When preparing a SR&ED technical claim for a project, start by putting every detail of the project to paper. This shows the entire scope of your process and makes it easier for the reviewer to understand the work performed. Once the details have been established, strategic editing can be done to tighten up the SR&ED claim and lower the overall risk of an audit. Our Common SR&ED Claim Pitfalls will outline some of these strategies.
Tips for SR&ED Claim Write-Ups
1. Make the communication logical and concise. The progression of ideas should flow smoothly between sections, allowing the reader to go through the document quickly without searching for any information.
3. Continuity between R&D Projects. For continuing projects, list projects in the same sequence as the previous claim year. This allows the RTA to easily cross reference materials. Again, the goal is to have them read as quickly as possible, thus reducing time spent on your file and the likelihood that reviewers will have further questions. For discontinued projects, make it clear why projects from previous years with continuing timelines were not continued or claimed in the current SR&ED claim.
4. Keep it simple. Not all projects need to be broken down individually–it is possible to combine projects, provided they deal with similar technology (but in different application areas). Technological projects in companies are often multi-denominational and are used in different business projects; this is fully understood by the Canada Revenue Agency.
5. Keep timelines concise. CRA mandates aim to cut off funding for anything they think might run over multiple years (“perpetual projects”). Be wary of R&D projects that are more than three years in duration. Companies should re-examine ongoing projects to see if there are new technological thrusts. If not, end the previous project, and appropriately name the next project if you identify new technological obstacles/uncertainties.
6. Use your word count wisely. Avoid describing support activities. The project descriptions are like lenses that are focused on different aspects of a project. It is not necessary to give all the support activities. Instead, focus on the key milestones and difficult activities/obstacles so you can include quantifiable measurements statistics, conclusions, and other evidence.
Sometimes the creator of the technology is too close to the materials and some of these steps are neglected–particularly #1! Having someone unfamiliar with the material read through is always advised, as it will expose any gaps in terms of explanations.
Remember to put appropriate time and effort into preparing these documents. The CRA wants to support R&D in Canada, so make it easy for them to say “YES!”
These are just a few items to keep in mind while completing your SR&ED tax claim application–keep checking back to SREDucation.ca for more claim pitfalls and how to avoid them.