Why focus on the IT Industry?

Of the $1.4 billion dollars claimed, Canadian software developers receive approximately one third (¹/₃) of this amount.

Criteria to keep in mind

The expenditures must be for an eligible project that is related to the client's business.

Personnel with the appropriate skill level and technical knowledge who are familiar with the current programming techniques and processes widely available to the industry must perform the work.

Programming and de-bugging using current know-how that does not create an advancement in the technological knowledge base or is not directly in support of an eligible activity is ineligible by itself.

The work leading towards the resolution of the technical uncertainties must be laid out in a systematically manner by employees with the appropriate background and knowledge base.

The successful creation of a product does not guarantee SR&ED eligibility nor does the inability to find a viable solution negate the eligibility.  An advancement in the body of scientific knowledge can result from the conclusion that a certain process will not work a certain way.

Evidence must be maintained by the client in order to support their claims for SR&ED.  Some "typical" items could include: e-mails discussing technical problems/results; time sheets; dated meeting minutes; dated notebooks that record testing, observations and major decisions; project plans; schedules; timelines; original analysis notes; prototype testing results; etc.

It is essential that the claims be properly supported by a project description that clearly conveys to the reader the technical advancements sought, the uncertainties needing to be addressed, the approach used to resolve these and the results achieved to date.

Some typical projects encountered:

1. Projects aimed at developing the initial release of saleable software, which is "leading edge" in some technological way, are often eligible.
   1. Requires the development of new architectures, algorithms or database management techniques and there are then specific uncertainties as to the viability of these.  Can’t just claim that the company was developing new software.
   2. Routine design work using existing knowledge/processes is normally ineligible unless there are clearly identified uncertainties other than routine design uncertainties.
       
2. Development of software for in-house use as the technological foundation of the taxpayer’s business is often eligible.
   1. Software must contain new constructs and/or new solutions to technological challenges.  The uncertainties and advancements must be specifically identified.
   2. New or novel functions and features the software provides to end-users’ do not of themselves establish eligibility.
       
3. The development of feature extensions to proven software may not qualify.
   1. The new features must challenge the original architecture or system performance in ways that cause technical uncertainties and solving them will result in a technical advance in the knowledge base.
   2. Some system compatibility issues may contain eligible work.
       
4. Software developed for most in-house managerial reporting and efficiency support uses is often ineligible.
   1. Normally there is little doubt that the specifications can be met using available tools and well-known constructs in reasonably proven combinations or adaptations.

(Source: "Guidance on Eligibility of Software Projects for the SR&ED Tax Credits and developing and documenting Claims" CATAAlliance)