Don’t be shocked by an unexpected denial—learn how to assess SR&ED claim risk.
As you finalize your Scientific Research & Experimental Development (SR&ED) claim, it’s important to review your claim and assess the risk of it being reviewed by the Canada Revenue Agency (CRA). One misstep in a technical narrative can cost a company thousands of dollars, even if the work is completely eligible. Here are some tips to help you avoid the pitfalls that raise red flags for CRA reviewers.
Three Ways to Assess SR&ED Claim Risk
1. How well did you follow the T4088?
The T4088 is the guide provided by the CRA to help you fill out the T661 form.1 It contains step-by-step instructions for completing every line of your SR&ED claim. Not paying attention to the T4088 puts your claim at an extremely high risk of review. Follow the guide closely; one mistake could mean a lengthy CRA review.
2. Did you avoid the CRA’s red flag words?
Certain phrases are considered red flags by the CRA. These are seemingly innocuous words that have negative connotations in the context of a technical narrative. For instance, saying that you “applied” a principle implies that the principle had already been established and was therefore standard practice, making your claim ineligible. Similarly, saying that you “found” or “discovered” a result implies that the experimentation was routine, which would also render it ineligible. Understanding how the CRA interprets these red flag words will greatly lower your chances of being reviewed. A thorough SR&ED anti-glossary is available in The Comprehensive Guide to SR&ED.
3. Do you have the documentation to back up your claim?
While you do not actually need to produce the documentation when you submit your claim, you do have to let the CRA know what you could produce if asked.
It is vital that you have the evidence prepared to back up your claim before you submit it. The more documentation boxes you can check off in the T661, the less likely it is that a reviewer will flag your file for review. Even if you are selected for a closer inspection, having supporting evidence may be the difference between a full refund or a partial—or full—denial.
Conclusion: Be Prepared
Preparation is key in all aspects of filing an SR&ED claim—from planning how to keep contemporaneous documentation to assessing the risk of your claim being reviewed.
What are your methods for assessing SR&ED claim risk?
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- Government of Canada. (November 10, 2015.) T4088 Scientific Research and Experimental Development (SR&ED) Expenditures Claim- Guide to Form T661. (Accessed: September 9, 2017.) Retrieved from: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4088-scientific-research-experimental-development-expenditures-claim-guide-form-t661.html. ↩