As a Materials Science and Engineering student, one of the most impressive postulations that I came across during my studies was Moore’s Law. Gordon Moore (one of the cofounders of Intel) posited, in 1965, that every year the number of components in an integrated circuit would double. He projected growth at this rate for a decade. In 1975 he adjusted his prediction to the doubling of components on an integrated circuit every two years. Since 1975, this prediction has held true hence being given “Law” status.
With ever more powerful and sophisticated hardware coming into existence, there is a necessity for software to advance in tandem, further driving advancements in computer science and electronics engineering. As such, software development plays an intrinsic role in creating and improving new products and services in many sectors.
The Scientific Research and Experimental Development (SR&ED) Tax Incentive Program exists to encourage Canadian-based companies to innovate and develop new technologies for the betterment of society and to encourage Canadian economic growth and competitiveness.
At Catax, we can establish if your software development projects qualify for an Investment Tax Credit (ITC) under the SR&ED Program by talking with you about your work and answering five questions:
Was there a scientific or a technological uncertainty?
Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by experiment or analysis?
Was the overall approach for the purpose of achieving a scientific or a technological advancement?
Was a record of the hypotheses tested and the results kept as the work progressed?
If we can answer “yes” to all of the above, then there are grounds to make a successful claim.
The most important part of a software SR&ED claim is establishing the technological knowledge base to identify a technological uncertainty. By definition, a technological uncertainty cannot be resolved using readily available knowledge and information. Furthermore, in the eyes of the CRA, experimental development is undertaken for the purpose of achieving technological advancement in creating new or improved products, processes, devices, or materials.
Scientific or technological advancement is the generation of information or discovery of knowledge that advances the understanding of scientific relations or technology.
Key milestones in the pursuit of technological advancement are:
Identifying that there is a limitation in the current state of technology.
Undertaking work to address the limitation.
Undertaking work leading to an understanding of the principles, techniques, and concepts beyond the existing technological knowledge base.
Technological advancement is the new knowledge that is applicable beyond the current project.
Be aware that “failed” projects may also qualify. Work resulting in the generation of new knowledge that explains the reasons for the failure of possible solutions to achieve a technological objective is considered a technological advancement provided it is not available in the existing technological knowledge base. Failure as part of an iterative process of moving through stages of design is a natural part of research and development. Evidencing this scientific, methodological process is one of the best ways to highlight that research and development has been carried out – even if the end goal was not achieved!
The CRA has supplied a list of potential qualifying activities within software development:
“Technological advancements in software development projects can involve:
New or improved techniques and methods in computing to store, search, process, and manage vast collections of data (big data). Typically undertaken in universities and large research labs.
Advancements necessary in support of software technology stack or tools.
Advancements necessary for new or improved infrastructures like internet-driven Cloud and distributed computing.
Advancements necessary to support scaling, reliability, and availability of software-based systems.
Advancements in other technology areas like vision and medical imaging, video transmission, telecommunication (voice), automation, controls, etc.”
We work with many software companies and can very quickly establish what activities a company performs that will qualify under the SR&ED program. With this in mind, it makes sense to reach out to us for professional help with your SR&ED application to claim the ITCs that you are entitled to!
Rory Phillips, SR&ED Specialist Tax Consultant, Catax Canada