In a small business, or a start-up with just a handful of people working like mad to get the business going and the products or services developed, the levels of reporting and documentation are almost nil. People talk to each other – they don’t generally write notes and reports. If there’s a boss to report to … he or she is probably in the same room, or doing the actual work. Such small business entrepreneurs almost never write at the level that the tax authorities appear to be seeking. If there is an entire segment of industry that is generally unable to satisfy the CRA requirements for supporting evidence, does that represent a bias in the SR&ED program itself?
Maybe not. A reviewer might observe that the law and its supporting guidelines and circulars clearly describe the evidence requirements, and that anyone hoping to avail themselves of government money should be willing to work within the rules. And if the rules appear to be overly complex and somewhat impenetrable for the ordinary business person, well … there are SR&ED consultants to assist, no matter how distasteful the CRA may find that reality. As for accountability, the CRA might argue that, to obtain government funding, there is an implied accountability to the Canadian government – the strings that come attached to the money.
The bottom line, from the perspective of the tax authorities, is that you must have some evidence, and preferably, a whole lot of evidence that is directly linked to the work that you are trying to claim. Claiming a project with no supporting evidence at all is a slam-dunk, from their perspective: right into the rejection file. This claim is unsupported.
I sometimes suspect that the tax authorities would rather reject a claim as unsupported if by doing so they could educate a claimant about the need to create the necessary evidence in the future. Such lessons come at great cost: many claimants simply don’t reapply if their initial experience of the program proves too painful.
There is a world of difference, however, between having some evidence, and having no evidence at all. Having some evidence means that you can put up a good argument for the eligibility of your work.
This is why I am recommending to you: keep a journal about your technical work. Try to include your daily “to do” list as a part of that process, and keep it up. If you have a day-book or calendar with room to write out your tasks for the day, do that. Even a series of brief, brief notes about the technical problems you encounter will accumulate over the year into a package of supporting evidence for a related claim.
Bruce Madole