The government of Canada updated its guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives on August 13 to clarify and provide simplified explanations to help taxpayers better understand SR&ED incentives and associated eligible work.
The guidelines explain that to be eligible, work must meet the definition of SR&RD in the Income Tax Act. This includes both “why” and “how” elements.
For “why,” the work must generally be undertaken for the advancement of scientific knowledge or for the purpose of achieving technological advancement. This includes basic research, applied research, or experimental development.
The “how” requires a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis. This includes certain types of work – e.g., engineering, design, programming – that directly support the eligible research.
Eligible and ineligible work categories
Among categories of eligible work, the guidelines state that the most claimed “by far” is experimental development. Such work is conducted to attempt to discover technological knowledge to develop new products or processes. As an example, the guidelines list scaling up and optimizing processes to enable the large-scale and rapid production of a vaccine.
Other categories of eligible work include basic research (e.g., studying a newly discovered virus to better understand it) and applied research (e.g., developing a new vaccine against a virus).
“Support work” may also be eligible for SR&ED in certain circumstances. Such work must directly support the research and fit into one of eight categories: engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, or psychological research.
Certain types of work are also explicitly excluded from SR&ED, including market research, quality control, social science and humanities research, and oil and mineral prospecting and drilling.
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