The last article went over everything applicants might expect from SR&ED reviews. There is no need to freak out, but it is better to prepare well in advance. So today, we are going to talk about every detail about the preparation for a SR&ED review, including documentation and useful tips before the SR&ED review meeting.
The purpose of the SR&ED review is to educate applicants and evaluate the SR&ED eligibility of their claims.
To be well prepared for the SR&ED review, it’s advised to get ready for:
Preparations for Documentation
Documentation is one of the most critical parts of the SR&ED application. Applicants are encouraged to track all SR&ED-related activities from day one, but if the CRA requires additional materials, it is now the time to be prepared. Similar to the review process, there are also two documentation aspects: technical documentation and financial documentation.
The technical documentation refers to everything related to the SR&ED project. Typical technical documentation may include:
- Work tracking
- Test protocols, process, data, and approach
- Experimental designs
- Summary of test results
On the other hand, the financial documentation is the financial support for the R&D activities. Typical financial documentation may include:
- Salary and wages
- Records of materials, machinery and equipment
The CRA lists some examples of supporting information for SR&ED work and expenditures.
Preparations for Your Team
It’s strongly recommended that applicants need to arrange a meeting with their SR&ED advisor and all team members involved in the SR&ED project. It will ensure everyone understands the project and can show eligible work to the SR&ED auditors during the meeting.
Contact Your SR&ED Advisor
The more you document your SR&ED project, the more difficult it will be viewed from an unbiased perspective. Consequently, it is time to bring your professional SR&ED advisor into the game again. To be more specific, as soon as you receive the review requirements from the CRA, your SR&ED advisor should be the first person you call or email.
Generally speaking, a SR&ED advisor can help you with the following categories before the review meeting:
- Avoid misunderstanding of your project’s direction, process and narrative;
- Identify the potential red flags;
- Meet the CRA expectations for the review.
Review the Claim with Your Team
It is wise to contact a SR&ED advisor, but reviewing the project with your team is more important. During this preparation meeting, we recommend examining the specificities of the SR&ED program so that you and your team are reminded what qualifies and what doesn’t. In particular, review the technological advancements that your team overcame.
Reviewing the supporting documentation is also a smart move because you’ll be able to quickly and easily present it to the reviewer, if/when requested. Moreover, it is worth mentioning that if a team member no longer works for the company but did part of the SR&ED eligible work, you need to invite them to review the project details together.
Preparations for the Meeting
The CRA may ask for additional supporting documents during the first contact. However, if there are still unfixed issues, they will conduct an on-site meeting with the applicants. Due to the COVID-19, all the meetings are online, which seems easier but requires the same amount of preparations as before.
Hold a Mock Review
Try to conduct a mock review prior to the meeting with your team and the SR&ED advisor. It will be helpful to find out if there are gaps between the provided information or inconsistencies between each talking point. When facing unexpected questions from the auditor, the following content during the mock review can ensure everyone in the team be well-prepared:
- Project description
- Process details
- Project team information (work, time, resource, etc.)
- Subcontractor information
- Material using and other related costs
Focus on R&D (Research and Development)
During the actual review meeting, applicants can easily spend too much time on irrelevant content, such as the company information. However, the only thing auditors really care about is your project’s research and development (R&D) activities in your project, which will determine if your claim meets the SR&ED requirements.
As a result, you need to focus on how your project has overcome scientific uncertainties and achieved technological advancements. Please also remember that all R&Ds should be carried out through a systematic investigation. Here is an example:
- Carry out the hypothesis;
- Test the hypothesis through experiments;
- Analyze the test results;
- Draw conclusions.
Additional Resources for Preparing SR&ED Review
To get the official guideline from the CRA, you may also visit:
- The SR&ED Technical Review: A Guide for Claimants
- Financial Claim Review Manual – Review Procedures for Financial Reviewers
Our SR&ED Calculator will help you estimate how many tax credits you may get from the SR&ED tax incentive program.
A SR&ED review indeed takes time and effort, but sometimes it can be avoided if the project meets the SR&ED requirements at the beginning. So if you are new to SR&ED and want to know all the details, the following articles are here to help:
- First Time to SR&ED? Here is an Overview
- What documents are required to claim the SR&ED application?
- Eligible Expenses for SR&ED: What Can be Claimed?
- The Truth of 5 Common Misconceptions about SR&ED
Talk to the SR&ED professional consultants who will help you know more about your SR&ED applications and get tax credit and refund for your business in Canada.