Every year, the CRA reviews thousands of SR&ED (Scientific Research and Experimental Development) claims to ensure they meet the requirements of the given program.
These reviews are often inevitable and do not necessarily mean the claim will be denied, but that the claim needs a review in more detail to confirm the company has followed procedures correctly.
The CRA will not audit the company or financial statements but rather only the information provided on behalf of the business for their SR&ED claim.
Believe it or not, there are companies who are so afraid of being reviewed that they do not submit a claim at all. There is a major downfall to this as they are not seizing potential tax credits and benefits that they’re entitled to.
Firms like EVAMAX can assist you in preparing your SR&ED claims and ensure your claim is prepared accurately in order to protect your claim from being denied. Depending on the contents of your claim, the CRA may review your submission in three ways:
- The claim is manually read by a CRA representative. There may be a request for more technical information after this review
Financial only review
- The technical portion of the claim is not reviewed, however, the financial are reviewed and calculated to ensure accuracy
Financial and technical review
- A CRA representative will visit the company on site to review both the technical and financial information.
SR&ED reviews can create potential anxiety and stress for companies. Obviously, companies want to do everything they can to avoid being flagged by the CRA, or ensure their claim is accurate so it will be processed successfully even in the case of a review.
These reviews can add months to the SR&ED process and it is often helpful to have assistance from outside firms, such as EVAMAX, who can walk you through step-by-step precisely. Some factors that can trigger a higher risk for review include:
- Large claims especially those over $250,000, can raise flags for the CRA. This is understandable as the CRA wants to ensure the validity of the claim, even more, when the potential for unqualified benefits is of higher quantity.
Poor documentation and record keeping
- Many aspects of an SR&ED claim are more technical than financial. It is important for the claim to be positioned in the most beneficial way possible and that certain contents align with other parts of the claim.
Related: Myths and Facts about SR&ED
High subcontractor expenditures or the owner is also a subcontractor
- Depending on the nature of the project(s) claimed, high subcontractor expenditures may raise red flags for review. The CRA wants to ensure there aren’t any contractor costs that unjustifiably increase the expenditures you are claiming.
High capital expenditures
- Although capital expenditures have been excluded from SR&ED since 2014, costs processed in 2013 or older can induce a review. It is important to ensure that any capital expenditures and purchases are genuinely needed and vital to complete the project.
Related: SR&ED Policy update- Budget 2019
Have submitted a previous claim that was denied
- For companies who have had a previous claim denied, the CRA may review your claim again. Considering there were inaccuracies in a prior claim, the CRA wants to confirm you have learned from your mistakes and will avoid them this time around.
Related: SRED: What May Qualify
Evidently, SR&ED reviews can often be intimidating and sometimes deter companies from submitting a claim. Throughout this process, it is helpful to have outside help such as outsourcing SR&ED consultants and claim preparers.
By doing this, companies can relieve some of the stress that comes with CRA reviews as the chances of both having your claim denied and being reviewed decrease.