If you’re trying to improve your products, services or technical processes, or even trying to develop new ones, you need to be aware of the “Experimental Development” part of the Scientific Research and Experimental Development (SR&ED) tax incentive program. Don’t let the Scientific Research (SR) part of the program discourage you or throw you off the track – there’s money at the end of this, if you are doing work that qualifies!
It would be easy, if you are a small or medium-sized business, to glance at the title of this program and think, “Well… we’re just <whatever>, we’re not scientists”, and thus overlook the second half of the program title: the experimental development part.
Experimental development occurs when:
- you are faced with a technology problem or an information gap (about your technology), and
- standard practices and normal approaches offer no solutions and
- the knowledge or data you need is not generally or publicly available, and
- you make and follow a plan to pursue the solution through experimental or iterative approaches, which might include such things as prototype development, cycles of testing and analysis, etc.
Of course, this last point is also critical – you have to be following a plan. Experimental development is not about “trial and error”, although you will often hear people describe their work using that toxic phrase by mistake. (Many people who use this phrase actually had some kind of a plan, if you ask them.) “Trial and error” is not an eligible SR&ED activity. Trial and error, to the Canada Revenue Agency, means that you are wandering lost in the wilderness or thrashing around in your problem like a drowning person … without a plan.
With a plan, however, you may be looking at the same sets of technological uncertainties -- and you may easily feel just as uncertain as if you were lost – but having a plan means that your approach is now experimental. You are considering multiple approaches, and may attempt them in series, intending to learn which might be the best approach, and which approach may take you where you need to go. You make note of what you tried, and what you learned from doing so, and you move on to the next approach.
In fact, you don’t even need to succeed before you can claim such experimental work, because even failed approaches yield knowledge, and such new learning is a part of what the SR&ED program is meant to encourage.
You will notice, too, in the bullet points above, that I talk about not only having a plan, but following it too. It’s not good enough to say that you have a plan, (even if you can produce it in writing and say, “there’s our plan”) if you didn’t actually start working the plan. Not working the plan, when you have one, is like having a lifeboat and thrashing around in the water instead, without trying to get in. It looks too much like trial and error, as in, not eligible. Trying to follow a plan is key … plans can change and evolve, and usually do, and you may have ended up going where the work leads you, but if you started out with a plan, it’s not trial and error. And you’re not lost in the wilderness either… just thinking about where to go next.