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SR&ED Documentation Guide

By Canada’s Scientific Research & Experimental Development (SR&ED) Tax Credit Experts

Flow Ventures is a SR&ED consulting firm with unparalleled experience helping companies maximize their SR&ED refunds while minimizing their risk and time.

The pursuit of advancing innovation is at the core of Canada’s SR&ED program objectives.

 Innovation is the process of translating an idea or invention into a good or service that creates value. Lightbulb moments rarely lead to a successfully implemented solution, rather the focus is on the process and the value creation, instead of ideas or inventions and this is where experimentation comes into the picture. Experimentation is fundamental to get insights and new knowledge.

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To qualify for an SR&ED tax credit, you must prove that you attempted to further technical knowledge, faced technical challenges or uncertainties and went through an iterative process to try and overcome those challenges or uncertainties.

CRA places the onus of proving that such work transpired solely at the feet of the claimant. Proper documentation throughout the year emboldens your SR&ED claim, possibly leading towards larger and less risk-avert returns in the form of refundable and non-refundable tax credits.

Your documentation needs to substantiate that the expenditures claimed are eligible for the credit. It needs to be:

contemporaneous

Contemporaneous

Documented at the time the SR&ED was done

Dated

Dated

Proves that the work occurred in the fiscal year you are claiming

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Highlight Technical Challenges

It substantiates the SR&ED performed that was done

Diligent documentation

Keep supporting information and records to prove that the Scientific Research and Experimental Development (SR&ED) work was performed and allowable expenditures were made in the year.

Documentation can easily fall under the radar until the last minute unless you make a concerted effort to prioritize it throughout the R&D lifecycle.

This means empowering everyone on your research & development team (including contractors) to be a documentarian, from engineering, to product and support teams.

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SR&ED evidence best practices

Most often, supporting evidence is in the form of documents that were generated while the SR&ED work was being carried out. 

According to the CRA, documentation that is “dated, signed and specific to the work performed is the best supporting evidence that you can provide.”

Forms of documentation

Timesheets: Properly documented timesheets are the optimal medium of SR&ED documentation. 

All employees and or contractors should record 100% of their work and distinguish if their time was allocated towards eligible SR&ED or non-SR&ED related activities. This additional step simplifies and more accurately allows organizations to calculate eligible SR&ED expenditure.  

Documentation can also be in the any of the following formats:

  • Project/task management software (ex. Asana,Trello)
  • Prototypes, including software and physical products
  • Test documents or models
  • Git & Github tracked revision history
  • Developer or Engineering Notebooks
  • Meeting minutes
  • Whiteboard photos
  • Emails
  • Invoices/ receipts
  • Contractor agreement outlining the statement of work

For an extensive (although not complete) list of what qualifies as evidence follow this link.

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The best evidence

The best descriptions

  1. Has all dates within the project timeframe and names of people involved.
  2. Has the total amount of hours dedicated to each activity.
  3. Covers the whole fiscal term.
  4. Includes developers/researchers as well as project managers.
  5. Is labeled and easy to locate.
  6. Describes clearly what it is and how it is related to the project.

Simply stating how much time was decided towards SRED is not enough, it is recommended that all evidence have a description that address the following questions:

  1. What was the problem or project that you were working on?
  2. What was the activity that you performed to try to solve the problem?
  3. Tools or techniques you used during this activity?
  4. How has this change affected the main variable you are trying to improve?

Details about experiments conducted, prototypes created, iterations, and testing performed should be included to substantiate the claim. Specific metrics (if applicable) should be included to gauge and benchmark performance and/or improvements as the year goes on. 

SR&ED documentation tips

Over the years we’ve found that there isn't a best “one size-fits all” guideline for organizations to follow when it comes to documentation.

This is a result of vast differences and complexities from one company to another - be it industry, management style, size of workforce, nature of R&D, and software/technology involved.

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We can, however, provide some successful tips that we’ve experienced during the claiming process:
  • Be descriptive. It helps retrace your steps at the end of the fiscal year and makes CRA happy in case of an audit.
  • Perform checks occasionally to verify that your team is maintaining the best evidence practices and recording detailed description of their work.
  • Start recording immediately and implement an ongoing data collection procedure with all involved parties
  • For software companies, record comments/notes on the source code itself or in engineering notebooks.
  • Designate a member of your organization to oversee the process. 
Better documentation is vital for substantiating a strong claim, furthermore it provides organizations with a solid foundation to build upon for future R&D.

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$3 Billion

a year available in funding for the SR&ED program.

Up to 69%

of eligible R&D expenses (depending on your province) may be refunded from CRA.

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