Guide to Supporting Technical Aspects of a Scientific Research and Experimental Development (SR&ED) Claim

Introduction

This document provides guidance to SR&ED claimants, the Canada Customs and Revenue Agency (CCRA) and other stakeholders for identifying and using methods of supporting the technical aspects of a SR&ED claim. Details pertaining to the work and expenditures claimed as SR&ED are to be provided with a complete prescribed form T661. These completed forms introduce the CCRA to the claim and provide the CCRA with the information needed for the CCRA to do an initial review and risk assessment of the claims. This information, together with other factors, such as claimants' history with the SR&ED Program may be sufficient under the CCRA's risk management consideration for the CCRA to process the claims as filed.

However, if the information submitted with the T661 is not sufficient or satisfactory to process the claims as filed, the CCRA may request additional, i.e. supporting, information from claimants before processing their claims. The purpose of seeking the supporting information is to gain a better understanding of the claim and to provide reasonable assurance that the claim is within the boundaries of the program, in a material sense.

In this guide, we refer to two types of required information:

• T661 Information: the information that is required to be filed with T661 form for the request to be considered a complete claim. This information is required as a starting point for all claims. A claim must be complete before it is processed; and
• Additional Supporting Information: the supporting information that claimants must maintain to back up their claim. This information need only be presented when requested by the CCRA.

While both types include technical and financial information, this guide focuses on the technical information.

T661 Information

When properly completed the T661 form provides the prescribed information for the CCRA to do a desk review and risk assessment of the claims. The prescribed information represents a description of the claimants' work and establishes the context and boundaries of the work. The specific project information requested on the T661 form is an important part of the submission and is in the form of questions.

Upon review of the technical information contained in the T661 form, the CCRA should be able to:

• Determine that the work claimed potentially meets the definition of SR&ED.
• Determine the risk of the work not being SR&ED in a material sense; or
• Determine whether more information or a more detailed review is required.

If from the review of the T661 project description the CCRA determines that the work claimed potentially meets the definition of SR&ED, or the risk of the work not being SR&ED in a material sense is low, then the work may be accepted as filed. This would normally be the case where the CCRA is familiar with claimants' claim history, their understanding of the program, their understanding the eligibility criteria and their process for identifying eligible work. However, it should be noted that the CCRA is not stating that the work is eligible and may decide to request more information with respect to expenditures. Claimants may obtain greater predictability through the Preclaim Project Review (PCPR) service where the CCRA provides an up-front review and a preliminary opinion on the eligibility of projects for SR&ED tax incentives.

Additional or Supporting Information

The CCRA may determine based on the desk review of the T661 along with other claimant information that more information or a more detailed review is required before the claim can be processed. It is expected that the next step will often include a visit to the claimant's place of business. The primary purpose of this step is still to assess the risk that the work is not SR&ED in a material sense.

The CCRA will want to discuss the claimant's understanding of the program, the method used to segregate the SR&ED from the non-SR&ED and how the claim was prepared. In addition, there may be questions arising from the desk review. If based on this additional step the CCRA determines that the work claimed is potentially in the domain of SR&ED, or the risk of the work not being SR&ED in a material sense is low, then the work may be accepted as filed. However, again as stated above, it should be noted that the CCRA is not stating that the work is eligible and may decide to request more information with respect to expenditures.

There will be circumstances when, based on the desk review and the additional step discussed above that the CCRA will do a more detailed review and will need to see additional or supporting information. The CCRA may at this point review the eligibility of one or more projects and/or look for substantiation as to the work done. Contemporaneous dated records or documents of a technical nature generated through the course of the work provide information that may support the claim. Examples of these records and documents which may exist in paper, or electronic, or any other media storage form include:

• planning documents
• documents describing project objectives
• descriptions of the problems to be solved
• resource allocation records
• documents of discussions dealing with unexpected obstacles encountered
• minutes of the meetings
• records of trial
• project notebooks
• lab notebooks
• technical drawings
• photographs
• analytical results
• test records, protocols and results
• quantitative measurement data
• results of analytical and/or statistical analysis
• progress and final project reports etc.
• prototypes
• physical samples
• scrap

The absence of documents or records per se should not discourage potential claimants making a claim, or be considered as indications that SR&ED did not take place. In exceptional or unique circumstances it is possible for SR&ED to occur without the generation of any technical documents. However, it is highly recommended that the CCRA be contacted up-front so that we can work together to determine the work to be claimed. Also, it is expected that after there have been discussions with the CCRA that the CCRA and the claimant will work together to generate a claim that is appropriately substantiated. There is an onus on the CCRA to provide assistance that will enable claimants to prepare and support claims. Also there is an onus on claimants to be able to substantiate their claims regardless of the amount of documentation. Therefore, in situations where there may be a lack of documentation it is incumbent on both parties to work together.

In the case where further clarification of a SR&ED claim is requested by the CCRA, claimants may have many existing alternatives to support their claims. These alternatives may take the form of documents (some of which are mentioned in the preceding paragraph), discussions or interviews, or prototypes, or new or improved products or processes. It is recommended that both claimants and the CCRA be open-minded when selecting methods to support a claim.

It must be noted that the above list of records and documents is not meant to be exhaustive nor is it meant to be used by the CCRA as a checklist to support a claim. In fact, it is neither efficient nor necessary from a risk management perspective to request all available records and documents to confirm that the claim meets the SR&ED Program's requirements. It calls on the CCRA to exercise judgement in requesting supporting records and documents. It is not the quantity of information or the amount of detail that is considered sufficient but how effectively the information, be it minimal, can be used to support a claim.

As a result of this more detailed eligibility review and/or substantiation of the work claimed there may be significant issues that the CCRA will discuss with claimants and possibly propose making adjustments with respect to work being claimed. On the other hand, additional allowable work may also be identified and allowed provided it is within the 18-month filing deadline. Please refer to the "Guide for Conducting an SR&ED Review" for more guidance.

Conclusion

The intent of this document is to discuss ways to support a SR&ED claim. The prescribed T661 form provides the CCRA with a description of the SR&ED project. This is one means by which the CCRA assesses the risk of a SR&ED claim. In some cases, the T661 detailed project description provides all the support needed for a SR&ED claim.

After the CCRA has performed a risk management assessment of the claim, the CCRA may require further clarification on individual SR&ED projects to do one or a combination of the following: assess the eligibility of the claim, verify that the work claimed was performed and when, and/or assess that the expenses related to the work done are reasonable. This document suggests methods that the claimant and the CCRA may use to support the SR&ED project.

The CCRA has also introduced several client-focused services, such as the Preclaim Project Review (PCPR) and the Account Executive services. These services provide opportunities for the CCRA and the claimant to work together to determine what specific methods of support may be appropriate for the nature of the work performed or to be performed. Use of these services will further facilitate efficient preparation and review of the SR&ED claims.