It’s no secret that the CRA seems to be cracking down on SR&ED claims in general, making it more difficult to claim SR&ED refunds even if you haven’t done anything wrong. The rules can seem convoluted and fuzzy to SR&ED applicants, and full of grey zone uncertainty. It can be truly frustrating, being one of those companies who has seen a claim reduced or 100% disqualified within the past couple of years (in other words, just about every company whose claim has gone to audit during that time).
While the level of frustration can make it tempting for a company to abandon SR&ED entirely, this is not the wisest business approach. The average company still receives $160,000 in SR&ED refunds each year from the most generous program of its kind in the world. If you believe that your company has done eligible research, and you’re confident enough to have ever made a claim, then isn’t it worthwhile to determine how you can get a slice of that tax refund or tax credit pie?
If the SR&ED program is full of uncertainty, then a SR&ED like approach works best for deciphering it; through systematic experimental attempts, other companies and consultants have determined ways of avoiding certain red flags and having the strongest possible position in the event of an audit. Here are five such ways:
When describing SR&ED activity in a report, never lump the time spent on due diligence in with the claimable/experimental time. It’s not a matter of just claiming less time, but making sure you don’t send up a red flag by talking about non-claimable activities in the parts of reports where you are only expected to talk about proper SR&ED.
That said, make sure evidence of your due diligence/pre-SR&ED activities is documented so that in the event of an audit you can show the circumstances that led to the claimable activities.
Having one person assigned to corral all the disparate records kept about SR&ED eligible experimentation.
Not waiting for the end of a project or fiscal year to create SR&ED project documentation. It’s easier to spread that sort of work out over time by documenting things as they happen, and as your memory is fresh. Tracking and documenting in real time will allow an easier task of defending labour cost claims in the event of an audit.
Understand the appropriate claims you can make for management and senior level staff, and be realistic about the hours they must have spent directly engaging in work. High percentages in this category can send up a red flag.
Of course, it takes more than five tips to solve the puzzle that is SR&ED. If you have any questions, contact SR&ED Unlimited and we will do our best to answer them.