A case decided in May of 2011 has had an enormous impact on the current assessing practice of CRA with respect to determining eligibility of SR&ED projects.

While about 95% of claims involve ‘experimental development’ (“ED”) – as opposed to scientific research (“SR”) – the judgment brings into question whether most ED is even eligible.

According to Justice Steven K. D’Arcy:

“In my view, the work involved the Appellant using existing manufacturing processes and existing materials in an attempt to improve its existing product. This involved routine engineering and standard procedures.”


The law reads:


“scientific research and experimental development” means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is

. . .

(c) experimental development, namely, work undertaken for the purpose of achieving technologicaladvancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto.”


ED invariably involves the use of standard engineering procedures. The truth is that no business sets out to achieve ‘technological advancements’. They set out to build or improve products and services. They necessarily must accomplish this by using standard engineering practices and techniques – since they use engineers and not scientists.


Unfortunately the judge seems to have imposed a requirement that the technological uncertainty be explicitly isolated at the beginning of a project, along with an hypothesis for resolving the uncertainty. This is not what engineers do – particularly not in a small business setting. For them the hypothesis is implicit in the development plan.


Since that decision was reached, the CRA has doubled their audit staff. They are looking for evidence of:


  1. The early identification of the technological uncertainty
  2. An understanding of the difference between ‘routine’ and ‘experimental’ development (I.e. evidence that some sort of ‘filtering’ has taken place)
  3. Timesheets in support of SR&ED projects
  4. A systematic approach involving prototypes, trials and tests


This is an unrealistic expectation – particularly when it comes to startups and very early stage companies with limited resources. However it has now become the new normal. And companies that wish to benefit from our otherwise generous SR&ED tax incentives, need to begin to implement procedures that readily produce that kind of evidence.