In the Scientific Research & Experimental Development (SR&ED) tax incentive program, the pursuit of a technological advancement (TA) is about the attempt to gain some small, incremental improvement in the face of technological uncertainty, outside the boundaries of known or standard approaches, and through experimental means. It’s about taking baby steps, and seeking small gains – just like a child learning to walk. And that, too, is an experimental process.
The official definition of experimental development is “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.” (There’s more, and it bears careful studying, but then, most of the literature around the SR&ED program is fundamentally about either qualifying or “scoping” – what you can claim, and how much.)
There was a time when the pursuit of TA was the first criterion that was mentioned in any discussion about SR&ED. (Remember that any discussion of TA implies, also, the pursuit of the advancement, whether or not it is achieved.) Certainly, it is a key criterion. In recent years, I’ve made it a point to mention technological uncertainty first, because the identification of TU is the first point at which SR&ED becomes possible, and the end of TU signals the end of SR&ED. You could think about the TU criterion as a pair of brackets, the beginning and the end, within which you have to be pursuing a technological advancement by experimental or scientific means.
However, Technological Advancement (TA) is a problematic criterion for many people, because it is so often confused with business innovation, and with features and functionality. Adding what used to be called “bells and whistles” to a product, for example, will not qualify as the pursuit of TA, unless you are attempting to make changes to the underlying technology that affect how it works, not just what it does.
There is always, with SR&ED, an expectation that a claimant is pursuing the development of a claim within the spirit of the law, and not attempting to “game” the system or pull a fast one. While such behaviour undoubtedly occurs, I’d like to believe that more common errors arise out of various misunderstandings relating to this criterion.
It is not helpful, for example, to engage in hype-speak or marketing prose on the subject of the technology advancement. Claiming to have achieved “the most advanced product in the marketplace” demonstrates nothing about the process of pursuing SR&ED – and it both annoys the reviewers and provokes them, because it demonstrates a fundamental misapprehension of the SR&ED criteria.
If the capabilities achieved or sought through the process of SR&ED represent an advancement in the underlying technology, then it should be possible to describe those advancements in scientific or technical terms, and preferably, quantifiable terms. Marketing hype just drops a really fat and obvious fly into the soup, and it makes the whole dish unpalatable.
One of the clues to the pursuit of TA is that it often results in transferable and reusable knowledge. It is not uncommon in this context that a highly trained person may actually discount or dismiss the SR&ED in their project because they feel that the advances sought don’t represent an “absolute advancement” in the world-wide knowledge base relevant to the technologies and techniques involved. That’s desirable, but not essential.
In fact, it is true that the business context of the company and its internal know-how or “technology base” also need to be considered. The company may yet have learned something from doing the work. Where there is a real gain in the technical knowledge of the company – its technology base – and if technological uncertainties have been addressed or reduced in doing so, then the work was SR&ED.
There is no requirement that advancements claimed have to represent a giant technological leap – just some small gain, a lesson learned, a problem better understood, or even a failure that can be avoided in the future. The pursuit of advancement is generally the pursuit of knowledge or know-how, and even wisdom of sorts, one baby step at a time.
Bruce Madole