Official CRA Definition

According to the Income Tax Act Section 248(1), SR&ED means:

"Systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis" and includes:

  1. Basic research - work to advance scientific knowledge without specific application
  2. Applied research - work to advance scientific knowledge with specific application
  3. Experimental development - work to achieve technological advancement

The Three-Part Test

Your work must meet ALL THREE criteria to qualify:

1. Scientific or Technological Advancement 🔬

Ask yourself: Did the work advance scientific knowledge or achieve technological advancement?

✅ What Qualifies

  • • New knowledge about scientific principles or phenomena
  • • Technological advancement beyond current capabilities
  • • Significant improvements to existing technologies
  • • Novel applications of existing knowledge to new problems

❌ What Doesn't Qualify

  • • Routine engineering or data collection
  • • Commercial production of new products
  • • Style changes or cosmetic improvements
  • • Marketing or ad spend

2. Scientific or Technological Uncertainty 🤔

Ask yourself: Was there uncertainty about achieving the advancement?

💡 Examples of Technological Uncertainty

  • • "Can machine learning models achieve 95% accuracy with limited training data?"
  • • "Is it possible to reduce chemical reaction time by 50% while maintaining purity?"
  • • "Will this new algorithm handle real-time processing of high-volume data streams?"
  • • "Can we create a biodegradable material with equivalent strength to plastic?"

❌ Not Technological Uncertainty

  • • "Will customers like this new feature?" (Market uncertainty)
  • • "Can we build this within budget?" (Commercial uncertainty)
  • • "Will this increase our revenue?" (Business uncertainty)
  • • "Can we finish by the deadline?" (Project management uncertainty)

3. Systematic Investigation 🔍

Ask yourself: Did you follow a systematic approach to resolve the uncertainty?

The scientific method must be evident:

  • **Formulated hypotheses** about potential solutions
  • **Designed experiments** or analysis to test hypotheses
  • **Conducted systematic testing** with controls and variables
  • **Documented results** and observations
  • **Drew conclusions** based on evidence
  • **Iterated** based on findings (if applicable)

Common Exclusions (Work That Doesn't Qualify)

Market Research & Studies

  • Consumer preference studies
  • Market analysis
  • Feasibility studies
  • Quality control testing

Routine Engineering

  • Installing known systems
  • Routine debugging
  • Standard troubleshooting
  • Configuration of existing software

Commercial Production

  • Manufacturing scale-up
  • Production optimization
  • Routine quality assurance
  • Commercial sales activities

Management & Administration

  • Project management activities
  • Administrative work
  • Business planning
  • Financial analysis

Industry Examples

✅ Software Development - Eligible

"Machine Learning Model for Real-time Fraud Detection"

  • Uncertainty: Can ML models detect fraud with <0.1% false positives in real-time?
  • Advancement: New algorithm combining deep learning with rule-based systems
  • Systematic Work: Hypothesis testing, data experimentation, performance analysis

❌ Software Development - Not Eligible

"Building an E-commerce Website"

  • Uses well-known technologies (React, Node.js, SQL)
  • No technological uncertainty
  • Routine application of existing knowledge

Documentation Requirements

For your work to qualify, you need contemporaneous documentation:

  • **Project objectives** and technological goals
  • **Technical challenges** and uncertainties identified
  • **Hypotheses** and approaches planned
  • **Experimental procedures** and methodologies
  • **Results and observations** recorded during work
  • **Analysis and conclusions** drawn from results
  • **Iteration records** showing systematic progression

Acceptable Documentation

  • Technical design documents
  • Research notes and lab books
  • Meeting minutes discussing technical issues
  • Code repositories with commit messages
  • Test results and analysis reports
  • Technical specifications and requirements

Quick Self-Assessment

Answer these questions to check eligibility:

🔍 Eligibility Checklist

  • **Advancement:** Did the work aim to advance scientific knowledge or achieve technological advancement?
  • **Uncertainty:** Was there technological uncertainty about whether the advancement could be achieved?
  • **Investigation:** Did you follow a systematic investigation using experiment or analysis?
  • **Documentation:** Do you have contemporaneous records of the work performed?
  • **Location:** Was the work performed in Canada?
  • **Exclusions:** Does the work avoid routine engineering, market research, or commercial production?
  • **Professional Opinion:** Could a competent professional in the field NOT have easily known the outcome at the start?

Official CRA Resources

Primary References

  • Income Tax Act, Section 248(1) - Official SR&ED definition
  • Information Circular IC 86-4R3 - Scientific Research and Experimental Development
  • Income Tax Folio S4-F15-C1 - Manufacturing and Processing
  • CRA Guide T4088 - Scientific Research and Experimental Development (SR&ED) Expenditures Claim

Online Tools

Contact Information

  • SR&ED Coordinators: Available by phone for pre-filing consultations
  • Technical Review Officers: Can provide guidance on specific technical questions
  • Find your local office

Next Steps

💡 Pro Tip

When in doubt, document it! CRA prefers comprehensive records that demonstrate systematic investigation, even if the final determination is that some activities don't qualify.

Frequently Asked Questions

❓ Common Questions

Q: Can failed experiments qualify for SR&ED?
A: Yes! Failed experiments that generate new knowledge are eligible, provided they followed systematic investigation.

Q: What if our work is partly routine and partly R&D?
A: Only the R&D portions qualify. You must clearly separate and document the eligible activities.

Q: Do we need to achieve the technological advancement to qualify?
A: No. Attempting technological advancement through systematic investigation qualifies, even if the advancement isn't achieved.

Q: Can we claim SR&ED for work done by contractors?
A: Yes, if the contractor is Canadian and performs SR&ED work on your behalf under contract.

Ready to determine your eligibility? Use this guide alongside Shredy's tools to confidently assess your SR&ED qualification! 🚀