Understanding SR&ED Through A Manufacturing Point Of View

September 29, 2021

• Have any of your products or processes taken more time to develop than you expected?
• Did you have any failures in product or process development or improvement?
• Have you used or combined technologies in new ways?
• Have you developed prototypes?
• If you were to develop subsequent models or designs, would they have new and different characteristics requiring multiple attempts?

Each industry faces its own challenges when filing an R&D claim. There are some items that are easier to identify when claiming and other items are in the “grey area”. This “grey area” will be discussed further in the manufacturing industry, but we first must understand what SR&ED is.

SR&ED is based on the advancement of knowledge, that is “the generation or discovery of knowledge that advances the understanding of science”. In other words, SR&ED work produces new knowledge, meaning knowledge that isn’t in the public domain, or knowledge that others in the industry could be expected to know.

What is technological knowledge for a manufacturing company?
Technological knowledge can refer to manufacturing processes or new manufacturing designs. (New knowledge can include how not to manufacture something or what design not to use.)

Is the company ever having to go back to the drawing board when it is trying to manufacture something?
For example, the company created a design using its standard practices and found that they could not manufacture it based on the design and meet all the project’s requirements, such as cost constraints, material performance requirements, speed/throughput requirements.

If the answer is that we just need to change a parameter or property and we know what the value range must be for each parameter or property, then you know it will work eventually once you find the right values. No new knowledge was generated or discovered. In other words, if the solution comes from applying a standard approach or practice, then no new knowledge was generated or discovered.

However, if we didn’t know if it was possible to find the right parameter or property values that would work, then the next question becomes how you went about trying to find the set of parameter values (or properties) that would work?

Was the company systematic in its approach?
Using trial and error, without any analysis or refinement between each solution attempt, would not be systematic, but most of us do not do that. We think about possible solutions, analyze them, and sometimes score them or rank them. Then we try again with a new attempt (i.e., test or experiment or prototype) and we repeat the cycle trying to understand what might lead to a solution (… and also what won’t) until we find the solution, or we decide it’s not worth trying anymore.

General Manufacturing-based R&D activities that may be eligible:

• Coming up with new or modified manufacturing processes for limited budgets or for other constraints that the process must meet.
• Prototyping new equipment or modifications to existing equipment.
• Developing or modifying manufacturing processes under space constraints or performance requirements.
• Integrating new materials to improve product performance and manufacturing process.
• Streamlining manufacturing process through automation.
• Developing a pilot plant to investigate the concept of a new process to increasing throughput.
• Developing processes for scale-up to full production.

Financial Expenditures
Expenditures can include wages, third-party contractor cost (contractor performing R&D within Canada), materials, machinery, equipment, and overheads.

How can ABGi Canada assist?
ABGi Canada takes a 7-step approach to maximize every R&D Tax Credit Claim filed to CRA (Detailed description of the 7-step approach).

1. Initial Exploratory Meeting
2. Offer of Service & Presentation of Offer
3. Kickoff Meeting & Preliminary Project Identification Stage
4. Science Data Compilation Phase
5. Financial Data Compilation Phase
6. Project Review & Finalization
7. SR&ED Claim Submission to CRA

For further information on SR&ED through manufacturing and how ABGi Canada can assist your company in successfully preparing an SR&ED Tax Credit claim to CRA, please contact us today.

Reference: Government of Canada – SR&ED: Advancement of Scientific Knowledge