Work must meet the following three criteria to be eligible for SR&ED:

The search carried out in the experimental development activity must generate information that advances your understanding of underlying technologies. In a business context, this means that when a new or improved material, device, product or process is created, it must embody a technological advancement in order to be eligible. In other words the work must attempt to increase the technology base or level from where it was at the beginning of the project.

Technological obstacles/uncertainties are the technological problems or unknowns that cannot be overcome by applying the techniques, procedures and data that are generally accessible to competent professionals in the field.

To be eligible, the project has to have been conducted in an iterative or systematic process. A typical process involves identifying the unknowns or challenges; forming a hypothesis about how to solve those challenges; testing and experimentation; analysis of process to reach your conclusion.

In a business context, this requires that the objectives must be clearly stated at an early stage in the evolution of a project and the method of addressing the unknown must be clearly set out.

Three questions to help you determine whether you meet the SR&ED criteria

Jeff Christie explains how to determine whether you meet the three criteria above by asking these simple questions instead: (watch the video)

Work that qualifies for SR&ED tax credits can be:

• Experimental development to achieve technological advancement to create new materials, devices, products, or processes, or improve existing ones;
• Applied research to advance scientific knowledge with a specific practical application in view;
• Basic research to advance scientific knowledge without a specific practical application in view; and
• Support work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research, but only if the work is commensurate with, and directly supports, the eligible experimental development, or applied or basic research.

"I don't do typical R&D work. Can I still apply?"

The SR&ED program's research & development definition is somewhat different than what most individuals think when they hear 'R&D'. In this case, R&D means that you are trying to advance the state of your technology through a systematic approach while overcoming technical challenges.

Most companies applying for SR&ED don't need to compete with Google or Area 51 in order for their work to be considered R&D. The SR&ED program takes into account information available in the public domain (Google searches, white papers, software patterns, etc.) as well as the context of your company. If you can't find a solution to your technical problem in the public domain then this is where your work may qualify for SR&ED.

Certain technological challenges arise from constraints faced by your specific situation due to legacy support issues or legacy equipment used. Overcoming these types of technical challenges in a systematic way could make the work eligible for SR&ED tax credits.