technological uncertainty. Resolution of technological uncertainty generally indicates technological advancement.
Some areas of development are more likely to involve SR&ED than others, but in any area only work which meets the criteria for SR&ED can be eligible. Software development which is necessary for an attempt at advance in another field of science or technology is part of that project as support work, and does not need to meet the criteria for SR&ED independently. Work in support of projects in other fields (business, economics, education, etc) is not covered by the program.
It is unsafe to draw conclusions about eligibility from any term or label - it is the nature of the work that counts. Some examples:
- `alpha' and `beta' testing of a product cannot be assumed to mark any particular phase of an associated SR&ED project;
- `system uncertainty' does not occur whenever there are multiple components, but only when their interactions are unpredictable;
- `testing' can refer to ineligible quality control or to eligible development testing.
In some developmental environments, such as early stage start-ups, or advanced technology groups in large companies, SR&ED may be the only work that is done. However, more often there is a range of work, some part of an SR&ED initiative and some not. The extent of the SR&ED may change over the life of the project, eg. as a product nears release and effort goes into user support. If the SR&ED has not been tracked separately, then it will be necessary to show that only work in support of the attempted advance is included in the claim.
When work fitting the description of SR&ED is performed, `work product' is naturally generated - progress reports, test protocols and results, etc. This material is good supporting information for a claim. It has to be recognised, and low-overhead arrangements made to preserve and organize it. It is the claimant's responsibility to substantiate the claim, and the reviewer's to give full consideration to all information provided. A variety of `best practices' is available to reduce the effort involved in identifying and preserving useful records. The technical description of the work that claimants provide along with the T661 or T665 form serves as a high level summary of the work, and a focus for the supporting information.
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