Case Study Solution

Now the starting place is that we need to identify when the technical uncertainty was identified (or if there is a technical uncertainty at all).

Based on the information provided, the uncertainty was identified in April when the prototype was being tested and the fatal flaw was uncovered. From that point onward, we can claim SR&ED as there is now a technical obstacle that can’t be overcome with standard techniques and procedures (at least in this fantasy example).

Next we need to determine when the technological advancement is identified so we can determine the eligible period of the work. The technological advancement was identified at the end of September when the prototype was able to meet the technological requirements of the project and there was no more technological uncertainty.

Moving onto the eligible expenditures. These expenditures would be eligible for inclusion in the claim.


The salaries incurred between April 1st and September 30th could be claimed while the work before the technical uncertainty was identified and after the technical uncertainty was resolved.

Materials: The second and third prototype materials totalling $7,000 can be claimed as they were consumed or transformed within the SR&ED period. Production materials can not be claimed.


The contractor expenditures excluding maintenance costs could be claimed. The maintenance costs are not eligible as they are unrelated to the project work.

Polymer machine

The machine can’t be claimed for SR&ED because it is a capital asset and capital assets are excluded from the SR&ED program as of 2013.

Expenditure calculation

Step 1: We need to determine the actual qualifying expenditures for the staff, contractors and material.

Eligible salaries: 6 months * $50,000 = $300,000.

Contractors: $24,000.

Materials: $7,000.

Step 2: Apply the overhead method to the salaries.

We are going to go with the proxy method so it is a straight gross up of 55%.

$300,000 * 55% = $165,000. $165,000 overhead gross up + $300,000 eligible salaries + $,7000 in materials + 19,200 (80% of contractors) = $491,200 in total qualifying expenditures.

Step 3: Calculate the provincial investment tax credits.

Since we are in British Columbia, it will be 10% of the total qualifying expenditures.

$491,200 * 10% = $49,120.

Step 4: Calculate the reduction of expenditures pool for the BC ITCs.

$491,200 – $49,120 = $442,080 remaining in the expenditure pool.

Step 5: Calculate the federal investment tax credits.

$442,080 * 35% = $154,728.

So the total tax credits are $49,120 + 154,728 = $203,848 or 62% of the eligible expenditures. Not too bad for work that was going to be conducted anyways. Because it is a December 31st year-end, the SR&ED claim will be an amendment to the previous filed T2. The processing time will be 240 days after the SR&ED claim is filed.