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Navigate Non-Qualified SR&ED Expenditures Smartly

Quality control and testing aren’t just about compliance, they can also drive innovation. However, the Scientific Research & Experimental Development (SR&ED) program has specific requirements to qualify these activities for support. Failing to distinguish between routine quality practices and eligible R&D can lead to non-qualified SR&ED expenditures, risking claim rejections or reduced benefits.

In this guide, we’ll help you identify eligible R&D initiatives so you can receive the full benefits of your innovative quality efforts. 

Quality control and testing blend routine tasks with opportunities for innovation. The SR&ED program supports this innovation, but it’s important to distinguish eligible activities from routine ones. 

Routine quality checks focused on meeting existing standards typically don’t qualify for SR&ED. These activities don’t involve addressing technological challenges or using experimental methods.

However, there’s potential for SR&ED support if your quality control or testing work goes further. This includes projects aiming to develop new or improved quality methods or techniques that outperform what’s currently available. 

Additionally, if you encounter a quality problem where standard solutions prove ineffective, a systematic investigation to uncover the root cause could qualify. This type of investigation aligns with SR&ED principles, as it involves forming hypotheses, conducting experiments, analyzing results, and carefully documenting your work.

Routine Quality Control vs. SR&ED-Eligible Quality Activities

It’s easy to confuse routine quality control tasks with the type of research and development eligible for SR&ED support. Let’s clarify this distinction:

Non-Qualified SR&ED Expenditures in Quality Control/Testing

Activities focused on ensuring compliance with existing standards usually don’t qualify for SR&ED. This includes standard conformance testing, resolving routine quality issues with known solutions, and any quality checks that don’t address technological uncertainties.

SR&ED Potential in Quality Control/Testing

Even within quality control and testing, there’s potential for SR&ED-eligible work. When existing methods prove inadequate, developing new testing procedures holds potential. Systematically investigating unusual or persistent quality failures to find the root cause can also qualify.  Additionally, experimentation to achieve quality outcomes that exceed current best practices may be SR&ED-eligible. 

Let’s examine some common scenarios with a focus on quality control and testing.

Minor Calibration Issue (Non-Qualified)

A piece of testing equipment goes out of calibration. Technicians easily fix the issue using standard procedures. While important for accuracy, this doesn’t involve the technological uncertainty or experimentation required for SR&ED.

Developing a New Testing Method (Potentially Eligible)

A new product has defects that existing tests can’t detect. The team develops a novel testing method to address this.  Since it involves overcoming a technological challenge, this project could qualify for SR&ED.

Systemic Quality Failure (SR&ED Potential)

A product consistently fails quality checks. The team investigates, using experiments and analysis to find the cause and develop a solution. This systematic approach to solving an unknown technological problem aligns with SR&ED principles. 

When Does Quality Control Become SR&ED?

Routine quality control and testing usually don’t qualify for SR&ED. However, sometimes SR&ED-eligible projects emerge from these routine activities. Let’s look at some examples below.

Unexpected Technological Uncertainties

A routine quality check uncovers unusual product defects. Standard troubleshooting fails to resolve the issue. The team conducts extensive analysis to find the cause, potentially uncovering a hidden flaw and qualifying for SR&ED.

Limitations of Existing Standards

A company aims for quality levels that exceed industry standards. Existing tests can’t verify this higher quality level. The company develops a new, more precise testing method, potentially qualifying for SR&ED.

Pushing Performance Boundaries

A manufacturer wants to improve product durability. The goal exceeds what standard tests and processes currently allow. The company experiments with new materials and processes to achieve this. This innovation to overcome technological hurdles could qualify for SR&ED.

The Importance of Documentation in Quality-Related SR&ED

You need documentation in quality control, especially if you’re considering SR&ED eligibility. Even routine activities can reveal SR&ED potential, but only if you have strong records. 

Capture any unexpected problems that arise during quality checks, even if you find a quick solution. Document all experimentation and how you solved the issue. Record-keeping shows you went beyond standard knowledge to address a technological challenge.

The CRA wants to see records created as the work happens. Detailed, real-time documentation proves you used a systematic approach when standard procedures failed. This type of investigation aligns with SR&ED requirements.

Get the Support You Need for SR&ED Quality Control

Identifying non-qualified SR&ED expenditures within quality control and testing can be tricky. Routine checks focused on maintaining existing standards usually don’t qualify. SR&ED potential arises when you face unexpected quality issues. This requires investigation and experimentation to find solutions.

Additionally, SR&ED potential exists when you want to improve testing methods or achieve results beyond current limits.

Understanding these distinctions and preparing successful SR&ED claims demands specialized knowledge. Don’t leave potential credits on the table. G6 Consulting can help you identify SR&ED-eligible work within your quality control processes. 

We make sure you have the required documentation and maximize the value of your SR&ED claim. Find out how we can optimize your SR&ED returns for quality-related innovation.