SR&ED Guidelines for Software Development Projects
The long awaited Science and Technology review for software development projects has been completed - and not much is different - save some new administrative guidelines. Indeed, (RCT) took some pains to point out that after a thorough review of the Act, it was concluded that the existing legislation adequately covered software development. If there was a problem, it would be addressed through more thorough enforcement of existing rules - particularly the requirement for adequate documentation.
RCT in conjunction with the Canadian Advanced Technology Association (CATA) delivered a series of seminars across Canada to inform interested parties on the new guidelines. Members of Braithwaite attended several sessions in different venues.
The seminars followed a predictable agenda. First there was the usual material about Regulation 2900 highlighting the three necessary criteria - Scientific or Technological Advancement, Uncertainty and Content.
ADVANCEMENT - It was pointed out that the advancement criteria for software development could only be met if new knowledge was produced in fields of computer science or information technology. In other words, development of a new software product per se would not meet this criterion.
UNCERTAINTY - The uncertainty must be stated at the outset of the (SR&ED) project and the solution or method of arriving at the solution must not be readily apparent for knowledgeable practitioners. It is expected the claimant should know what is common knowledge in the field. System uncertainty was also discussed. It is eligible but must also create an advancement.
CONTENT - This criterion is met if the process by which the solution was arrived at shows evidence of a systematic search or investigation (for the advancement) by means of experiment or analysis performed by appropriately skilled people. The analysis must be theoretical analysis of a scientific or technological problem and not routine systems or requirements analysis.
This was followed by a presentation defining the SR&ED project. A SR&ED project starts at the point where the Uncertainty is defined and stops at the point where all steps to its resolution are known. A project also stops if the original technological objectives are aborted or changed.
A model was used to help define the differences between a SR&ED project and a business initiative. At the base is the field of Computer Science. The next level is Information Technology. On top of these two are three more layers - the business process, the firm and finally the commercial environment. Only projects meeting the three criteria in the bottom two layers will be considered.
There was also a clearer definition of the software Industry segments. These included shrink wrap software developers, custom application developers, systems integrators, software development as a part of another product and finally scientific/technical software. All of these, including MIS developments, may have eligible projects if they meet the three criteria. In other words, there are no excluded categories of eligible software development.
The Strategy
These new guidelines contain a lot of information and will provide the reader with some good insights. Review the new guidelines before filing a new claim, or before attending an audit meeting with RCT.
Since RCT has agreed the program still applies to software development projects, review all such projects for SR&ED content, with a view to filing a claim. Particularly important would be a review of software development done by financial institutions who did not claim during the moratorium period.
