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We are preparing SR&ED claims for our clients using phone and video conferencing. We can visit your facility while wearing masks, and will comply with your company visitor policies.

Preparing a SR&ED Claim

HomePreparing a SR&ED Claim

When we prepare your claim, our goals are to:

  • Be as proactive as possible and prepare the claim in “real time”
  • Educate your SR&ED team so they can maximize your R&D investments
  • Improve your SR&ED activity tracking system to reduce the effort and increase its utility
  • Ensure you get every SR&ED dollar that you deserve now, and in the future

Preparing a SR&ED Claim

Step 1: Assigning the SR&ED Team
An Account Manager will act as a quarterback to coordinate the visits and to help ensure all of the client stakeholders are satisfied. A senior consultant with the appropriate technical background will be assigned to work with one of your locations. This consultant will work with your staff “front-to-finish” to gather the necessary information to prepare the technical reports and related SR&ED costing. If CRA wishes to do an on-site review of the claim, the same consultant will provide audit support. During the preparation of the SR&ED claim, the consultant will help as required to improve the SR&ED activity tracking system.
Depending on the nature of the activities at this location, a second consultant may be involved if the claim is large or if there are different technologies involved in the claim.
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Step 2: Training
Before the kick-off is scheduled, we’ll send your SR&ED team leader a checklist to help prepare for the first visit. We prefer to kick-off each new client with a 30-45 minute SR&ED training session with your technical and costing team. The first visit is scheduled as early as possible in the fiscal year. The purpose of the session is to:

  • Educate the core SR&ED team on the programs’ requirements, including any recent changes to those requirements
  • Brainstorm for eligible projects
  • Identify the subject matter experts for each project

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Step 3: Gather Information to Prepare the Claim
Our consultant will meet with each subject matter expert to gather the information to prepare the technical and financial portions of the claim. The goal is to have the claim done as quickly as possible to ensure the SR&ED claim isn’t the bottleneck for your yearly financial audit, or for filing the corporate tax return. Where a claim is to be prepared for a fiscal year already completed, the consultant will meet with your team as quickly as possible to gather the information and prepare the report before the filing deadline.
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Step 4: Drafting the Reports
Our consultant will draft the technical report, which explains to CRA why and how the project meets the SR&ED eligibility criteria and describes the work performed in the period. This will be reviewed with your subject matter experts, and the consultant will use their feedback to edit and finalize SR&ED report.
A financial report will also be prepared by the consultant. This report shows all the included individual expenditures and how the various tax credits are calculated. This will be reviewed in detail with your financial staff. All opportunities to maximise the claim’s value will be explored.
Our report preparation process is open and transparent. All aspects of the claim will be reviewed and explained to your satisfaction.
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Step 5: Improve the SR&ED Activity Tracking System (As Required)
As necessary, the consultant assists in making the SR&ED activity tracking system as CRA compliant as possible. There are two critical elements to a successful SR&ED tracking system:

  • A system to record the technical information (it could be paper-based, Excel or Word templates, database or web-based)
  • Establishing a consistent employee practice of recording this information

During the preparation of the claim, if the existing SR&ED activity tracking system is inadequate, we’ll suggest improvements to the system or suggest methods to improve employee consistency in recording data.
 

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Step 6: Internal Review
When our consultant finishes the claim, it is sent to another consultant in our group. The purpose of this review is to:

  • Identify items that may increase the risk of an audit
  • Identify expenditures that may not qualify
  • Suggest areas where additional expenditures may be included

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Step 7: Integrate the Claim with the T2
When the claim is complete and approved by the team, our tax department will coordinate the filing of the claim with your accountant. Most of the time, we’ll enter the SR&ED claim into the corporate tax return. We have Profile, TaxPrep, CanTax and Taxcycle software licenses to make it easy to work with your accountant. Read More
Step 8: CRA Follow-Up
After the claim is filed, we’ll track the claim through the CRA process until you have your claim approved and refund in your hand.

 

When to File a SR&ED Claim


Applying for SR&ED requires that the applicable tax forms are completed on the corporate tax return and filed by the CRA SR&ED deadline. The filing deadline is 18 months from the end of the tax year in which your expenditures were incurred.  For example, if the year end for the corporation is December 31, 2019, the last day to file a SR&ED claim for that January 1 – December 31 fiscal year is June 30, 2021. However, CRA will process the SR&ED claim faster if it’s filed with the tax return, by the 6-month deadline (i.e. by June 30, 2020 in the example above).
The SR&ED tax forms to be filed with CRA include the SR&ED technical report, as well as the total claimed amounts for each of the various eligible expenditures (wages, materials, subcontractors).
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How the SR&ED Refund is Processed
After the claim is filed, the tax centre will check it for completeness, assess it for risk and determine if it can be processed as filed, without further review. CRA accepts over 95% of our claims, as filed, without any questions.When the tax return with SR&ED claim is assessed, the tax centre issues a Notice of Assessment along with a refund cheque. The SR&ED refund appears as a “tax refund”. Read MoreResolving SR&ED Reviews Successfully 
Some claims are selected for a desk review, while others may be selected for a more detailed technical and/or financial review. The review process usually begins with a phone call and a letter to the claimant. Often specific supporting documents are requested, or a general request for supporting evidence is made.

If an on-site visit is requested by CRA, a date is agreed upon and an agenda is sent to the claimant. CRA technical and/or financial reviewers from your local tax office will visit to review the claim and ensure that CRA only issues the SR&ED ITCs to which you are entitled. Technical reviews are conducted by research and technology advisors (RTAs). The review of expenditures associated with the claim are reviewed by financial reviewers (FRs). It is common for technical and financial reviews to be conducted together (joint reviews).We are a part of your SR&ED team. Our staff will work with you through every step of the CRA review process to ensure you get every dollar you deserve. The right to be represented is a fundamental right in the Taxpayer Bill of Rights. This means that the SR&ED consultant can participate in meetings and make representations on the claimant’s behalf. Our “front-to-finish” support includes any CRA review process. We will prepare you for the review in advance, be present during and guide the review process, and follow up with CRA after the visit.The key to a successful review is to understand how CRA evaluates SR&ED and present the work in that context, rather than in your business context. The focus should be on the technological uncertainties, advancements and systematic investigation, with reference to the available supporting documentation.

During the review, the CRA technical reviewer evaluates the claimed work to determine whether it meets the definition of SR&ED. CRA’s two main objectives in a technical review are to determine if the claimed work meets the definition of SR&ED, and to resolve any issues associated with eligibility.

Determining the eligibility of work is a two-step process. The first step determines if there is any SR&ED using the following five questions:
Q1: Was there a scientific or a technological uncertainty?
Q2: Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
Q3: Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
Q4: Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
Q5: Was a record of the hypotheses tested and the results kept as the work progressed?

The second step determines the extent of the eligible work and its associated expenditures.

The financial reviewer reviews the payroll, material invoices, subcontractor agreements and invoices to confirm the claimed expenditures meet the SR&ED criteria, according to the SR&ED eligibility requirements described in the Income Tax Act.

Importance of SR&ED Documentation

It is important to maintain supporting evidence to substantiate that the SR&ED work was performed and the expenditures incurred. The business environment in which SR&ED is carried out will influence the nature and sources of evidence that are available to support the SR&ED claim.

The best supporting evidence is in the form of contemporaneous documents, those created as the SR&ED was performed.  Below is a list of examples of documentation and other items that you could use as supporting evidence. However, the lack of these items should not discourage you from claiming SR&ED, or be considered as an indication that SR&ED did not take place, particularly in the case of a first-time claimant. Other types of supporting evidence may exist that can be used to support the SR&ED work and the related expenditures. In the absence of adequate documentation, you can make reasonable estimates based on the available evidence. From our experience, in the event of a CRA review of the SR&ED claim, their primary objective is to verify that the work occurred and the expenses claimed are reasonable. A logical and reasonable rationale for estimates is usually acceptable. Also, CRA likes to see that new claimants are on the road to compliance. Our consultants can help you implement a simple SR&ED tracking system or help you tweak your existing system. Examples of technical and financial supporting evidence are:

  • Project planning documents
  • Documents on design of experiments
  • Experimentation plan
  • Design documents and technical drawings
  • Project records, laboratory notebooks
  • Design, system architecture and source code (software development)
  • Records of trial runs
  • Project progress reports
  • Minutes of project meetings
  • Test protocols, data, results, analysis and conclusions
  • Final project report or professional publication
  • Photographs, videos
  • Prototypes, samples
  • Scrap, scrap records
  • Contracts, lease agreements
  • Records of resources allocated to the project, time sheets, activity records, payroll records
  • Purchase invoices and proof of payment
  • Accounting records

The project records should be able to demonstrate:

  • Who did the work claimed and how much time employees spent on SR&ED work
  • How the work claimed was related to the technological advancement sought
  • How materials were used, the quantities consumed or transformed in SR&ED work, and how materials and products were ultimately disposed
  • In the case of contracts relating to claimed work, what services or products were provided, who performed the work, where the work took place, as well as who acquired rights to any intellectual property resulting from that work
  • How the project costs that are attributable to SR&ED work are segregated from those that are for non-SR&ED work