APPLICATION POLICY

1. Issues

The establishment of user requirements in the field of postural and mobility aids for people with disabilities is in essence a form of data gathering. It is typically done at or before the inception of product development and is used to define a number of variables:

• What functionality is required in a product to render it usable by its target market?
• What features are required in a product to give it a market advantage?
• What undesirable elements/features are present in existing products?

All of the preceding questions relate to product development and are an integral part of a company's business decision to develop a product or not. However, in some circumstances they also provide the impetus for an SR&ED project.

The two issues associated with the work performed to establish user requirements to resolve the preceding questions are:

• Is the work associated with establishing user requirements SR&ED in its own right? (See subsections 248(1) (a), (b), & (c) of the ITA).
• Is the work associated with establishing user requirements support work to an eligible SR&ED project, or only routine data collection? (See subsections 248(1) (d) and (k) of the ITA).

2. Background

Some companies maintain that their SR&ED consists of establishing user requirements. The scientific or technological uncertainties in their projects are stated as determining these user needs, and the scientific or technological advancement is said to be acquiring this knowledge. The rationale behind their proposal is that determining user requirements is a complex multifaceted problem.

In many cases, company projects involve phases of determining user requirement, and making functional and product specifications, with many iterations which may or may not have associated scientific or technological uncertainties to be resolved. Once the specifications are defined, standard engineering practices are often applied to produce the module or interface.

The important distinction that must be made when evaluating work associated with determining user requirements, is whether the data collection was carried out for resolving specific scientific or technological uncertainty or not.

3. Analysis

3.1 SR&ED is defined by Subsection 248(1) as work undertaken to achieve a scientific or technological advance separately stated in subsections (a), (b) and (c); establishment of user requirements is performed to identify the current state of the art. While this knowledge provides a baseline for future work, the collection of the information in question does not in itself advance technology in any way.

Once it has been determined that there is an eligible project which meets the requirements of Subsection 248(1)(a), (b), or (c), the only question that remains is whether the establishment of user requirements is data collection of the type described in Subsection 248(1)(d) or of the type described in Subsection 248(1)(k). This must be decided on a case-by- case basis.

3.2 Positive indicators that the work may fall under Subsection 248(1)(d):

• The data collection requires repeatable sampling of a type normally performed in a field of the physical sciences.
• The work is intended to determine measurable functional properties of the product being designed (e.g., accuracy of data required, necessary sampling rate, structural strength, etc.)
• The results of the survey/collection are or would be publishable in a recognized scientific or professional journal relating to the physical sciences.
• The results are specific enough to identify technological issues that must be resolved in the development of the product.

Negative indicators that the work rather falls within Subsection 248(1)(k):

• The work is intended to establish desired features of a target market (cost, likelihood of purchase, etc.)
• The work measures qualitative parameters (appearance, texture, etc.)
• The work involves participation of non-technical people (i.e., the potential end users).

3.3 In addition to the indicators above, two important points that must be taken into consideration as with all support work, are whether the work in question is (1) directly in support and (2) commensurate with the needs of the otherwise eligible SRED (Subsection 248(1)(d)).

The ultimate decision on eligibility for this type of work will be based on the facts of the claim. The above guidelines are intended to assist the CCRA and the claimant in determining whether the work lies within the boundaries of SR&ED.

4. Conclusion

4.1 Is the work to establish user requirements SR&ED in its own right? The answer is NO.

4.2 Is the establishment of user requirements work in support of SR&ED? The answer is that it must be decided on a case-by-case basis.

Director
Specialized Compliance Enhancement Division

Issued by: Scientific Research Section and Tax Incentive Audit Section