Eligible Activities

SR&ED as a term is defined in the Income Tax Act. The term is defined to mean a systematic investigation or search carried out in a field of science or technology by means of experiment or analysis. A systematic search would normally encompass a process by which a hypothesis is formulated or a technological objective is set , a methodology is devised for testing whether the technological objective is met, the tests are performed, the results are observed, and conclusions are drawn. Systematic searches are often performed by skilled individuals who wear the white coats, but also can be performed by individuals in overalls on a shop floor. The qualification of the individuals to do the work, and the systematic search itself is often referred to as the technological content of a project.

SR&ED is defined to include basic research, applied research and experimental development. Experimental development is defined to be work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes. Work need not be revolutionary. Eligible work includes incremental improvements to existing technology.

A key part of assessing whether a project is an SR&ED project is whether it was undertaken for the purpose of achieving technological advance. A technological advance is generally understood to be the discovery by the taxpayer of technical knowledge that advances their understanding of scientific relations or technologies. The requirement for a discovery implies that there is an unknown or uncertainty of a technological nature at the beginning of a project which will be resolved through the systematic investigation process.

SR&ED activities are also defined to include support work or linked activities undertaken by or on behalf of a taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs and directly in support of core scientific research and experimental development activities.

In 1994 the Auditor General reviewed the operations of the SR&ED program. Although somewhat dated, the report provides some incite into the type of activities being claimed. Included in the report on the review were lists of some projects that received tax incentives under this program. A few examples are summarized below:

  • developing a new line of fibreglass windows and improving window hardware and locking mechanisms
  • developing processes for the recycling of a wide range of solid waste materials
  • designing and developing a machine that assembles hanging file folders from paperboard blanks and runners
  • developing an automatic guidance system for underground mining vehicles
  • developing software relating to interfaces for weigh scales, bar coding and digitizers
  • developing new software for an on-line, fully functional general ledger system
  • developing an on-line system to validate credit information
  • developing a comprehensive payroll system for personal-type computers
  • designing and developing computer controlled multimedia products using graphics, video, sound and text, and three dimensional images
  • developing an integrated material handling/optics/computer system to inspect fruit after mechanical halving and pitting
  • developing a single component polyurethane foam system that is ozone-friendly
  • designing, developing and testing a landing gear control unit
  • developing unreinforced and fibre-reinforced polymer modified cementitious material systems for products that provide coatings for rust protection and waterproofing of cement surfaces
  • researching and developing human diagnosis and therapeutic health care products
  • developing new drugs based on their effects on leukotriene-mediated diseases such as asthma
  • developing medical diagnostic instruments for heart valve problems
  • developing devices to rapidly detect cardiovascular risk
  • developing more environmentally acceptable muds for drilling to replace oil-based muds without compromising drilling performance
  • developing a process to bleach kraft pulp to a specific brightness without using chlorine