What Is SR&ED And How Is It Defined?

SR&ED is an acronym for Scientific Research and Experimental Development, a federal incentive program for companies performing SR&ED.  Many provinces have similar programs.  In the past several years the Federal Government has issued $3+ Billion, annually, in SR&ED credits.

Over the past few years the frequency and rigor of SR&ED Technical Reviews has increased noticeably, as has the frustration of SR&ED claimants.  This trend will continue.  In addition the incentive available has been reduced.

This has resulted in some would-be claimants withdrawing from the program.  Worse, would-be claimants who might benefit from the program are discouraged from making a claim.

This could be a costly mistake.  This is particularly true for Canadian Controlled Private Corporations (CCPC’s in accounting language).  A CCPC is defined as a Canadian-controlled private corporation, whose taxable income is $500,000 or less, including the income of any associated companies.  These companies can qualify for tax credits of up to 70.6 cents per dollar spent on SR&ED, with a minimum credit of 36.4 cents per dollar spent. (Rates are based on companies performing SR&ED in Ontario).

How often have you been offered rebates of this magnitude for doing something that most businesses should be doing anyway, if they want to stay ahead of the technology curve?

So is SR&ED the same as R&D.  Most definitely not.


SR&ED is defined in the Income Tax Act as:

Scientific research and experimental development means “systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is

(a) basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view,

(b) applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view, or

(c) experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto,”


What differentiates SR&ED from R&D are the following:

  1. Technological advancement (TA)
  2. Technological uncertainty (TU)
  3. Technological content (TC)


In order to qualify as SR&ED, the project must meet what we term the “3-legged stool test”.  Just as a 3-legged stool cannot stand without all three legs, a SR&ED claim must comply with all of the three tests cited above.

What is most interesting is other than TA, the expressions “technological uncertainty” and “technological content” are nowhere mentioned in the Act or the Regulations to the Act.


TA occurs, according to CRA, from the resolution of a TU.

A TU according to the CRA’s Glossary of Terms is defined as follows:: “Scientific or technological uncertainty means whether a given result or objective can be achieved or how to achieve it, is not known or determined on the basis of generally available scientific or technological knowledge or experience”.


TC refers to the presence of several elements:

  • The work is carried out by people who are technically qualified for that work.  It is judged by either academic credentials, certifications (e.g. licensed mechanic) or job experience.
  • Use of the scientific method.
  • Documentation.  The CRA is focussing more and more on the issue of documentation.  Even if one has both TA and TU covered, if one can’t document them, then the SR&ED claim will fail.


Next weeks’ post will deal with the application process for SR&ED.

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