The CRA’s SR&ED program offers generous benefits to Canadian businesses engaged in research and development. But many businesses stumble when it comes to filing their claim.
The CRA checks all claims, and any that do not meet its criteria will be rejected. It may audit companies that make claims by visiting the factory or lab to talk with workers and verify costs.
Here are some common claim errors and tips on how to avoid them.
1. Missing the claim deadline for SR&ED
The deadlines for SR&ED are strict, and the submissions package for a SR&ED claim is not something you can pull together at the last minute. So, it’s important to understand your deadline, and to prepare your SR&ED claim well in advance.
Your business’s deadline for claiming SR&ED credits will depend upon your tax filing category. Check with the CRA to work out what the deadline for your business’s SR&ED claim will be.
Our recommendation: file your SR&ED claim within six months of year end. You can amend it right up until the deadline if you need to.
2. Unclear project description
The CRA’s submission system for SR&ED tax credits requires a clear description of the research you’re claiming for. A lack of clarity in this section of your submission could result in your claim being rejected.
Our recommendation: Make sure that you understand the technological uncertainties your research activity is addressing. Include the hypotheses your research is testing, the methods and the results.
3. Discrepancies in financial reporting
Discrepancies between a company’s SR&ED claim and its T661 form are likely to result in rejection or a reduced claim. Such discrepancies could also attract an audit.
Our recommendation: Match the expenses and payroll records in your claim to the fiscal year you’re claiming for, and ensure all financial data you are submitting is reconciled.
4. Lack of supporting documents
SR&ED submissions do not include a package of supporting documents at the time claim is filed, however CRA may request it at a later stage. The supporting documents that the CRA might request include plans, ledgers, invoices, contracts and experimental results etc. These documents need to relate to the time when the project your business is claiming for was active.
Our recommendation: Well before you start your claim, put in place processes for your organization’s R&D work to ensure everything is documented.
5. Claiming on ineligible activities
The SR&ED covers only certain kinds of research. Work involving routine product testing, market research and rebranding will not be accepted as part of a claim.
Our recommendation: Familiarize yourself with the CRA’s SR&ED eligibility guidance to ensure your activity is appropriate for the program. If you are uncertain, consider commissioning an SR&ED eligibility assessment from a consultant.
The best way to avoid rejection
The CRA offers some services to claimants to help them navigate the SR&ED claim process. For example, they have a Self-assessment and Learning Tool (SALT) which generates a report about the eligibility of a given project.
You can also engage an SR&ED consultant to help with your business’s claim. An SR&ED consultant can also offer support if your claim gets audited by the CRA.
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