Filing the T661 – Describing 20 projects vs. describing all
Updated to Reflect New Policies (2022)Â*** Some of the policies referenced were updated 2021-08-13. This article has been updated and is accurate as of 2022. ***Â |
The most important form you will need to fill out in order to apply for SR&ED investment tax credits is the form T661. This form is required by the CRA in order to process your tax credit application. Over the past few years, we have described the CRA’s fillable T661 form and we have explained why it is important to file the T661 correctly. With this blog post, we highlight an aspect of the T661 that is not as commonly known – the fact that researchers are supposed to fill out and may be asked for a completed form for each project being claimed.
The SR&ED Claim Process
The CRA has detailed the SR&ED claim process quite simply by stating that “a corporation or an individual carrying on a business must file an income tax return and include a completed Form T661” 1. The form itself is not difficult to understand, where it gets tricky is Step 2 “Provide details about the scientific or technological content of your work. Fill out a separate Part 2 for each project you are claiming”2 For an organization submitting claims for hundreds of projects within any fiscal year that could turn into a huge administrative burden.
What happens when you have more than 20 projects?
Claimants may choose to submit project information in Part 2 of the form for only the 20 largest projects in dollar value when filing a claim. The cost of every project claimed is required to be included in Part 6 of Form T661. However, a little-known fact is that claimants must ensure that they complete and maintain, at their place of business, a Part 2 of Form T661 for all projects claimed, and not only for the 20 largest projects. Upon request, claimants should be prepared to submit to the CRA a complete Part 2 of the form for any, or all, of the projects claimed. Failure to provide this information will result in the disallowance of all amounts claimed for the project as SR&ED expenditures.3
In addition to actually filling out the form, there is an associated administrative burden resulting from the need to compile, retain, categorize and store the backup project information in the event the CRA requests it. Each person or corporation must decide if this is a valuable use of time. If a large business is claiming a small number of large projects in a fiscal year they may not be as bothered. However, smaller startups who have multiple small projects on the go may feel the pinch. Yet, failing to fill out the T661 appropriately will most certainly guarantee that your claim will be denied by the CRA (see the legal precedence below).
What is included in Part 2 of the T661?
According to the SR&ED Filing Requirements Policy:
Part 2 – Project information: Sections A to C.
This part requests the technical information about the work claimed through a series of fields, check boxes, and questions. A separate complete Part 2 is required for each project being claimed.
Claimants may choose to submit project information in Part 2 of the form for only the 20 largest projects in dollar value when filing a claim. The cost of every project claimed is required to be included in Part 6 (see below) of the Form T661. All claimants must ensure that they complete and maintain, at their place of business, a Part 2 of Form T661 for all projects claimed, and not only for the 20 largest projects. Upon request, claimants should be prepared to submit to the CRA a complete Part 2 of the form for any, or all, of the projects claimed. Failure to provide this information will result in the disallowance of all amounts claimed for the project as SR&ED expenditures.4
Part 2 of the T661 relates to Project information and it takes up two full pages of the nine-page form. This part requests the technical information about the work claimed through a series of fields, checkboxes, and questions. A separate complete Part 2 is required for each project being claimed. In Section B Line 242, you will need to detail what scientific or technological uncertainties you attempted to overcome in 350 words or less. In Section B Line 244, you need to describe what work was performed during the taxation year in order to overcome the identified uncertainties previously identified in Line 242 in 700 words or less. It is important to describe the systematic research conducted in Line 244. In Section B Line 246, you subsequently need to illustrate the scientific or technological advancements that were achieved (or attempted) as a result of the work previously described in 350 words or less. 5
Legal Precedence: Westsource Group Holdings Inc. v. Canada (2018)
(Context Note: Line 242, 244, and 246 were previously Line 240, 242, 244 respectively.)
In Westsource Group Holdings Inc. v. Canada (2018), Westsource Group Holdings Inc., the Appellant, sought to appeal a ruling by the Tax Court of Canada which upheld a determination by the CRA to deny their SR&ED Investment Tax Credit application for the 2011 taxation year. The Appellant did not include information in lines 240, 242, and 244 of their T661 and sought to argue that lines 240, 242, and 244 were not necessarily prescribed information. The Appellant also argued that the CRA had the necessary information since the project was a continuation from the previous year. The original judge ruled that as stated on the T661 it is a “prescribed form containing prescribed information.” The second judge stated that there was no reviewable error in the Tax Court’s decision and the case was dismissed. A detailed analysis of Westsource Group Holdings Inc. v. Canada (2018) and the original case are located in our Legal Rulings Section.
Conclusion: Be Prepared With All Technical Narratives
If you completed SR&ED work on multiple projects for the year, you do have the option of filling out Part 2 of the T661 for the 20 largest in dollar value. Remember to keep a Part 2 for all projects in case of a review by the CRA. Completing the T661 is not optional and claims have been denied from missing information in Part 2. Don’t give the CRA reason to deny your claim, but do weigh your options of submitting a Part 2 for all of your projects versus the top 20.