Boast Capital has a great article on what constitutes, and doesn’t constitute, a valid Scientific Research and Experimental Development tax claim as interpreted by the courts.
The Honourable Justice Judith Woods has written that “The scheme of the Act in relation to scientific research expenditures is tortuously complex.”
Great! That makes avoiding an audit that much harder. Boast Capital’s article gives some insight into the fine points of this dilemma though:
1. Applied Research
“Applied research is work undertaken for the advancement of scientific knowledge with a specific practical application in view.” In other words, applied research solves a specific problem. If your car is too slow, you’d experiment to answer the questions “Why is it slow?” and “What can I do to make it faster?”
2. Arm’s Length
“Arm’s length refers to a situation where two parties that deal with each other are not related to each other and no control exists between them.” In other words, this is a transaction in which the buyers and sellers are independent and have no relationship to each other. This ensures that both parties are acting in their own self interest and are not subject to any pressure from the other party.
There are 5 more terms from the CRA Glossary you need to know to claim SR&ED in the article, here is the link: http://boastcapital.com/its-tax-season-7-terms-you-need-to-know-to-claim-sred/
Photo Credit: Ryan McGuire