Business Management

Guest Blog:

This article was prepared by Bill Mac Arthur, President of M-Teams. Bill provides a valuable service in the area to business seeking government funding. Please call Bill at 519-419-0070 for additional information on government support options.

Trial & Error and Other Things You Don’t Say

Politics and religion are two topics that one is not supposed to raise in conversation.  Similarly, there are things that one doesn't say to government representatives. Today's focus will be on what not to say to the Canada Revenue Agency.

Several years ago a firm which had prepared its SR&ED claim unassisted contacted me. The Canada Revenue Agency was coming in for a review and the initial indications were that it would not go well.  The firm asked me to look at their reports and anticipate what the issues were. It didn’t take very long. The firm had used the term “trial & error” in about 50% of the reports. Trial & error is specifically listed as being ineligible. However, for many people the difference between “trial & error” and “systematic investigation” is in semantics. Most firms who develop products or processes use a systematic approach or they wouldn’t be in business.

Surprisingly, university researchers can get their clients in hot water by using the term “optimize” or some variant. Optimization seems to be hard wired into the genes of the university engineering community. In their view it’s part and parcel of performing research & development. In CRA’s view optimization indicates that the technical challenges have been overcome and fine tuning is taking place.

 

“Complexity” is another term to avoid. Again CRA’s publications warn against it. Some designs or processes can be complex without having any uncertainties. E.g. complex electric circuit diagrams often require extensive analysis to solve but the calculations are deterministic.  

“Capability studies” are often needed to verify production processes. Reducing the amount of variation can require a technological advancement and be fraught with uncertainties. However, the term itself implies quality control which is ineligible. Conversely, almost all research projects use some form of statistical analysis to determine whether or not results have been achieved. E.g. the Salk Polio vaccine trial is a standard statistics textbook case.

In conclusion, there are a number of terms to avoid in preparing SR&ED claims as well as other government applications. Using them can result in additional scrutiny or outright rejection. In the case of my “trial & error” friends, they were doing systematic development and used the wrong term. My recommendation to them was to explain that to CRA using the “I’m just a simple Caveman” approach and explain their development process (“but I do know R&D”). After review, the claim was approved as filed.