In today’s blog post, we’ll look at the misunderstood role of due diligence and how it pertains to SR&ED.
Due diligence is a critical component of the ‘Technological Uncertainty’ which is one of the three main criteria of the program. In order to establish that a technological uncertainty exists, an organization must perform some due diligence to determine if the uncertainty is readily solvable using available knowledge, or if no information exists. Without performing this critical step, it is not possible to establish a valid technological uncertainty.
There are two main misconceptions we see regarding due diligence and SR&ED.
First, due diligence is a required component of the program, however the time spent in performing this task is not eligible. The reason for this is that you must establish that a technological uncertainty exists before you can begin your systematic investigation and/or experimental development and your due diligence precedes the establishment of the uncertainty. Once you have performed your due diligence and established your technological uncertainty, then your SR&ED eligible work can begin.
Second, many claimants do not believe it is necessary to document their due diligence since it is not eligible under SR&ED. To put it lightly, this assumption is dead wrong! You must document all of this work in order to show the CRA that you conducted a reasonable search for information, and are attempting to evaluate the criteria of SR&ED. In order to show that due diligence was conducted, you do no need to write essays or anything of the like. Simply taking a screen shot of searches conducted, or saved URLs of pages that were referenced will suffice. And like all SR&ED documentation, it is also helpful to ensure that this information is date stamped wherever possible.
For more information about due diligence and SR&ED compliance, feel free to contact us.