At the end of April, 2015, the Canada Revenue Agency (CRA) revised its Eligibility of Work for SR&ED Investment Tax Credits Policy with significant new “clarifications”. For the first time since the program was introduced in 1992, the term scientific method no longer applies to the SR&ED program. In what this author considers a confirming acknowledgement of the shop-floor practices of the domestic manufacturing sector, CRA now refers to the proper method of attempting product or process improvement as systematic investigation, not scientific method.
Furthermore, CRA clarifies the term analysis in order to acknowledge that all analysis is done within the particular framework of the specific manufacturer analyzing the problem in front of them. It acknowledges that a small to medium sized enterprise (SME) is not expected to have the domain knowledge or experience that a Fortune 500 company would have available to it, and said SME will only be judged against its own existing state of the art. That is why, for example, the past decade has seen so many printing, automotive, and other companies obtain funding for performing the same systematic investigation in order to be able to switch from oil based to water based products. Most innovation is done concurrently by many different companies, all of whom see where the future is going and recognize where they need to be to stay competitive.
CRA also modified the definition of analysis to explain that “analysis is an integral part of the systematic investigation or search and it can be used to generate or test a hypothesis”. Hypothesis is another term that is not commonplace on the shop-floor. Acknowledging that reality, CRA also revised the definition of a hypothesis and states that “a hypothesis is an idea, consistent with known facts, that serves as a starting point for further investigation to prove or disprove that idea”. While the Oxford Dictionary might take objection to this over-simplification, CRA, in its defence, adds a note to the definition stating that “the explanation has been simplified to improve understanding and readability”.
Towards the end of the Paul Martin government and the beginning of the Stephen Harper era, based on independent reporting, CRA recognized that certain business sectors, primarily those dominated by SME’s were not receiving their proportional share of the then $3 billion that was being awarded to the manufacturing sector. In an attempt to correct this discrepancy, CRA began promoting the program via pamphlets, and speaking tours, doubling the annual funding to manufacturers to $6 billion.
There hasn’t been much promotion of the program by CRA since that time and so the introduction of this revised eligibility document with the elimination of the term scientific method should be a wakeup call to all domestic manufacturers to make sure that they are receiving their credit for innovation.
If you are among the surviving domestic manufacturers, it is likely that you remain so by continuing to improve your products or processes, and/or you continue to attempt to develop new products. Even if these activities are still in progress, or currently on hold, or you have failed to achieve any or all of your objectives and recognize that within your given corporate expertise, budget and time frame, these pursuits are unrealistic, you may be eligible for SR&ED funding. This funding help is not a gift, it is your entitlement. Your competitors are taking advantage of this financial support and if you do not, you are putting yourself at a disadvantage.
This author is always open to discussions with your company about your shop-floor innovations in order to evaluate whether such activities rise to the level of SR&ED. If you have gaps in your knowledge that you attempt to overcome in order to improve your products or processes, it is likely that you are doing systematic investigation in order to overcome these issues, and you may qualify for funding help. Even if you don’t think you would qualify, we are only a phone call away, and we will give you our expert opinion for no fee or obligation.
However, don’t procrastinate, as SR&ED-eligible activities have a deadline, and the SR&ED funding credits do expire.
You will find the link to the CRA revised document on our website at www.FundingHelp.ca