SRED Eligibility

Project Eligibility Criteria

In past years, the SR&ED program relied on 3 general questions to determine SRED eligibility.   If you answer yes to all questions, there is a high probability that you have a valid  SR&ED claim:

Was there an attempt at technological advancement?

The CRA SRED guide differentiates a technological advancement from a technical advance by requiring experimental work to raise your technology base.  This SR&ED meaning can end up being somewhat circular.  People can often comprehend what is SR&ED by looking at SR&ED examples vs reading another SR&ED definition.  Our blog has many SR&ED claim examples.

Was there technological uncertainty?

Technological uncertainty means that there is risk that you cannot carry out a project successfully without resolving technological unknowns or technological obstacles.  This is a key ingredient in SR&ED eligibility. A SRED claim requires this uncertainty to qualify for SRED credits.  In the opinion of CRA SRED staff, technological uncertainties cannot be resolved by means of routine engineering.

Did you have a systematic approach when investigating the assumptions / hypotheses?

The CRA wants to give SRED grants to work which is systematic.  Documenting your work is a key aspect of being systematic to ensure you can receive SR&ED tax credits.  The CRA and your SR&ED consultant really appreciate contemporaneous documentation.

Project Eligibility Criteria Today

Today, the CRA relies on 5 SR&ED questions to attempt to establish SR&ED eligibility.  Here we provide these 5 questions with a bit of explanation and background.

1. “Was there a scientific or a technological uncertainty that could not be removed by standard practice/engineering?”

Basically this means that you’ve advanced the current state of technology by enhancing a characteristic or extending a capability. An SR&ED example could be a software developer who is looking to increase the throughput handling of a transaction processing engine.  Via iteration and and experimentation, the developer can deliver software which leapfrogs current best practice in terms of defined throughput measures.  This experimentation exceeds standard engineering.  There was also risk at the project outset that the throughput gains would not be achievable.

2. “Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty?”

A hypothesis is defined as “a proposed explanation made on the basis of limited evidence as a starting point for further investigation.” For the purposes of SR&ED, a hypothesis is simply referring to how you will attempt to resolve the technological unknowns identified before the experimentation begins.

3. “Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypothesis?”

The CRA is trying to establish with this question is that you went through a well thought out process to identify what advancement you needed to achieve; you identified what challenges were associated with achieving that advancement; and that you followed through with a systematic investigation (or iterative process) until you arrived at your hypothetical outcome or proved that it could not be achieved.  This is part of the core SR&ED definition.

4. “Did the process result in a scientific or technological advancement?”

“A technological advance is incorporating, by means of experimental development, a characteristic or capability not previously existing or available in standard practice, into a new or existing process or product that enhances a product’s performance. Novelty, uniqueness, or innovation alone do not indicate a technological advance.”

The CRA is looking for evidence of an iterative process and how that has advanced the knowledge base within your company. Keep in mind that this advancement needs to be technological.  The CRA does not care about market, sales or business advancements.

Did you not achieve your technological objective due to challenges you could not overcome? Failures can qualify as technological advancements as you learn something is not achievable given your current technology base.

5. “Was a record of the hypothesis tested and results kept as the work progressed?

Documentation should be contemporaneous.  This means that it was “created at the time when the SR&ED work was done and produced as a result of performing such work.” It is expected that all work is documented. You must clearly demonstrate why each major element is required and how each fits into the project. Examples of contemporaneous documentation include: notebooks, diaries, e-mails, minutes, file notes etc.

Time tracking is another very important piece of documentation.  Time tracking is key in justifying the size of the SR&ED claim which you are making in terms of both salary expense and subcontractor expenses.  Your SR&ED eligible expenditures depend on accurate record-keeping so that you don’t shortchange your SRED claim.

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Related Links

Here is a useful document of SRED eligibility on called the “Eligibility of Work for SR&ED Investment Tax Credits Policy” –

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