From the CRA Seminar: Insight on Filling Out SR&ED Claim Forms
If you haven’t had the chance to attend one of the CRA’s SR&ED public information seminars yet, we have good news for you. We sat in on one recently and have summarized the highlights for you, so you can learn in the comfort of your own chair. We won’t discuss the usual standard information here but find below the key take-aways from the presentation and valuable reminders from the CRA seminar focusing on claim forms.
Limit on Eligible Expenses
An important reminder about the proxy method
Recall that the purpose of the proxy method is to estimate a reasonable overhead expense. This means that the CRA is going to compare your proxy figure to your income statement. If the overhead expense on your income statement is significantly less than your proxy figure…. Well, it clearly isn’t a very good estimate. Many software packages do not check for this, so determine your limit on eligible expenses and make sure your proxy figure doesn’t exceed it. Your proxy amount cannot exceed the total overhead costs for the company.
Get to the point, already!
You may have heard this a thousand times already, but CRA representatives apparently continue to complain that they regularly have to read through several sentences of useless introduction statements to get to the point of the question. Remember that it’s not a piece of fine literature you’re writing here. Get. To. The. Point.
Who is eligible?
This is extremely important, as well as very simple. If you own the intellectual property, you can claim SR&ED. If someone else owns the IP, you can’t claim SR&ED.
Payment Date for Eligible Expenditures
Don’t push it!
Innovators are busy people and it’s only human to leave things until the last minute sometimes. In some cases, you can count on a bit of leniency when it comes to deadlines. Do not make the mistake of expecting this when it comes to SR&ED expenditures. They must be paid, and on the books, by year-end plus 180 days, NO exceptions. If in doubt, the CRA will request financial records as evidence. Figure out what this date is, then mark an earlier date on your calendar and make sure all SR&ED expenses have been paid by that date.
The area of contractor expenses is one that the CRA is starting to pay a lot more attention to. If you are using a contractor for any of your SR&ED work, make sure the description of work performed on the invoice is very specific. Include as much detail as is reasonably possible in the event that the relevance of the work is questioned. An invoice including only a one-liner may get denied if this isn’t immediately obvious.
Note: Work done by contractors must: a) Be done by a Canadian Taxable Corporation (e.g. they pay Canadian taxes.). b) The work that is done must be done in Canada e.g. You can’t hire a firm, who then does the work in Singapore or another country. Reasonable assurance is here. Best if you work it into the contract. If it happens that you hire a firm, who then hires another firm, and then another firm (subcontractors all the way down!), it’s not reasonable for you to know about all of this. Best though for it to be in initial contract that the work needs to be done in Canada.
Don’t forget reductions
When you are doing the calculation of your eligible expenditures, don’t forget to reduce the total by the financial assistance received. This is commonly missed by claimants and includes things like IRAP, SBIP and any other government assistance (Federal OR Provincial).
Have you attended a CRA seminar? What were your main take-aways?
This article is presented only for informational purposes and does not constitute legal advice. You should retain legal counsel if you require legal advice regarding your individual situation.