The determination of SR&ED – The Five Questions
Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
This question is focused around the creation of an advancement. First, we should make note of what is considered an appropriate advancement for SR&ED purposes.
An advancement, by definition, should generate information or knowledge which progresses the understanding of science or technology, or the current knowledge base of the business.
This advancement is a result of experimental development or research based on addressing an uncertainty. This is an important distinction to note as work completed without an uncertainty, and an attempt to achieve an advancement, is not considered SR&ED.
It is commonly recognized that in the pursuit of R&D, sometimes a solution or approach fails. By the definition provided for advancement, we can see that even a failure can lead to an advancement, as the failure can eliminate a potential solution, leading to an overall increase in the knowledge base.
With all this in mind, it is important to remember that SR&ED is not so much concerned with the outcome of the work (such as a new or novel product), but more so the journey which led to its creation. This outcome may add value to the industry, but that doesn’t necessarily make it SR&ED. It is important to demonstrate that the research and experimental development which was implemented to create this product was not routine (or standard practice). You will need to demonstrate why current industry practices cannot resolve the problem you are facing.
Was record of the hypotheses tested and the result kept as the work progressed?
This question is concerned with a naturally produced track record of the experimental investigation conducted during the performance of SR&ED. Throughout this investigation, a record of tests and results should be kept. In summary, this documentation is expected to track major elements of the investigation. Namely, to:
- Demonstrate each major element of the investigation; and
- Demonstrate how each major element fits into the project as a whole;
- Identify indicators or measures used to determine if goals of the work are met;
- Demonstrate that a systematic investigation took place, showing work was built on the results of testing.
Point 4 above is the crux of these records, that is, records must demonstrate a systematic approach was adopted.
I hope that you have a better understanding of R&D, SR&ED and the five questions format now that you have read through the previous blog posts. There is one more blog to be included in this series which delves deeper into the documentation of SR&ED as required by question five. Stay tuned.