Received a from the CRA requesting a SR&ED claim review? Don’t freak out – CRA Reviews, commonly referred to as SR&ED audits, are a standard part of the claim process and occur at least once every 4 or 5 years to ensure claims remain eligible.
The CRA states that they audit 25% of all claims filed each year, however in our experience, it’s been about 20% or every 1 out of 5 claims. These numbers shouldn’t alarm you, but merely encourage you to take some time to prepare yourself and your team to have your SR&ED claim audited.
Here are five tips to help you prepare for your next SR&ED audit:
1. Contact your SR&ED Advisor
Your SR&ED advisors aren’t mind readers so while they routinely check in with the CRA on the progress of your claim, they aren’t always notified with a copy of the letter you’ve received. Your advisor should be the first person you call or email as soon as you open the letter.
Here’s the typical preparation and review process you can expect once you connect with your SR&ED advisor:
- Your SR&ED advisor will arrange a date and time with the CRA for an on-site meeting
- The CRA will send a letter to confirm the day/time of the meeting and include a meeting agenda and questions to be addressed
- You will meet with your SR&ED advisor to review the letter and prepare for the meeting with the CRA
- You meet with the CRA and submit requested documentation
- The CRA will send their request by mail and then you and your SR&ED advisor have 30 days to respond
- The CRA then reviews your documents and can take as long as they want to do so
2. Review your Claim with your Team
As mentioned in step #3, you’ll want to meet with your SR&ED advisor and team members who were involved in the SR&ED eligible work to prepare for your Review.
If a team member no longer works for the company but did a majority of the SR&ED eligible work, try to get a hold of him or her for this meeting to review the details of the project.
During this preparation meeting, we recommend reviewing 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 advancement and obstacles that your team overcame.
It is also wise to review your supporting documentation so that you’ll be able to quickly and easily present it to the auditor, if/when requested.
Bonus: click here to download this 20-page SR&ED Guide to learn everything you need to know to prepare a successful claim.
3. Answer the CRA’s Questions as Directly as Possible
Enter your CRA Review with the assumption that the auditor has not fully read your claim. Typically, they will have read your file in advance, yet will still ask you general questions about your claim to confirm that your verbal summary matches the written technical report.
When asked questions about your claim, answer the question as directly as possible and only provide necessary information. This may sound obvious, but the auditor will be following a standard procedure to ensure that your claim meets the 5 criteria for SR&ED eligibility before proceeding. If you provide additional details or information not necessary to the SR&ED claim, the CRA could potentially use it out of context to motivate their reason for denying or amending your claim. Simply respond to the questions they ask to make the process as easy and straightforward for the CRA as possible.
4. Focus on the Technology
It’s easy to get caught up sharing the general project details and financial impact on your company but remember that the auditor is only interested in determining whether your claim meets the SR&ED criteria. They need to focus on the technological advancement, whether your team overcame technical challenges or obstacles and whether it was done in a systematic process.
5. Be Proactive
The best way to prepare for a review is to be proactive and work with your SR&ED advisor from the beginning. As soon as your project starts, bring in an advisor to ensure you have proper documentation and time tracking standards in place. This increases the likelihood that your claim will be fully supported and readily available should your claim go to review.
If/when your SR&ED claim gets reviewed, take it as a learning opportunity:
- Work with your SR&ED advisor to implement recommendations made by the CRA
- Enhance your documentation and time tracking for future claims
- Make note of which questions they asked so you know to address them in future claims.
We hope you apply these five tips to your next SR&ED audit and that your claim is approved!
If you have any questions about the audit process, contact us.