5 (Revised) Questions The CRA Uses To Determine SR&ED Eligibility (2015)
In April 2015, the Canada Revenue Agency (CRA) updated the five questions they use to determine Scientific Research and Experimental Development (SR&ED) eligibility.
The table below provides a comparison of the old and new definitions as well as an explanation of the changes.
| 1. Was there a scientific or a technological uncertainty—an uncertainty that could not be removed by standard practice? | 1. Was there a scientific or a technological uncertainty? |
| 2. Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty? | 2. Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty? |
| 3. Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypotheses? | 3. Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis? |
| 4. Did the process result in a scientific or a technological advancement? | 4. Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement? |
| 5. Was a record of the hypotheses tested and the results kept as the work progressed? | 5. Was a record of the hypotheses tested and the results kept as the work progressed? |
Changes to the questions are outlined below:
- The use of the five questions to establish if there is SR&ED is now referred to as a “method.” Originally referred to as an “approach”, this has been changed to distinguish it from the “approach” referred to within the five questions.
- Question 1 of the five questions* has been shortened by removing “- an uncertainty that could not be removed by standard practice.” This phrase was redundant to the question.
- Question 3 of the five questions has been modified to remove the term “scientific method.” Reference to modifying the hypothesis has also been removed to simplify the question.
- Question 4 of the five questions has been modified to explicitly allow for advancement not yet achieved.
- Section 2.1.5 has been rewritten to better express the difference between the records referred to in Question 5 of the five questions and evidence to support a claim.1
Summary
The origin of these questions – the ruling by Judge Bowman in Northwest Hydraulic Consultants Ltd. vs. The Queen (1998) – has been used as the benchmark for determining SR&ED for over a decade. These subtle changes are far reaching – terms such as “scientific method” and “standard practice” have been hotly debated for years. Whether the changes are an attempt to redefine the law without a new ruling or an honest attempt at clarification remains yet to be seen.
This article is based on CRA policy documents available at the date of publication. Please consult the CRA website for the most recent versions of these documents.