Timmy’s Candies Inc. is a leading Canadian candy manufacturer specializing in the creation of Canadian handmade sweets.

Since Timmy’s Candies inception, the business has matured with research and development (SR&ED) underlining the core of the company’s activities. In particular, it has developed a customized software system that improves its business by making it more efficient and cost effective.

Timmy’s Candies incurred qualified research expenses relating to the development of of its software in 2016. In order to qualify for the Scientific Research and Experimental Development Tax Incentive Program, Timmy’s Candies needed to determine the eligibility of its proposed SR&ED activities. The “qualified research” must meet the definition of “scientific research and experimental development” in subsection 248(1) of the Income Tax Act (see Commentary below). Timmy’s Candies’ qualified research activities included the following.


The main objective of this SR&ED project was to create an innovative software system that would support product development and lean manufacturing. Timmy’s Candies developed a system that holds its product components in modular steps so its staff can choose each ingredient, shape and design to create a finished product on a virtual platform without using any real ingredients or equipment.

This system allowed Timmy’s Candies to discover if a product was going to fail beforehand, therefore significantly increasing work efficiency and reducing waste and costs. Specific technical objectives of this project are listed below.

Design and development of a series of prototypes to achieve the technical objectives (design and development of customized software system).

Timmy’s Candies’ hypothesis for this activity questioned whether a software system could be designed and developed to assist in improving the efficiency of their day to day business activities.

The experimental activities conducted in the design phase predominantly entailed computer modeling, conceptual drawings and mathematical calculations. These experiments could only be proven effective or ineffective in the prototype development and testing phase. Following the experiments in that phase, during which the software system was built and tested in various applications, the design was modified and re-tested until the desired outcome was achieved.

Trials and analysis of data to achieve results that can be reproduced to a satisfactory standard (development and testing of software).

The hypothesis for this activity stated that the ability to create its products in a virtual environment first before trialing and manufacturing them at the plant would significantly increase work efficiency while decreasing waste, labor time and costs.

Details of this experiment included development of  virtual product components  based on information gained through the model and testing of the virtual components to ensure efficiency and accuracy.

Background research to evaluate current knowledge gaps and determine feasibility (background research necessary for the development of customized software).

Prior to 2013, there was no system that allowed Timmy’s Candies to create its products in a virtual environment. Thus, besides the lack of comparable solutions available, the outcomes of activities in this research could not have been known or determined in advance due to a number of specific technical challenges.

Timmy’s Candies’ eligible SR&ED activities during this phase included:

  • Literature search and review, including maintaining up-to-date knowledge on relevant food safety standards and requirements.
  • Preliminary equipment and resources review with respect to capacity, performance and suitability for the project.

The background research conducted by Timmy’s Candies was directly related to the main objective of designing the customized software, therefore qualifying as SR&ED.

Ongoing analysis of  user feedback to improve the prototype design (feedback SR&ED of the customized software).

Timmy’s Candies’ eligible SR&ED activities for this phase of its project included:

  • Ongoing analysis and testing to improve the efficiency and accuracy of the software.
  • Ongoing development and modification to interpret the experimental results and draw conclusions that served as starting points for the development of new hypotheses.
  • Commercial analysis and functionality review.

These activities were necessary to evaluate the performance capabilities of the new system and to improve any flaws in the design, therefore qualifying as SR&ED.


To qualify, the work must meet the following definition of “scientific research and experimental development” (SR&ED), as defined in subsection 248(1) of the Income Tax Act.

“Scientific research and experimental development” means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is:

(a) basic research, namely work undertaken for the advancement of scientific knowledge without a specific practical application in view;

(b) applied research, namely work undertaken for the advancement of scientific knowledge with a specific practical application in view; or

(c) experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto;

and, in applying this definition in respect of a taxpayer, includes:

(d) work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b), or (c) that is undertaken in Canada by or on behalf of the taxpayer.


Similar to any tax credit or deductionTimmy’s Candies had to save business records that outlined what it did in its SR&ED activities, including experimental activities and documents to prove that the work took place in a systematic manner. Timmy’s Candies saved the following documentation:

  • Project records/ lab notes
  • Innovation Log
  • Conceptual sketches
  • Design drawings
  • Literature review
  • Background research
  • Records of changes and bug fixes
  • Testing protocols
  • Results of records of analysis from testing/trial runs
  • Records of resource allocation/usage logs
  • Staff time sheets
  • Tax invoices
  • Receipts

By having these records on file, Timmy’s Candies confirmed that it was “compliance ready” — meaning if it was audited by the CRA, it could present documentation to show the progression of its SR&ED work, ultimately proving its SR&ED eligibility.

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