CRA Policy Update: Eligibility of Work for SR&ED (April 2015)
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On April 24, the Canada Revenue Agency (CRA) released a revised version of its Eligibility of Work for SR&ED Investment Tax Credits Policy. This policy outlines what activities are viewed as scientific research and experimental development (SR&ED) by the CRA. While we recommend reading this policy document in full, the CRA has added an appendix that details changes made to the policy, including modifications and removals of key terms.
According to the CRA, the April 24th version revisions are designed to “provide clarification of concepts in policy, based on feedback received from stakeholders.” As noted in discussions on popular SR&ED-related LinkedIn groups, the revised terms represent some of the most commonly debated terms within the SR&ED community.
Modified SR&ED Eligibility of Work Policy: Terms, Questions, etc.
SR&ED Glossary Terminology (Emphasis added)
- Technology base or level (has been changed to scientific or technological knowledge base) – The change is to clarify that the concept applies equally to basic research, applied research, and experimental development. Along with this change, the term “publications” has been removed from the list of sources generally included in as publicly available because this was considered redundant. Also, the term “consultants” was added to the list of examples of expertise accessible to the company. Lastly, the last paragraph was modified for readability.
- Social sciences – The terms “criminology”, “geography”, and “psychiatry” were removed from the definition and “and sometimes” was added to indicate that education, law, philosophy, religion, and history are not always considered social sciences.
- Engineering – The term “routine engineering” was removed as there is no differentiation between engineering and routine engineering. A paragraph was added to clarify that even though engineering practice on its own is not eligible, engineers could still be performing basic research, applied research, or experimental development.
- Systematic investigation or search – The term “scientific method” has been removed from the explanation as it is no longer used in the policy.
- Analysis – The term “systematic investigation or search” replaced “scientific method” as the latter is no longer used in the policy.
- Hypothesis – The explanation has been simplified to improve understanding and readability.
- Scientific method – Although the term has been removed, the fundamental concepts remain in policy and are embodied in the term “systematic investigation or search.”
- Standard practice – The term “standard practice” has been removed to remove any confusion.1
- Routine engineering – The term “routine engineering” has been removed.2
A table comparing the changes side-by-side is visible here.
Five Questions for SR&ED
- The use of the five questions to establish if there is SR&ED is now referred to as a “method.” Originally referred to as an “approach”, this has been changed to distinguish it from the “approach” referred to within the five questions.
- Question 1 of the five questions* has been shortened by removing “– an uncertainty that could not be removed by standard practice.” This phrase was redundant to the question.
- Question 3 of the five questions has been modified to remove the term “scientific method.” Reference to modifying the hypothesis has also been removed to simplify the question.
- Question 4 of the five questions has been modified to explicitly allow for advancement not yet achieved.
- Section 2.1.5 has been rewritten to better express the difference between the records referred to in Question 5 of the five questions and evidence to support a claim.3
A table comparing the changes side-by-side is visible here.
Additional Changes
- Six new examples have been added. These examples illustrate concepts found in policy and are meant to aid the understanding of these concepts.
- Section 2.1.5 (re: record of the hypothesis, test and results) has been rewritten to better express the difference between the records referred to in Question 5 of the five questions and evidence to support a claim.
- Editorial changes to bring further clarity.4
Further Reading
The CRA has archived the previous version of the SR&ED eligibility policy document from December 2012. For a history of the definition of SR&ED in the Act and how it has changed over time, see a brief history of the definition of SR&ED.
This article is based on CRA policy documents available at the date of publication. Please consult the CRA website for the most recent versions of these documents.