When a company develops an innovative product or process, the pre-commercial production phase often raises key questions: are these activities eligible for the Scientific Research and Experimental Development (SR&ED) tax credit program?

According to CRA’s IC94-2 circular, certain pre-commercial production activities can be eligible, but only if they meet very specific criteria.

Here’s what you need to know:

1. Pre-commercial production must aim for technological advancement

The CRA accepts that activities may be eligible if they seek to overcome a technological uncertainty and are conducted for the purpose of achieving a technological advancement, through systematic investigation or analysis. This can include developing prototypes or custom processes to validate the feasibility or performance of a new product.

2. Pilot projects may be included

A pilot project designed to test a technology in real-world conditions before market launch is eligible if it helps generate or validate new technological knowledge. It must go beyond simply showcasing a finished product for commercial purposes.

3. Experimental work must follow a systematic approach

To be eligible, the work must follow a structured methodology within a scientific or technological framework. This includes rigorous analysis, formulating hypotheses, testing possible solutions, observing results, and interpreting data to confirm or reject hypotheses. The goal is to resolve a technological uncertainty using a clear and documented method—not through unstructured trial and error.

4. What is not eligible

Routine production activities, market deployment, or large-scale manufacturing—even when they use new technology—are not eligible if they no longer involve resolving technological uncertainties.

Conclusion

The pre-commercial production phase can include SR&ED-eligible work, but each activity must be documented and demonstrate structured technological investigation. At [your company], we help clients identify, document, and maximize their SR&ED claims—even in the most advanced stages of development.

Working on a pre-commercial project? Let’s talk.

450-682-1010 or info@hlp.ca

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