In most cases, a SR&ED tax claim (also seen as “SRED”), will go through seamlessly. However, there are cases where CRA may have questions about particular elements of the claim, or the projects involved. This can lead to a SR&ED claim review.
A review may sound scary and dramatic but, if you are prepared, it’s not that bad. There are steps that can be taken to make a review go more smoothly or, even better, avoid a review altogether. BeneFACT has an expert review team who has seen it all, so we asked them for some of the best tips to prepare for (and possibly avoid), a review.
The most important part of any SR&ED claim is to have contemporaneous documentation. This is documentation that is created at the same time as the SR&ED work is performed. Documentation should be dated and tie into the activities described in the claim. The documents don’t necessarily need to be organized, but be prepared to present them if requested.
It is imperative to have some kind of SR&ED tax time tracking method to justify all the hours claimed. You should also track expenses. Whether they are subcontractors or materials, we need to have every penny accounted for or it runs the risk of being disallowed.
Remember to always meet your CRA deadlines! Ignoring deadlines increases your risk of the claim being disallowed. One way to lower the risk of audit/dis-allowance is to submit it at the same time as your corporate taxes. It can also be helpful to gather some initial documentation at the time of submission, so that any subsequent requests for information (RFI) can be responded to quickly. If you ignore the request, or offer an insufficient response, there is a high probability the claim will be denied.
You may not be able to avoid a review altogether, especially if you’re a first time claimant, but if you follow these steps during the process, there is a better chance the review will go smoothly and your claim will be approved.
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