How to avoid a SR&ED review
Many companies that have had their SR&ED claim audited by CRA will probably say that the process wasn’t pleasant and discouraging. It may however not always be possible to avoid an audit of your SR&ED project. Having said that, there are a number of steps that your company can take proactively to minimize the possibility of being selected for one, or if you are, to be ready for the audit.
It should also be noted that an SR&ED claim review won’t lead to a full tax audit. These reviews are isolated and only cover the projects from your claim that have been selected for audit. SR&ED claim reviews have in recent years become more frequent, but you can easily avoid or at least minimize unnecessary CRA reviews by being prepared.
- Keep track of your SR&ED projects throughout the year in real-time.
- Make sure to mention the systematic investigation in the description of the project.
- Use SR&ED consultants who can help you improve your documentation procedures to ensure that you capture and are able to support all eligible time and activities.
- Keep detailed descriptions of contributions made by subcontractors.
- Include detailed project activity records.
- Don’t use words that will trigger an audit.
Some of these are:
Trial and Error
Engineers often use this phrase when they actually mean experimentation, but it should never be used in SR&ED claims as the CRA interprets it as meaning unstructured guesswork that doesn’t fall within the SR&ED realm. If you do have activities described as Trial and Error, re-examine them to determine if there is in fact some structure that is used.
Product
SR&ED work does not cater to the commercial production of products and SR&ED work usually ends once something has been sold.
Application
When something is applied, it indicated that the original principle was already established and this would infer that it is standard practice. Where possible, this word should be replaced by developing methods as this indicates that much work is still to be done before the project reaches its principal stage.
As SR&ED credits will likely be a crucial part of your company’s continued growth, Flow Ventures can assist with a pre-review consultation before an audit, and be present during the review to support you all the way. The rules relating to claiming SR&ED expenditures are fairly complex, and it is not always easy to understand if the projects undertaken by your company qualify.
Want to learn more? Book a complimentary consultation with our team of experts now.