This is a first post of a three-part series explaining the SR&ED eligibility criteria. This series will explore the definition and application of the three eligibility criteria, namely: Technological Uncertainty, Technological Advancement and Systematic Investigation.
Among longtime claimants and the CRA itself, there has been some misunderstanding of the definition of a technological uncertainty in income tax law. A general understanding of this term is that it refers to a challenge of a technological nature wherein the solution is uncertain.
This definition brings up some questions. What kind of work qualifies as technological? Must the whole solution be uncertain or just part of it? What qualifications must the claimant posses for his work to qualify as a legitimate uncertainty? Let’s try to answer some of these questions.
Defining an Uncertainty
As with all rules regarding SR&ED, the best place to look for information is the law that governs the program, both in the Income Tax Act and relevant case law. One landmark case, which you may notice has been referenced more times than any other case in SR&ED, provides clarification on this matter.
In Northwest Hydraulic Consultants Ltd. v. The Queen, 1998 TC 531 paragraph 16, then Chief Justice Bowman stated:
“(a) Implicit in the term “technical risk or uncertainty” in this context is the requirement that it be a type of uncertainty that cannot be removed by routine engineering or standard procedures. I am not talking about the fact that whenever a problem is identified there may be some doubt concerning the way in which it will be solved. If the resolution of the problem is reasonably predictable using standard procedure or routine engineering there is no technological uncertainty as used in this context.”
As stated in paragraph (a), the solution to a problem must not be predictable using standard procedure or routine engineering. Understanding an uncertainty requires the definition to “routine engineering”.
“(b) What is “routine engineering”? It is this question, (as well as that relating to technological advancement) that appears to have divided the experts more than any other. Briefly it describes techniques, procedures and data that are generally accessible to competent professionals in the field.”
As stated above, routine engineering can refer to techniques, procedures and data which are generally accessible to a competent professional. To be noted, the word “data” refers to knowledge or information, thus it is not unreasonable to conclude that routine engineering refers to the knowledge that is generally accessible.
You can then conclude that an uncertainty refers to a technological problem that is not predictable using knowledge generally accessible to a competent professional in his field.
Stay tuned for subsequent posts discussing what is considered generally accessible and whom may be considered a competent professional in this series on SR&ED eligibility.