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Just What Exactly Is a Technological Obstacle in the SR&ED Program?

09/06/2010


​​Our last blog post explained just exactly what a Technological Advancement was in the SR&ED program. In follow up to that discussion, we thought it was just as important to understand what a Technological Obstacle was in the SR&ED program. From our last post, we know that the first thing to figure out is whether or not you have performed a technological advancement. One of the key factors into determining whether or not an advance happened are what obstacles did you have to overcome, or rather what uncertainties did you have when attempting to achieve your technological advancement?

CRA's Information Circular 86-4R3, "Scientific Research and Experimental Development" states that,
"The criterion of scientific or technological uncertainty is ... whether or not a given result or objective can be achieved, and/or how to achieve it, is not known or determined on the basis of generally available scientific or technological knowledge or experience. This criterion implies that we cannot know the outcome of a project, or the route by which it will be carried out without removing uncertainty through a program of SR&ED."

Similarly CRA's Document T4088(E) "Guide to Form T661 - SR&ED Expenditures Claim" asks the claimant to,
"Describe the shortcomings and/or limitations of the current state of technology that prevented you from developing the new or improved capability. Describe the technological problems and unknown elements that  had to be removed while you attempted to achieve the technological advancements."

So now we have obstacles, uncertainties, shortcomings, limitations, etc. Just exactly what does CRA want to know?

The CRA needs to know the following:

What is the current state of the art? - Or another way to ask this is what is the current technology base or level that existed at the beginning of your project. If you can answer this question then you are able to accurately asses not only what the current state of the art is, but also any deficiencies, shortcomings, limitations, etc. of the current state of the art as well. By knowing what these deficiencies are, then you are better able to understand what steps you might have to take to overcome them and whether or not the work you're going to perform to overcome them will be experimental (i.e. SR&ED) or routine (i.e. standard practice for a qualified person in your field).

Once CRA understands that you know the current state of the art, then the next question that they want to know the answer to is:

What is wrong with current state of the art? - Like discussed above, these are the deficiencies, the limitations, the obstacles, the shortcomings in the current state of the art. By understanding what is wrong with the current state of the art you will be able to much better explain how you are going to attempt to overcome these obstacles.

Now that CRA understands what the state of the art is and what the deficiencies are, the next question is:

What are the obstacles? - Meaning, when you understand the deficiencies why is it difficult to overcome them? Why is it unknown? Why will it take experimentation to solve the problem instead of just routine work? An obstacle is a piece of work that has an unknown answer to a problem and those obstacles can be technology driven and/or financially driven. Meaning that you might have no idea how to solve the problem, and/or you might not have the financial resources to solve the problem the known way.

Hopefully this clears up just exactly what a technological obstacle is and what CRA is looking for on line 242 of the T661 form.

At MNP we have experts who can help you answer these questions and as mentioned last time eligibility can be determined by your technical SR&ED professional. There may also be tax planning and optimization strategies for owner-managed and smaller businesses. Speaking to a tax and SR&ED advisory professional can help you explore potential tax planning opportunities; which in turn will help optimize your SR&ED claim.

For more information please feel free to contact myself or your local MNP advisor.

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