Updated CRM SR&ED claim review process

The Updated CRM helps claimants and RTAs work with each other to resolve claim issues.

Any Scientific Research & Experimental Development (SR&ED) work claimed under a partnership brings about understandable complexities; most of the additional responsibility falls upon the shoulders of the Control Function (CF) and the Financial Reviewer (FR), rather than the Research & Technology Advisor (RTA). The updated Claim Review Manual (CRM) provides us with greater insights into the steps undertaken in SR&ED partnership claims. However, since it is the procedural resource for guidelines regulating the actions of RTAs, not CFs and FRs, its insights are still incomplete.

Consequently, in this post, we will discuss:

  • Key points to remember during partnerships claims in SR&ED;
  • When a partner also has their own SR&ED claim.

Key Points In SR&ED Claims

While Chapter 7.5, Appendix 5 of the Financial Claim Review Manual contains the majority of the guidelines concerning the treatment of SR&ED partnership claims, the updated CRM serves to familiarize us with certain key concepts involved in the process.

“Where SR&ED is undertaken by or on behalf of a partnership, Form T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim, must be prepared at the partnership level, detailing the SR&ED expenditures incurred by the partnership. The financial reviewer (FR) and the research and technology advisor (RTA) review the claim at the partnership level, but the adjustments to income and investment tax credits (ITC) flow through to the members. Form T661 must be submitted with the Partnership Information Return (PIR) – T5013, if such a return is required; otherwise the onus lies with each member to file the partnership’s form T661 with their income tax return for the year.

For the RTA, the starting point of the review is when the partnership claim is referred to them by the CF. If claimant contact is needed, the RTA should contact the person listed on Line 115 of the T661. The legal basis for a partnership is the partnership agreement, which sets out each partner’s rights and obligations and their share of the partnership. The nature of this agreement is generally not relevant to the RTA. The only relevant aspect of the agreement is with respect to what part of the claimed SR&ED work, if any, is done by some or all of the partners. Work could also be done by contractors or third parties. Work done by an individual partner would not have to be SR&ED on its own; the RTA only needs to consider how the work of each partner (if any of the partners are doing any of the work) relates to the claimed SR&ED project as a whole. How the review is conducted, such as places visited, would depend on the unique features of each partnership. The review itself would be conducted according to the same procedures as any other review.

Individual partners may have different rights and obligations under their agreement. Similarly, the SR&ED review report must only be discussed with or given to the partnership, not to individual partners. In this respect, in terms of information exchange, the individual partners would be treated in the same way as employees of a company. It is the responsibility of the partnership to distribute the report to the partners.

The SR&ED Review report template is slightly modified for partnership claims (discussed in Chapter 6.9.3). Specifically Section 1, the identification section, would use different headings, and the case selection reason is always 0406. Note that the names of the individual partners and their Business numbers/SINs are not needed but can be included in section 10 of the report, remembering to replace the first six digits of any SIN with “XXX XXX”. The remainder of the report template is unchanged, and the review is otherwise conducted in exactly the same way.”1

When A Partner Also Has Their Own SR&ED Claim

As can be expected, business concerns which collectively contribute to work eligible under the SR&ED program might have other projects or claims of their own. Understandably, the CRA wishes to prevent people from being able to receive credits twice for the same work. The CRA requires sufficient compartmentalization in terms of operations and documented evidence in order to substantiate both claims that a single entity may be attempting to validate. This is corroborated by the information in the updated Claim Review Manual:

“It is possible that one of the partners also has a separate SR&ED claim under their own name. In this situation, an additional concern of the RTA could be if the claimant’s supporting evidence was inadequate to separate the work, equipment and materials for the partnership from that of the separate SR&ED claim. All the discussion in the CRM concerning missing or inadequate supporting evidence applies in this situation as well. Therefore the claim for the work of a partner, and/or the partner’s own SR&ED claim, can be considered unsubstantiated if the supporting evidence is insufficient to establish what was done and/or by who.”2

Partnership Claims: In Closing

As we’ve covered in other articles concerning partnerships, the assumed relationship in a partnership is of less consequence than the distribution of work as shown by the contemporaneous evidence. Given the complexity of corporate relationships today, it is unsurprising that such are the lengths the CRA would have to go to ensure that unscrupulous business entities aren’t attempting to benefit doubly from the same work, or even attempting to aggregate tax credits in their larger business interests to allow for more aggressive tax planning. The extent of our understanding of this matter, however, remains somewhat limited until we compare this information to the same found in the Financial Claim Review Manual.

Do you have SR&ED review experiences of your own to share? Contribute to the conversation on our LinkedIn group.

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Show 2 footnotes

  1. Canada Revenue Agency. (April 20, 2015). Appendix A.6.11: Partnership Claims. In Claim Review Manual for Research and Technology Advisors (Chapter 9.0).. Retrieved February 4, 2016, from http://www.cra-arc.gc.ca/txcrdt/sred-rsde/pblctns/clm-rvw-mnl-ppndcs-eng.html#ppx1_6_11
  2. Canada Revenue Agency. (April 20, 2015). Appendix A.6.11: Partnership Claims. In Claim Review Manual for Research and Technology Advisors (Chapter 9.0). Retrieved February 4, 2016, from http://www.cra-arc.gc.ca/txcrdt/sred-rsde/pblctns/clm-rvw-mnl-ppndcs-eng.html#ppx1_6_11
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