The importance of contemporaneous documentation
The Canada Revenue Agency specifies that all SR&ED work must be documented. It is however not good enough to document the work as the CRA prefers the documentation to be contemporaneous. This means it must be done concurrent or at the same time as what the work is done. Under the heading “Supporting the SR&ED Work Claimed” the CRA says the following:
“Contemporaneous documentation that is dated, signed, and specific to the work performed is the best supporting evidence that you can provide.”
Although it is clear that documentation is crucial to ensure that your SR&ED claim is effective, the question is what exactly you can do to obtain it while you’re actually doing SR&ED work instead of after the fact.
What is contemporaneous documentation?
According to the CRA, contemporaneous documentation is documents that are generated while the SR&ED project is being performed. This has two implications for companies engaged in an SR&ED project:
- Contemporaneous documentation is created as a result of SR&ED work being done.
- Contemporaneous documentation is generated while performing SR&ED work.
While it may appear to be time-consuming and a burden, the diligent and thorough creation of documentation during the SR&ED project can help tremendously during a CRA review.
The CRA believes that the best documentation isn’t created once a project has been completed, but they prefer that a business set up the required processes to collect the relevant information as it is created via the performance of the work.
How can SR&ED work be documented contemporaneously?
Trying to collect documentation once a project has been completed, or worse, only attempting to do so once you have submitted a claim, may cost you thousands of dollars if you had to face a CRA review. There are three reasons why gathering documentation after the fact is counterproductive:
- You may include irrelevant information accidentally.
- The risk of making mistakes is high.
- The process is time-consuming and it could have been done while SR&ED work was being done.
To gather contemporaneous documentation for your claim effectively, take the following action:
Using project management software
There are many software products available (e.g. Asana and Trello) that businesses can use to stay abreast of their SR&ED project documentation. Using this type of software will enable you to keep track of the SR&ED project easily as it happens while collecting documentation during the process.
Holding technical meetings regularly
One perfect example of contemporaneous documentation is minutes taken at a technical team meeting. Holding meetings that cover the technical narrative aspects (advancements, work performed, and uncertainties). The minutes of these meetings will be invaluable both for documentation purposes and for filling out the T661.
Tracking hours spent doing SR&ED eligible work
A simple way to ensure that you allocate time spent on the project correctly is to use a time tracking process. It may be as simple as using time tracking sheets.
Although the CRA accepts timesheets on their own, they would rather see them being accompanied by logbooks. These are summaries of SR&ED work performed every day. You will be able to back up your claim effectively if you can show not only when SR&ED work was done, but also what was done.
Assigning one person to keep track of SR&ED work
Apart from their daily tasks, this person should be responsible for collecting, assembling, and filing daily reports that have attached supporting documents. The daily reports should be added to the appropriate SR&ED file immediately.
All contractors and employees should record all the work they do and differentiate between time spent on non-eligible SR&ED and SR&ED related activities. This step allows an organization to calculate eligible SR&ED expenditure more accurately and simplifies the process.
Contemporaneous documentation can also be in any of the following formats:
- Prototypes, including physical products and software
- Task/Project management software
- Github and Git tracked revision history
- Test models and documents
- Minutes of meeting
- Engineering or developer notebooks
- Whiteboard photos
- Invoices and receipts
- Contractor agreements outlining the work
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