The CRA is intensifying its focus on documentation, what it considers proper documentation, and how often you need to create documentation, to properly support SR&ED claimable activities in case of an audit. As the CRA continues its deeper scrutiny of claims, you can expect the increase in number of audits to continue, but not every audit involves a physical visit to your company.
New pronouncements on RFI (request for information) procedures.
Large numbers of claimants have been receiving RFIs since January 2013. Think of these as audits by mail. They can involve requests solely for financial details, or requests for research documentation, or both. It has become highly likely that new claimants will receive an RFI in response to their first claim. Think of these as audits by mail. And realize that you do not get to be in the room with the auditor to explain what your notes or documentation should mean to them. Be prepared to make crystal clear notes from the beginning, and to do so regularly.
The CRA wants time-based logging of activities broken down into smaller increments. If the claimant has not been keeping regularly updated and detailed documentation from the beginning of every project, things are about to get really difficult.
The CRA does not just want a top level overview of who did what, how many total hours they did it, or the sum total of labour costs for them. Requests for timesheet data broken down by the month, the week, and even the day can arrive by RFI. It doesn’t matter if your company is large or small. And nowhere is it made clear what the CRA considers a “proper” timesheet.
Here’s a basic guideline that we suggest: employees should be able to identify the manner that their claimed work was absolutely needed to resolve one or more of the uncertainties being researched. This is what auditors need explained to them in a scientific RFI, in simple terms. If the development team can agree on crucial variables of experimental development, then it becomes clearer what activities were necessary. Spell it out in your RFI response.
Many things have not been clarified, and there will continue to be no shortage of headaches for claimants and their representatives. Any tightening up and clarifying of details in cradle-to-grave project documentation procedures is your best bet.