SR&ED claim modifications

Sometimes SR&ED applicants miss the mark. How can they correct their submission?

Sometimes, Scientific Research and Experimental Development (SR&ED) applications need to be amended. The updated Claim Review Manual (CRM) contains useful information about the Canada Revenue Agency (CRA)’s treatment of and long-standing practice regarding SR&ED amendments (post-application).

This final article in our Updated CRM series will address the following topics:

  • General principles during amendment of SR&ED applications; and
  • SR&ED application withdrawal by the claimant.

Read the other articles in this series: Part One: Clarified Definitions; Part Two: First Time Claimant (FTC) Review vs. FTCAS; Part Three: ATIP and Information Requests; Part Four: Information Gathering by RTAs; Part Five: SR&ED Claim Review Process and Project Issues; Part Six: Written Review Plans; Part Seven: Supporting Evidence & Oral Information; Part Eight: Risk Assessment vs. Evidence; and Part Nine: RTA Language and Word Choices.

Amendment Of SR&ED Applications

As stipulated in section 5.8.1 of the CRM, the process for application amendment (with few exceptions) requires the claimant to submit an amended return at their local tax center (TC) within the 18-month deadline:

An amended claim should not be accepted by the coordinating tax services office (CTSO) or the RTA at any time. If the claimant wants to submit an amended claim to the RTA or FR, they should be instructed to file the amended claim with the TC. Claimants should also be reminded that all new work or expenditures must be identified within the 18-month deadline.

One exception to this rule is if the claimant is requesting a minor adjustment, such as an additional expenditure to work already claimed and identified, and it is within the 18-month deadline, the RTA should inform the FR. These adjustments do not necessarily require amended claims at the TC. A letter or verbal request can be sufficient. The other exception is requests to “withdraw” some or all of the claimed work.1

Section 5.8.1 also notes that amended applications are also “subject to a risk assessment and they may be downscreened or sent to the CTSO to be reviewed by the control function (CF)”.

General Principles

The updated CRM seeks to educate applicants in the long-standing practices espoused by the CRA. Section 5.8.1 of the CRM outlines several general principles that RTAs must follow during SR&ED reviews. These principles address questions and concerns that an applicant may have and also help to ensure that applicants thoroughly understand what is expected of RTAs and applicants alike:

  1. The current administrative policy, as outlined in Directive 97-04, Guidelines for Processing SR&ED Claims, states that the same claim is not reviewed again, barring exceptional circumstances. Exceptional circumstances mentioned are taxpayer request adjustments (TPRs) (the same as amended tax returns), fraud, and misrepresentation. Fraud must not be investigated by RTAs or FRs (discussed in Chapter 5.14.0), but misrepresentation can be.
  2. The review of a project or claim is considered to have taken place when a determination of eligibility of work or expenses has been given.
  3. The RTA should not duplicate effort in the review of amended claims. That is, they should take into consideration all the facts from the previous review in doing the present one.
  4. The work reviewed in an amended claim, like any claim, is always determined based on a risk assessment, as discussed in Chapter 4.3.
  5. If work is now described differently, or if different facts are described, the RTA should consider obtaining supporting evidence to demonstrate what was done.
  6. It is also a long-standing CRA policy that the same item or expense is not reviewed twice, except in exceptional circumstances, generally fraud or misrepresentation.
  7. It is a long-standing CRA practice in regular audit that requested changes by a taxpayer to a tax return while an audit is in progress do not stop the audit. In particular, even if a tax return is amended, it is still possible to apply penalties based on the original return, for example, when the change is requested by the claimant under the voluntary disclosures program before the announcement of the review. The CRA Audit Manual Chapter 3.3.0 presents more details on this program. It is important to note that the voluntary disclosures program is not available anymore to a claimant as soon as the review has started.2

Work Requested To Be Withdrawn By Claimants

Work requested to be withdrawn by applicants is a particularly sensitive and controversial topic. Around 2011/2012, the SR&ED program came under fire after a wave of questionable claims were deemed eligible by the CRA due to “hazy” program administration rules.

This has led to an extremely strict environment within the CRA, making it all the more important for applicants to fully understand how the CRA addresses work withdrawn by claimants. The updated CRM sheds light on the CRA’s previous policies on the matter (emphasis added):

The RTA must never accept such requests from the claimant. The RTA also must not encourage claimants to make such requests as part of a negotiation in return for more favourable treatment (such as Accepted As Filed) of other projects. Negotiation is discussed in Chapter 5.9.0.

There is no concept of a “withdrawn” claim in the Act. SR&ED claims are part of an income tax return, which is not voluntary, and cannot be withdrawn. A “withdrawn” claim is actually a type of amended claim where the claimant is requesting to reduce or eliminate their SR&ED claim.

If a claimant makes a request to “withdraw” some or all of their SR&ED claim before the review has begun (before contact by the CTSO), the claimant should send their request to the TC, like any other amended claim.

However, any requests to withdraw work after contact by the TSO, either by the Control Function, the RTA or FR, will not be accepted and the review should continue as originally planned. The case remains in Audit Information Management System (AIMS). This is important because of the possibility of considering penalties. Also, “withdrawn” work potentially can be related to other work or future claimed work, and thus the results of the review may need to be recorded for future risk assessment.

However, it is possible that the claimant may not want to supply information or discuss the “withdrawn” projects or claim. If the claimant does not allow an on-site visit or respond to information requests in such situations, the efforts to review the claim would be documented and work claimed would be considered unsubstantiated, not ineligible, and be recorded that way in AIMS.3

Amendment of SR&ED Applications: Final Thoughts

The treatment of the CRA towards claimants wishing to withdraw part or all of their claim is hardly surprising, given widespread criticisms of the program’s administration in the pre-2012 era. Every applicant should know the basic principles regulating the amendment of SR&ED applications, if only because errors are part of the human process.

While amendment seems a nondescript general term, there is a tremendous difference in the way the CRA treats applicants who wish to make small or large adjustments to add to their application or to subtract from it. However, any applicant wishing to amend their SR&ED claim as a result of an honest error should get in contact with the CRA or their RTA to discuss the issue further.

This article is based on CRA policy documents available at the date of publication. Please consult the CRA website for the most recent versions of these documents.

 

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Show 3 footnotes

  1. Canada Revenue Agency. (April 20, 2015). Amended Claims – General Principles. In Claim Review Manual for Research and Technology Advisors (Chapter 5.8.1). Retrieved February 4, 2016, from http://www.cra-arc.gc.ca/txcrdt/sred-rsde/pblctns/clm-rvw-mnl-chptr5-eng.html#N10FD6
  2. Canada Revenue Agency. (April 20, 2015). Amended Claims – General Principles. In Claim Review Manual for Research and Technology Advisors (Chapter 5.8.1). Retrieved February 4, 2016, from http://www.cra-arc.gc.ca/txcrdt/sred-rsde/pblctns/clm-rvw-mnl-chptr5-eng.html#N10FD6
  3. Canada Revenue Agency. (April 20, 2015). Work Requested to be Withdrawn by the Claimant. In Claim Review Manual for Research and Technology Advisors (Chapter 5.8.1.1). Retrieved February 4, 2016, from http://www.cra-arc.gc.ca/txcrdt/sred-rsde/pblctns/clm-rvw-mnl-chptr5-eng.html#N11075

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