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“What do you mean it’s not eligible?” Disputing CRA Assessments – Part 1: Know Thy CRA

Be sure you understand the fundamentals of the SR&ED audit process!

It happens to the best of companies… a review occurs and an assessment of “ineligible” is issued that the company feels – rightly or wrongly – is incorrect. Next thing you know, that bump in cash you were expecting has vanished, often without a coherent explanation. In our three part series of posts, we’re empowering taxpayers to take control of their reviews by collecting the knowledge they require, gaining insight into the procedures the CRA follows, and insights into the effectiveness of each  from stakeholder commentary.  

Part 1: Setting the Stage for Success

We may convince others by our arguments; but we can only persuade them by their own – Joseph Joubert

It’s important to first recognize that if you disagree with the CRA it can quickly turn into an uphill battle – particularly if you are new to the program. The mindset of the CRA is different from that of innovators, entrepreneurs, and business; its employees operate in an environment governed by rules, regulations, policies and – above all –  a compliance mindset.  Before you begin to dispute anything with the CRA, it’s important to understand their perspective. If you are to successfully dispute an assessment, your arguments must work within their framework of understanding.

Know Key Documents

There are several key documents that are not always widely publicized, but are essential for understanding how to resolve a dispute with the CRA.

 Exactly what it sounds like – official guidelines for resolving concerns and disputes regarding eligibility.

 The internal document that is used by your Research and Technology Advisor (RTA). This is their “how to” for conducting reviews.

 This is the simplified document that has been prepared to help claimants understand what is expected of them during a review.

Read them. They all contain critical information on how the CRA works and thinks when it comes to working with claimants to administering their policies.

Know The Expected Roles and Responsibilities of All Parties.

In a previous post, we discussed the importance of knowing your rights in a SR&ED review. Beyond knowing your rights, it’s important to understand how the CRA interprets your rights/reponsabilities vs. their rights/responsibilities. This is important, as you may need to cite these in later stages of the process. The bolded sections are areas we wish to draw your attention to as they highlight recurring themes.

Application Policy SR&ED 2000-02R: Guidelines for Resolving Claimants’ SR&ED Concerns

In 2005 the CRA updated the Application Policy SR&ED 2000-02R: Guidelines for Resolving Claimants’ SR&ED Concerns [PDF]. In this document, the CRA outlines the rights and responsibilities of both the Claimant and the CRA reviewer.

Claimant

The roles and responsibilities of the claimant are to:

• comply with the SR&ED program’s requirements, such as the filing requirements and eligibility criteria;
• prepare and maintain proper technical and financial documentation to support the work and expenditures claimed;
• respond in a timely manner to the SR&ED staff’s queries and requests for information;
• provide the SR&ED staff access to the appropriate personnel in the company;
• provide additional information and supporting documentation, as requested by the SR&ED staff, for the work and expenditures claimed; and
• advise the SR&ED staff of any concerns, as soon as possible.

Research and Technology Advisor (RTA)

The roles and responsibilities of the Research and Technology Advisor (RTA) are to:

• explain the SR&ED review process to the claimant, including the options for resolving any concerns;
• examine the technical documentation and other relevant information to perform a review;
• evaluate the eligibility of the work claimed;
• request additional information in a clear manner;
• discuss with the claimant any concerns regarding the eligibility of the work claimed;
• provide a report to the claimant which includes the eligibility decision of the work claimed and the reasons for the decision;
invite feedback from the claimant about the report; and
address the claimant’s concerns as soon as possible.

Financial Reviewer (FR)

The roles and responsibilities of the Financial Reviewer (FR) are to:

• explain the SR&ED review process to the claimant, including the options for resolving any concerns;
• examine the financial documentation and other relevant information to perform a review;
• review the expenditures and tax credits claimed;
• request additional information in a clear manner;
• discuss with the claimant any concerns regarding the expenditures and tax credits claimed;
• discuss the relevant findings of the review with the claimant;
• provide the claimant with a letter which summarizes the findings of the financial and technical reviews, including a clear explanation of any proposed adjustments; and
• address the claimant’s concerns as soon as possible.

[Source: Application Policy SR&ED 2000-02R: Guidelines for Resolving Claimants’ SR&ED Concerns]

The SR&ED Technical Review: A Guide for Claimants

In response to the considerable confusion surrounding the process of a technical review, the CRA released The SR&ED Technical Review: A Guide for Claimants (final version) on 2011-07-25. The first draft appeared in 2010-06-02 for consultation with the public; the earlier version is no longer available on the CRA website.

Mutual expectations between a claimant and an RTA during a technical review

The SR&ED review will be more effective and efficient when both parties are clear about what they can expect from each other. The RTA is expected to work with claimants, and the claimant is expected to work with the RTA. At the start of a review, the RTA can discuss with the claimant these mutual expectations.

During the SR&ED review, RTAs will work with the claimants to:

    • explain the SR&ED program, as well as its requirements, services, and policies to claimants who would like more information about the program to encourage understanding of their entitlements and ensure compliance;
    • discuss, before the site visit, issues that they plan to address and their approach for addressing them;
    • discuss, before a site visit, what the RTAs need during the visit, whether it is to see information or supporting evidence or to speak to people, so that the claimant can be prepared for the review;
    • identify, as early as possible, any new issues that arise during the review;
    • identify ways to resolve issues, such as questions to ask or supporting evidence to examine;
    • provide an indication of any concerns that remain at the end of a site visit or, if unable to do so until the information gathered during the review is considered, indicate when they expect to be able to do so;
    • explain decisions and give reasons in writing if any of the work is not considered to be SR&ED, or if any other decisions are not favourable to the claimant. This will help to improve the claimant’s understanding of program requirements and enable them to be better positioned to provide any factual information that had not been considered in the RTA’s decision;
    • co-ordinate their review work, including information requests, with FRs to minimize the administrative burden, to avoid such things as asking twice for the same information from a claimant;
    • give a claimant the opportunity to provide more information or explanations in response to their decisions, and to respond to the claimant regarding extra representation given; and
    • provide feedback, advice, and guidance to claimants, as required, to explain any deficiencies in documentation or project information.

During the SR&ED review, claimants will be expected to:

    • comply with the SR&ED program requirements;
    • prepare for site visits by having requested information, evidence, or personnel readily available during the site visit;
    • prepare for the possibility of an expanded or shortened review by the RTA as the review progresses and new issues are identified;
    • provide, as early as possible in the review process, information or evidence relevant to supporting their position;
    • answer questions and address the issues identified by the RTA before and during the review;
    • make sure that the people who are best able to explain the work done are available to be interviewed by the RTA should other issues arise during the review process;
    • make sure that documentation created during the execution of the SR&ED work claimed is available and organized for review by the RTA, and that someone is available to explain the significance and relevance of the documentation;
    • prepare to explain how the claim was put together and what supporting evidence was used in preparing the claim;
    • focus on both the issues identified by the RTA and the facts related to the work done to address these issues;
    • provide complete responses to questions asked by the RTA, whether in writing or not, within a reasonable time frame;
    • expedite the review by providing any information, on a timely basis, that supports the claim;
    • address any concerns raised by the RTA regarding the quality of project information, claim organization, or maintaining supporting evidence for future claims; and
    • tell the RTA of any concerns as early as possible.

Claim Review Manual for Research and Technology Advisors (public severed version)

Due to the many Access To Information Requests (ATIs) the Claim Review Manual for Research and Technology Advisors (public severed version) was published on 2011-07-18 and publicly posted for review. Although we covered this in our earlier post Surviving a SR&ED Review: Could I Get That In Writing, Please?, it never hurts to reiterate the rights that are impressed upon the RTAs when doing reviews:

1.5.0 Due Process / Taxpayer Bill of Rights

Eight principles of due process, and the particular taxpayer rights that they derive from, are as follows:

1) Provide service in the official language of choice; (Taxpayer right #2)
2) Explain the review process, issues and the planned approach to resolve them to the claimant; (Taxpayer rights #5,6,10)
3) Communicate the options available to the claimant if they do not agree  with us; ( Taxpayer rights #4,9)
4) Give the claimant information on the CRA requirements and explain what information the CRA needs to satisfy them; (Taxpayer rights #6)
5) Give claimants the opportunity to present their position, ask questions, express their concerns and to provide further information with respect to
their claim; (Taxpayer rights #1,5,15)
6) Consider additional information provided in support of the claimant’s position before coming to a decision; (Taxpayer rights #1,5,15).
7) Explain decisions and the rationale to the claimant; (Taxpayer rights #5,6,9,11)
8) Make decisions that are fair and impartial and respect current legislation and policy; (Taxpayer rights #1,8)

[Source: Claim Review Manual for Research and Technology Advisors (public severed version)]

Summary: Expect and Request Clear Explanations

We have highlighted a few key points that were also addressed in our earlier post on the importance of getting things in writing. Namely, the responsibility of the CRA to provide clear explanations in a timely manner. If you haven’t read our earlier post, please do so – it will be helpful knowing your rights as a taxpayer before moving on to how to address your concerns with the CRA. In short – know your playing field and the rules by which both teams are supposed to play will be essential if you push forwards and continue to receive service that you consider unsatisfactory… your feelings may be supported by facts.

All of this information sets the stage for the next steps of resolving issues at the local tax services office, which we will cover in the next post.  It’s important that taxpayers take control of their rights and know their responsibilities – so you can ensure that all interactions remain within that context. 

What have your experiences been with the CRA? Do they follow their own rules of engagement? Leave us a note below!

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