We’ve been involved in a few reviews lately and it’s quite apparent that the CRA is cracking down on claimants in the SR&ED program. Many think that CRA has changed the rules on eligibility. So has eligibility changed? Others think that the CRA is killing the program. Is the program dying a slow death? The text in the income tax act has not changed. The only things that have changed recently are the policy documents and the number of staff that CRA is employing in the SR&ED program. These two things, in our opinion, have resulted in a much larger amount of reviews and subsequent denials.
Has SR&ED Eligibility Changed?
Not quite. Rather, it appears to us that the CRA is pushing the scientific method much more lately and they’re really searching hard for supporting evidence. The latest policy consolidation project resulted in a change in the mindset of CRA’s Research and Technology Advisors. Instead of the old 86-4R3 method of evaluating claims they have now come up with the “5 questions“. These 5 questions must all be answered with “YES”. In our opinion the first four questions are all very subjective and in many cases work falls into a grey area with respect to eligibility. However, the 5th question, is the one that CRA is enforcing the hardest.
Was a record of the hypotheses tested and the results kept as the work progressed?
CRA will no longer take a programmer’s, engineer’s, scientist’s word on what they did. There must be proof not only of the work performed, but also proof that it was done in an experimental way and attempting to answer the question of the original hypothesis. We feel that CRA has essentially taken away the possibility to claim SR&ED projects that at the outset didn’t seem like SR&ED, but in hindsight may have been SR&ED. Unfortunately, when looking at something in hindsight, while it may be clearer, in many cases it probably means that the best documentation, e.g. a log of the results as work progressed, was probably not kept. Thus, the CRA is now slapping claimant’s hands for claiming something that they deem is routine work because the scientific method wasn’t followed.
So do I need to get a white lab coat and start inventing the next space shuttle?
Not exactly, but CRA is essentially stating, if you want to be eligible, then you should plan better, document better, and record your experiments better. Ask yourself this question, if you didn’t have a hypothesis in the first place and you didn’t really record how you got from A to Z, then how could you do it again?