Surviving an SR&ED Review: Could I have that in writing, please?
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Know your rights regarding reviews and don’t get caught out.
Anytime an SR&ED review occurs, it can be quite frustrating – particularly when what is said in person and what arrives in the final report differs significantly.
We have written about the journey an SR&ED tax credit claim takes from when it is filed, to when it is reviewed and filed as accepted, or if it needs further review. What happens when your claim is reviewed? How do you ensure that you are on the same page as your technical or financial reviewer? The simplest solution: knowing your rights and asking for all communications in writing.
What are your rights if your SR&ED claim is reviewed?
While some reviewers are eager to help businesses succeed and provide education and guidance while ensuring the requirements are met (“incentive” approach), others focus more on rigid compliance with the regulations. These reviewers provide little guidance in meetings beyond the stated requirements of ‘informing’ the taxpayer of the services available (“compliance” approach). While the first group will help guide a First-Time Claimant (FTC) through the application process, the latter group are addressed in this article.
The first step in ensuring fair treatment is knowing your rights as a taxpayer. The Taxpayers Bill of Rights 1 was created to address concerns regarding unfair treatment in tax matters.
Your Rights in an SR&ED Review
The CRA created the Claim Review Manual for Research and Technology Advisors (CRM)2 and the SR&ED Technical Review: A Guide for Claimants (GFC).3 to ensure consistency in reviews. Each guide provides an outline of how a review should progress in order to provide consistency.
How to Have an Effective SR&ED Review
1. When you are first asked for the meeting with the CRA
The first contact that a taxpayer often has regarding a review is a phone call from the assigned Research & Technology Advisor (RTA) asking for a meeting. It is critical at that time to ask for a written agenda. It’s important to know what to prepare, and it’s impossible to do so without that information. In order to resolve any issues, you must know what they are.
2. When you are asked for supplementary information
Ask for the request for supplementary information or documentation to be made in writing. Avoid having phone conversations on this topic – the CRA forbids conversations from being recorded. When it is in writing, if there is confusion later, you will have a document to refer to.
3. If your SR&ED work is assessed as ineligible in a review
Ask for a clearly explained assessment in writing that cites the relevant regulations and the reasons for the work being deemed ineligible. Stating that it is “Routine development” is insufficient. Why? Because they haven’t defined what “routine development” means to them, nor have they allowed you the opportunity to show that your work goes beyond routine development (or agree with them, as the case may be).
SR&ED Reviews: Ask for Everything in Writing
There are some exceptional RTAs in the SR&ED program, with whom it is a pleasure debating eligibility criteria. These are the individuals that – should a claim ultimately be assessed as ineligible – will take the time to explain the situation and encourage you to keep looking for eligible activities in your R&D work. Not every CRA technical reviewer will act with the same level of professionalism. Keep your frustration level to a minimum. Ensure that you have all communication in writing and insist that the review methodology by the CRA matches that outlined in the CRM and GFC.