Within the Canadian income tax regulations, sub section 2900(1) provides insight into the difference between scientific research and experimental development also referred to as SR&ED or SRED for short.

Scientific research (SR) is defined within the context of basic or applied research. Both have a common grounding in science where the objective is to advance scientific knowledge. However, they differ in regards to whether or not there is a practical application in mind. The regulation defines these two types of scientific research as;

(1) Basic research, namely, work undertaken to advance scientific knowledge without a practical application in view;

- or -

(2) Applied research, namely, work undertaken to advance scientific knowledge with a practical application in view;

whereas experimental development (ED) is described as;

(3) work undertaken to achieve technological advances for the purpose of creating new or improving existing, materials, devices, products, or processes, including incremental improvements thereto.

Given the distinctions between Scientific Research and Experimental Development (SRED) mentioned, it is ease to see that basic research is fundamentally conducted within an academic setting. Applied research is often a collaborative effort between academia and industry where such collaboration yields a tangible solution that addresses a market need having economic value to the organization. Experimental development, on the other hand, is often specific to the organization (taxpayer) and initiated when market conditions or commercial realities present technical obstacles that must be overcome. When organizations conduct experimental development, the product of such work usually results in new or improved technologies that support the growth and/or efficient operation of the organization. As such, experimental development applies the principals of known science to resolve a technical obstacle within the technology under investigation to achieve an advance in that technology. When the requisite knowledge to advance a technology is beyond the reach of the organization, collaborations with an academic institution may be warranted. The nature of the investigation may be commensurate with applied research when the collaboration yields an increase in scientific knowledge otherwise it is experimental development.