Plant Breeding and Seed Industry
Scientific Research and Experimental Development (SRED)
Program Guidance Paper

1.0 INTRODUCTION
2.0 SR&ED CRITERIA
3.0 SCIENTIFIC OR TECHNOLOGICAL UNCERTAINTY
4.0 SCIENTIFIC OR TECHNOLOGICAL ADVANCEMENT
5.0 SCIENTIFIC AND TECHNICAL CONTENT
6.0 NON-QUALIFYING WORK
7.0 Preparing a Detailed Project Description (Form T661, Part 2)

STEP 1 - PROJECT SUMMARY INFORMATION
A. PROJECT LIST
B. CAPITAL EXPENDITURES
C. PERSONNEL

STEP 2 - PROJECT DESCRIPTION
A. SCIENTIFIC/TECHNOLOGICAL OBJECTIVES
B. SCIENTIFIC/TECHNOLOGICAL ADVANCEMENT
C. SCIENTIFIC/TECHNOLOGICAL UNCERTAINTY
D. DESCRIPTION OF WORK IN THIS TAXATION YEAR
E. CLAIM SUBSTANTIATION
APPENDIX

1.0 Introduction

1.1 - This document is intended to give assistance in interpreting how Scientific Research and Experimental Development (SR&ED) incentives apply to research and development work in plant breeding and seed industries. This will provide guidance in the preparation of the claims for these activities by companies and will also serve as a tool for Technical Reviewers to understand the eligibility of R&D practices in these industries. The characterization of Scientific Research and Experimental Development is as defined in sub-section 248(1) of the Income Tax Act and as described in Information Circular 86-4.

1.2 - Technical issues are addressed here but not expenditure or financial review issues. Questions relating to financial issues and the eligibility of expenditures are addressed in Interpretation Bulletin IT-151 Scientific Research and Experimental Development Expenditures. Explanations on how to claim an SR&ED tax credit are found in the publication Claiming Scientific Research and Experimental Development Expenditures - Guide to Form T661.

2.0 SR&ED Criteria

2.1 - Plant breeding and the use of formal plant breeding techniques are SR&ED work when they are pursued for the purpose of achieving scientific/technological advancement using a systematic investigative process by means of experiment or analysis.

2.2 - A plant breeding project is inherently an experimental process that seeks to enhance the agronomic performance or other genetic characteristic of a plant commodity (e.g. field crop, greenhouse ornamental). There is an implicit scientific uncertainty in a plant breeding project. In seeking to modify or enhance the genetic complement and expression of various traits in a plant species, a breeding project pursues a scientific advancement. Scientific advancement and uncertainty, together with scientific and technical content, are eligibility criteria of the SR&ED Program. The companies claiming plant breeding as SR&ED must present the work to clearly satisfy these three criteria and substantiate the claim with appropriate evidentiary documentation.

3.0 Scientific or Technological Uncertainty

3.1 - A scientific or technological uncertainty in plant breeding arises when the intended advancement, or the method of arriving at it is not readily apparent to appropriately skilled and experienced plant breeders.

3.2 - Some source of scientific/technological uncertainty must be identified when the SR&ED work is undertaken. This uncertainty does not have to be resolved in the current year. It may require the performance of genetic crosses, testing and several field trials before the uncertainties are resolved.

4.0 Scientific or Technological Advancement

4.1 - A scientific or technological advancement is the discovery of technical knowledge that advances the understanding of scientific relations or technologies. For the purposes of this document some examples of advancement are:

• new genotypes/germplasm with characteristics that embody an advancement over the claimant's existing germplasm
• determining how or why specific genetic traits are expressed
• determining how or why certain environmental variables (e.g. temperature) influence trait expression
• determining the influence of cultural management strategies (e.g. tillage practices, fertilizer regime) on trait expression in experimental germplasm
• developing molecular markers for screening of genotypes
• enhancing an experimental design or procedure with advanced features
• enhancing a technological process in plant breeding with advanced features

4.2 - It should be noted that an advancement need not represent a successful outcome in the plant breeding activity. Any result that enhances knowledge in the field of plant breeding by showing that a particular scientific approach did or did not succeed represents a scientific advancement.

5.0 Scientific and Technical Content

5.1 - This criterion applies to both methodologies and personnel involved in SR&ED work. The personnel responsible for directing and performing the work must have the professional skills and experience commensurate with the needs of the project.

5.2 - Supporting information must be generated over the course of the work to demonstrate a systematic experimental investigation in SR&ED. The type of records required would be those that would normally be generated in the course of undertaking plant breeding. As a guideline, some examples of the kinds of supporting information that should be available for on-site review by the Canada Revenue Agency (CRA) may include the following:

• background literature related to a project objectives and plan
• record of genetic crosses
• nursery data books
• records of field trials
• notes on experimental procedures
• project note books and/or quantitative measurement data
• results of statistical analyses
• staff resumes
• any other relevant material/information (e.g. photos) that substantiates the SR&ED work

6.0 Non-Qualifying Work

6.1 - Plant breeding work undertaken outside Canada does not earn investment tax credits. Examples are winter nursery activities or variety testing outside of Canada.

6.2 - There are also aspects of plant breeding that are considered post-SR&ED and are commercial activities which do not qualify. The following are further examples of excluded work:

• seed increase for the purpose of commercial sales
• market research or sales promotion activities such as demonstration plots for the purpose of promoting new cultivars
• production or use of cultivars or seeds solely for commercial purposes
• testing of lines that have progressed beyond breeding project activities for purposes of making registration, commercial or marketing decisions.

7.0 Preparing a Detailed Project Description (Form T661, Part 2)

7.1 - Your description should be confined to the relevant technical facts which illustrate the experimental nature of the work. Most projects can be described in four pages or less. You must present your claim showing your work organized as SR&ED projects. A SR&ED project consists of a set of interrelated activities that meet the three criteria of SR&ED.

7.2 - This information should be compiled by the scientific/technical personnel directly involved in the SR&ED work. These persons should be available for discussions in the event a technical review is required by the CRA.

7.3 - The following information is presented as a generic example representing a typical plant breeding project and would normally be comprised of a 2-4 page summary appended to your T661 Form. Part 2 of the form T661 may be presented in the following manner:
Sample T661 - Part 2. Scientific or Technological Project Information

Step 1 - Project Summary Information

A. Project List
Project Code: W95 (internal identification label for this project)
Project Name: Genetic Improvement of Wheat Cultivars
Start Date: April 1,1995 End Date: March 31,2006(est.)

Total Labour Cost: $xxx,000 (for current tax year)
Material Consumed: $xxx,000 (for current tax year)

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Project Code: C96 (internal identification label for this project)
Project Name: Genetic Improvement of Corn Hybrids and Inbreds
Start Date: April 1, 1996 End Date: March 31, 2005(est)

Total Labour Cost: $xxx,000 (for current tax year)
Material Consumed: $xxx,000 (for current tax year)

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Project Code: SB97 (internal identification label for this project)
Project Name: Genetic Improvement of Soybean Cultivars
Start Date: April 1, 1997 End Date: March 31, 2010(est.)

Total Labour Cost: $xxx,000 (for current tax year)
Material Consumed: $xxx,000 (for current tax year)

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B. Capital Expenditures Capital Item Cost Project

Item A 10,000 W95
Item B 23,000 C96
Item C 58,000 C96
Item D 12,000 SB97
Item E 78,000 SB97

C. Personnel

Name	Role	Project	Activities
Dr. Seymore Smith	Project Leader	W95	in charge of overall operations
Dr. Jane Wilson	Senior Breeder	W95	direct parental selections and evaluate crosses
Dr. Bob Wilson	Breeder	W95	plan and execute field trials
Ms. Heather Strong (MSc)	Technician	W95	field data collection
Mr. John Doe (BSc)	Technician	W95	data management and analysis
Dr. Orville Maby	Project Leader	C96	in charge of overall operations

... and so on, listing all qualified personnel (refer to Guide to Form T661 for a definition of qualified personnel) involved in the SR&ED work. Detailed resumes should be available in the event of a technical review.

Step 2 - Project Description

This section contains an example chosen from the Project List above and presents it in a manner consistent with the requirements of Form T661. The order of information is not important but it is important to address each of the items in the headings. Choose either a narrative or point form style to outline the scientific/technological problem or uncertainty, briefly explain the experimental approach or activity that was planned to resolve the uncertainty and report a summary of your findings (or incremental advancements in the case of a long term project in plant breeding).

A. Scientific/Technological objectives

What are the scientific or technological objectives, in quantitative or verifiable terms, of the work you are claiming?

Example:
Project SB97

The objectives of this plant breeding project are to develop soybean cultivars, for the 2600 to 3000 heat unit areas of Eastern Canada, that offer the following improvements over existing cultivars:

• 10% improved yield over currently available cultivars
• 10% improved lodging resistance over currently available cultivars
• no sacrifice of resistance to leaf disease(s) or Phytophthora root rot

B. Scientific/Technological Advancement

What scientific or technological advancement did you expect to achieve as a result of performing this work? In what field of science or technology did you expect to achieve this advancement? Explain why this is a scientific or technological advancement over the existing knowledge/technology.

In the context of plant breeding, the objectives referred to in A above represent long term goals of the breeding project. However, each year the work usually leads to or represents certain incremental advances. In responding to the questions related to this part of the form be sure to include specific examples of advancements achieved during the taxation year in question.

Example:
Project SB97

The scientific/technological advancement expected in this plant-breeding project is the development of a new cultivar that embodies the genetic traits for higher yield and resistance to lodging in a genotypic combination that surpasses the performance features of existing cultivars without compromising disease resistance. This advancement will be in the field of genetics and plant breeding. This would represent a scientific advancement because attempts to improve yield in soybeans are typically accompanied by maturity delays or increased susceptibly to lodging and disease(s).

Incremental advances were made towards some of the intended scientific objectives:

• the enhanced yield trait was more successfully transferred from (xx) genotypes than from (yy) or (zz) genotypes
• there was a negative correlation between yield and early maturity (i.e. < 2900 heat units)
• resistance to soil borne diseases (e.g. Sclerotinia, Alternaria) was influenced more by plant stature (i.e. lodging trait) than the presence of the disease resistance gene itself due to the closer proximity of foliage to the soil in lodged specimens
• five lines yielded at least 5% above commercial check varieties, with improved lodging and acceptable disease resistance.

C. Scientific/Technological Uncertainty

Explain what scientific or technological uncertainty you have to resolve to achieve the advancement stated in B above.

Example:
Project SB97

The scientific/technological uncertainty relates to the feasibility of combining the desirable genetic traits from different germplasm sources into a superior performing cultivar out of thousands of possible segregating genotypic outcomes resulting from hundreds of crosses. Additionally, scientific uncertainty relates to the feasibility of achieving this result without sacrificing disease resistance, which is often compromised with yield improvements.

D. Description of Work in this Taxation Year

Describe in chronological order, the work, including all support activities performed in each taxation year to resolve the scientific or technological uncertainty stated in C above. What progress was made towards the scientific/technological objectives in A above as a result of this work? This information should be provided for the work (project by project) performed in each taxation year claimed.

Example:
Project SB97

During the current taxation year (1997), the following work was undertaken and progress attained included:

1. 120 new parental crosses were made in the nursery
2. 4500 F3 lines meeting our selection criteria from the 1996 crosses were advanced to F6 by single seed descent using winter nurseries
3. 5000 F6 Lines originating from the 1995 crosses were tested in preliminary yield trials at 2 locations and 200 selected that met the criteria for further advancement
4. 150 advanced lines from the 1994 crosses were tested in advanced trials in 4 locations and 6 elite performers selected for wide area testing
5. 5 finished. lines originating from the 1993 crosses were tested in pre-commercial co-op trials at 8 locations, and tested in official public co-op registration trials. Official tests will be used to corroborate our disease, quality and performance results and select candidates for registration and commercialization.

E. Claim Substantiation

List the supporting scientific or technical information available to substantiate the work described in D above.

Example:
Project SB97

See 5.2 above

APPENDIX

The preparation of this guidance paper was undertaken by an expert committee representing industry, academia and federal and provincial governments.

Members of the Expert Committee:

Mr. Rick Bannerman, Pioneer Hi-Bred Production Ltd.
Dr. Ken Campbell, Agriculture and Agri-Food Canada
Dr. Mike Dixon, University of Guelph
Dr. Tom Francis, Syngenta Seeds Ltd.
Dr. Basu Gantotti, Canada Customs and Revenue Agency
Mr. Peter Hannam, First Line Seeds Ltd.
Mr. Lorne Heslop, Agriculture and Agri-Food Canada
Mr. Ken Hough, Ontario Field Crops Research Coalition
Dr. Bruce Hunter, Syngenta Seeds Ltd.
Dr. Len Kannenberg, University of Guelph
Dr. Daryl Males, Saskatchewan Wheat Pool
Ms. Andrea Martin, Ontario Ministry of Agriculture, Food and Rural Affairs
Dr. Murray McLaughlin, Foragen Technology Ventures Inc.
Dr. Alan Sullivan, University of Guelph
Dr. Gord Surgeoner, University of Guelph
Mr. Peter Van Die, Canada Customs and Revenue Agency

For more information on the SR&ED Program refer to the CRA web site: www.cra.gc.ca/sred