SR&ED audit: one of the few times where packing too much in is a good thing.
Officially called a “review,” a technical or financial visit by the CRA can be both time-consuming and frustrating. Nobody looks forward to an audit. Having to prove that you’ve truly done the work you claimed to have done can seem daunting. In most cases, a visit from the CRA isn’t expected. However, if you find yourself undergoing an SR&ED review, there are some basic pieces of advice that will make the process much smoother.
1. Be (Over) Prepared.
Have more than three samples of any kind of supporting documentation on hand. This documentation will serve as evidence of the SR&ED work performed. Cross-reference the documents with timelines contained in the technical narrative. Examples of solid documents that will lend credibility to your claim include:
- Time tracking, whether done by hand or through time tracking software
- Test results/documentation that clearly demonstrates your systematic approach
- Research that was essential to your SR&ED project (i.e., summary reports of thesis papers, reports which summarize the technology base at the beginning of the project)
- Relevant communications (i.e., printed emails, notes from telephone calls, recorded meetings)
- Miscellaneous notes that speak to the overall trajectory of your project
2. Be Ready Early.
This means having all the documentation ready minimum of three days in advance of the CRA’s visit. A mock audit, in which you go over what you will be presenting, is also very useful, especially when combined with someone asking tough questions as a “Devil’s Advocate.” Going through the review process with an experienced SR&ED professional to see if there are any gaps in information is highly recommended.
3. Get It In Writing.
Ensure that the CRA sends you a note with the information they require for the review in advance. Call them repeatedly if necessary. Having the list of required documents and information in writing ensures that you’re able to use your time efficiently when preparing and that you have covered all information.
Pro Tip: The CRA requires that employees indicate if they are out of the office on their voicemail. If calls are not being returned, record several of the calls you’ve made in which you’ve left voice messages on their phones. Then contact their supervisor. They should get back to you promptly.
4. Get a Second Opinion.
Having an outside SR&ED tax credit claim preparer who is not familiar with your file provide a thorough review may be highly beneficial. After spending weeks or even months performing and documenting the work being claimed, it can be difficult to look at your project or claim with an unbiased eye. An outside SR&ED preparer will be able to find the holes in the technical narrative and determine where the review is likely going, as you may end up with a “shopping list” from the CRA.
5. Stand Your Ground.
If you’ve prepared materials, insist on presenting them. It’s impossible for the CRA to fully understand your project or get a full picture of what you’ve done if they haven’t seen the picture in its entirety. However, be sure to keep your materials technical–avoid terms such as “feature” and “product” which imply commercialization. And when in doubt, have it reviewed by a professional who has experience with the audit review process.
Conclusion: Be Prepared.
Overall, being prepared, using a bit of forethought, and trying to get unbiased opinions about the work being claimed are your best methods of defence in the event of an SR&ED review.