SR&ED Documentation

Establishing Eligibility of Work in Documentation

Whatever your documentation approach is, it should generally include the following 6 pieces of information to comply with SR&ED policy guidelines for establishing the eligibility of work in the first place:

1. The technological advancement sought (to establish that your problem is strictly within a science/technology domain, and therefore potentially eligible.
2. The state-of-the-art technologies and public domain knowledge available to you when work started (to establish the science/technology baseline, a critical barometer for judging advancement).
3. The technological uncertainty (to establish the inherent shortcomings or deficits in existing science/technology that force you to perform experimental development to resolve a problem).
4. Ideas or hypotheses tested during experimental development.
5. Work done in an attempt to resolve technological uncertainty.
6. Results of your tests/experiments and next steps.

It typically suffices to communicate and record the first 2 items at the project level. For the latter 4 items in the list, ideally each standalone work entry should include all of these things, but you can cut-down on overhead by keeping weekly or biweekly supervisor summaries to wrap up sprints, a brief summary that chronologs the work done, the testing methods used, the challenges faced, and estimates the hours committed by team members will go a long way.

One common pitfall we see is that firms present only the outcome of their SR&ED work (i.e. a commercial product), but don’t have any evidence of iterative experimental development or prototyping. Unfortunately, showing off the final result of SR&ED fails to demonstrate how your work was a systematic investigation or search i.e. NOT trial-and-error. Be mindful that the SR&ED program is meant to incentivize and reward activities with a risk of failure in an attempt to advance a science or technology field, rather than the outcome of the effort, therefore it is largely irrelevant whether or not you ultimately succeeded in that effort. Though it is not always easy to do so, especially in a for-profit business operation, the closer you can align your R&D processes with those espoused by the gold standard scientific method (question, hypothesis, test, analysis), the stronger your overall SR&ED claim will be in the eyes of the CRA.

 If you don’t track the design, prototyping, development, testing and analysis work that was done along the way, the CRA may conclude in a worst-case scenario that you filed your claim under false pretenses‒for all they know, your final version was a hole-in-one, a stroke of luck, not something that was the result of a rigorous scientifically informed approach. That being said, the CRA doesn’t mandate a specific documentation methodology, as they understand that documentation conventions and best practices differ across industries and between companies. Their expectation is that you will have put into place whatever process makes sense for your business, and so long as the natural outcome or byproduct of said process is documentation that contains information necessary for an eligibility/extent assessment, it will typically be accepted. For instance, in software development companies it suffices to retain high-quality development and or code commit logs. Likewise, in manufacturing or the life-sciences, keeping reasonably detailed log books as well as evidence of scrapped prototypes or photographs of early tests will go a long way (digitizing them helps even more so, as the SR&ED auditor can quickly search for important information).

ENTAX can help in designing various systems, processes and software to better document SR&ED within your different systems as this upfront consulting is included in most of our engagements.