On August 13, 2021, the CRA made changes to their Guidelines on the Eligibility of Work for SR&ED Tax Incentives. The intention is to simplify and generalize the requirements of eligibility, and to demystify the SR&ED program to reduce filing hesitancy for first time claimants.
It is important to note that the actual definition of SR&ED in the Income Tax Act has not changed. These newly released guidelines feature simplified explanations of program requirements, clear breakdowns of what constitutes eligible work, and how to support your claim.
Previous guidelines produced by the CRA emphasize the need to demonstrate a systematic investigation in science or technology to achieve a technological advancement. To meet these requirements, the answer to all five of the following five questions must be 'Yes':
Was there a scientific or a technological uncertainty?
Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
Was the overall approach adopted consistent with a systematic investigation or search, involving formulating, and testing the hypotheses by means of experiment or analysis?
Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
Was a record of the hypotheses tested, and results kept as the work progressed?
These guidelines were considered by many to be difficult to interpret and contain jargon that could be confusing or intimidating for potential claimants, leading to a hesitancy towards filing claims. The CRA has since generalized the requirements for SR&ED eligibility into a simple 'Why?' and 'How?' requirements.
Why?
The motivation for your SR&ED project must be in pursuit of generating or discovering knowledge that advances understanding of science or technology, rather than designing workarounds to circumvent the knowledge gap. The focus here is on conceptual knowledge (theories or predictive models) as opposed to factual knowledge (data or measurements).
How?
The methods used in pursuit of generating or discovering scientific or technological conceptual knowledge must be through a systematic investigation using experiment or analysis. This requires starting from an idea that could be considered a possible solution to your problem, testing your idea or hypothesis by means of experiment, and developing logical conclusions based on your findings.
A vast majority of SR&ED claims fall into the category of experimental development where motivations for the project include generating a novel technology (materials, devices, products, processes, etc.) to meet a specific objective, improving upon an existing technology, or adapting an existing technology to a new environment or context. As with previous guidelines, the new requirements necessitate demonstrating that insufficient technological knowledge was readily available to achieve the desired new (or improved) materials, devices, products, or processes.
In summation, the intent and definitions of SR&ED eligibility have not changed. The apparent intent of the updated SR&ED eligibility guide (switching from the '5 eligibility requirements to the simply 'Why' and 'How' requirements) is to simplify, generalize, and demystify the requirements of SR&ED eligibility, allowing for those not skilled in the art of SR&ED to more easily understand the correlation between the work performed and how to present it within the SR&ED context.