Q and A sheet for Project Definition Paper

The SR&ED document on Project Definition is designed to present the consensus of the Steering Committee, which includes sector representatives and Canada Customs and Revenue Agency (CCRA), regarding what constitutes a SR&ED project for tax credit claims in accordance with the legislation. This document clarifies and assists in the application of Information Circular 86-4 as it relates to the definition of a SR&ED project.

The primary reason for this paper is to develop a common understanding to ensure that the work is reviewed at a proper level of aggregation to avoid projects being broken down in such a way that eligibility is inadvertently lost.

1. Does this paper supersede the Information circulars and guidelines that CCRA has already published?

   A.  No, this paper is meant to restate the definition of a project in language that is customarily used in industry.

2. What is the relationship between this paper and the sector-specific issue sheets that are being prepared by industry committees?

   A.  This Project Definition paper is based on the Steering Committee's reading of the various sector-specific issue sheets; it is a synthesis of the descriptions of project definition found in them and has been developed to provide a common framework to provide consistency and ensure fairness across sectors.

3. Does this make business programs totally eligible as SR&ED projects?

   A.  No, only the SR&ED portion of business programs is eligible. This paper, however, emphasizes business focus and perspective to make this paper user-friendly for industry, since they usually plan their work in terms of business programs. The CCRA reviewer is always expected to take the business environment in account as outlined in IC 86-4R3, paragraph 2.11.

4. If a SR&ED project is a set of "interrelated activities" can a SR&ED program be defined as a set of interrelated SR&ED projects?

   A.  Yes, when a claimant has a SR&ED program that is a set of interrelated SR&ED projects, then it can be submitted as one SR&ED program description.

5. When a company has an R&D department or facility, can a process audit be conducted to test the activity and cost allocation process instead of being reviewed on a project-by-project basis?

   A.  Yes, this paper identifies a process audit to review the activity and cost allocation process as one possible method of reviewing a R&D department. Process audits may also be applicable for other SR&ED claimant types.

6. Are process audits new?

   A.  No, CCRA has used process audit in selected instances in the past. With the tabling of the Minister's Action Plan from the Vancouver Conference, CCRA has been actively pursuing the expansion of the use of process audit to a greater number of SR&ED claims.

7. The paper refers to hindsight in identifying SR&ED. It states that "... some work that was done prior to this recognition may qualify in that, in hindsight, it was an integral part of the SR&ED project." Does this mean that after some SR&ED work is ultimately identified, the beginning of the product development is automatically the start of the SR&ED project?

   A.  No, the beginning of product development is not necessarily the beginning of a SR&ED project. The start of a SR&ED project is that point at which scientific and/or technological objectives can be defined. Activity conducted as part of standard business practice not needed to define scientific and/or technological objectives is not part of the SR&ED project.

8. Can a company claim the Canadian component of a SR&ED project that is conducted by several companies in several countries?

   A.  Yes, as long as the work done by the Canadian component meets the three criteria for eligibility on its own merit and expenditures as defined by subsection 37(1) of the Income Tax Act are met.

9. Does this mean that all new product development can be considered as SR&ED?

   A.  No, however product developments, or components thereof, that are SR&ED projects are eligible. This paper recognizes that business is usually organized for product development and improvement. One purpose of this paper is to re-emphasize that the CCRA reviewer understands the importance of the business environment and takes it into account in assessing SR & ED eligibility.

10. What will happen to this paper? Will it become an official CCRA application paper?

    A.  The draft paper has been distributed to industry representatives, CCRA offices, and at workshops, roundtables and conferences. The feedback was reviewed by the Steering Committee and they made final revisions. The paper will be placed on the SR & ED Web site and distributed to sector-specific committees, claimants and field offices. The paper will be implemented; the principles within it will form the basis for project definition in the various sector-specific issue sheets.