| Q: |
When should I file a claim for my SR&ED projects? Are there any time limits? |
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| A: |
All claims are made, on a fiscal year basis, through the filing of the corporation’s income tax (T2)
return and have to identify the costs incurred during that particular year for any eligible SR&ED
activities. The deadline for submitting a claim under the SR&ED program is 18 months after
the company’s fiscal year end. For example, if a company’s fiscal year ends on December 31, 2004
they must file a claim for any SR&ED projects that took place during the 2004 year by June 30, 2006
or the opportunity to make a claim for the 2004 fiscal year will be lost, as CRA does not permit any
extensions to their "18 month rule". |
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| Q: |
Do we have to send in all our supporting documents with the SR&ED claim? |
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| A: |
In order to make a claim you do not have to submit any invoices, cheques, etc. at the time of
filing. These records must be available should CRA ask to look at them. The claimant is
required to complete or amend a number of forms and schedules on the T2 tax return, as well as
prepare a technical description for each of the projects being claimed that describes the objective(s),
advancements sought, related uncertainties that had to be resolved and the work performed from a
technological stand-point. The project descriptions must be sufficiently detailed and focused to
enable the staff at CRA to gain an understanding of the work performed, why the activities were
necessary and what you were hoping to gain from the project. In the project descriptions you need
to provide a listing of the documentation available to support the information you have provided.
CRA could possibly ask to review some of this material during any review they conduct of the claim(s). |
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| Q: |
Can we still claim if we don’t end up launching the product we were trying to develop? |
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| A: |
The commercial success of the project is not a factor in determining its eligibility for the
SR&ED program, nor is the ultimate success or failure of your efforts to resolve the
technological uncertainties and achieve the advancements required to meet your technological
objectives. The Government understands that these types of projects have a significant risk of
failure by their very nature. The main criteria for eligibility is that the work was undertaken,
in a planned (systematic) fashion, in an effort to resolve the uncertainties and gain the
technological advancements needed to achieve the objectives. As long as the eligibility criteria
are met the costs related to the SR&ED activity should be claimable. |
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| Q: |
How much time does it take to prepare a SR&ED claim? |
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| A: |
Generally the time to complete an engagement is highly dependant on the quality of the
documentation and records maintained by a client. If the claim is of a significant size it
could easily take over 150 hours to scope out the eligible aspects, interview technical &
financial staff, prepare initial project detail drafts for further review & refinement, gather
the financial information, detail the supporting documentation, prepare the schedules for the
client’s accountants to put on the original or amended tax returns, conduct required research,
etc. The time is also impacted by the availability and co-operation we receive from the
client’s staff. |
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| Q: |
What support can you provide after the claim is submitted? |
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| A: |
After the claim is prepared we would work to ensure that the key staff members are prepared as
well as possible for any meetings with CRA. We will also attend these meetings to support
the eligibility and acceptance of the claim. Typically our work at this phase could include
conducting research, providing additional information, negotiating with CRA staff, etc. The
scope of our engagement would generally involve working with the client from the start of the
initial scoping of potential projects and conclude when the client has received notification of
their entitlement/acceptance by CRA after any review of the SR&ED claim. |
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| Q: |
How will we know if we have enough supporting documentation to try to make a SR&ED claim? |
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| A: |
Our practice is to be mindful of the availability of information and staff resources, so we try
to advise our clients as soon as possible should we determine that there is insufficient
information or insufficient costs related to potentially eligible activity to justify making a
claim. We always operate with a goal of establishing and maintaining an excellent long-term
relationship with all of our clients. |
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| Q: |
How much time and work would be required from our staff to support the preparation of any
SR&ED claims? |
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| A: |
This can be difficult to determine until we have had a chance to examine the specifics of your
claim and how you already capture and track your operations. At a minimum during a typical
engagement we would need access to the key technical staff members, who were involved with the
project(s) and have a fairly broad understanding of the objectives, challenges, activities and
timeframes. We would also need input from the financial & HR staff in order to obtain
information on expenditures related to wages, contract payments, equipment purchases, any
government assistance received, etc. Most of the time required would be for interviews to
scope out & define the parameters of the potentially eligible projects, to obtain project
details, clarification, etc. We would also need some of the technical staff’s time to assist
in drafting the project descriptions, as they were the ones who did the work and would have the
best first-hand knowledge of the issues. |
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| Q: |
How will we know if our SR&ED claim will be reviewed by CRA? How do they decide which
claims to look at? |
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| A: |
CRA chooses to review SR&ED claims on a case-by-case basis based upon their initial
assessment of the project descriptions, the size and experience of the claimant, the size of the
claim, etc. Usually first time claimants are always visited by CRA to ensure that the
claimant understands the SR&ED program and is correctly identifying and claiming eligible
items. Since our firm began submitting SR&ED claims we have had a number of
"first-time filer" claims accepted solely based upon a desk audit by the CRA staff
(with no visit to the claimant). There is, however, no guarantee that any future claim would
be given the same treatment so we always work from the assumption that the claim will be reviewed
and our client visited in order to prepare the strongest position possible to support the claim
and minimize its time under review. |
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| Q: |
What will CRA typically look at during their review? Will they look at
"non-SR&ED" items? |
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| A: |
The CRA review will focus solely on the SR&ED claim. In fact the CRA staff is
actively discouraged from looking at issues outside of the SR&ED claims. The
SR&ED review generally has a "two-sided" focus. The first is on the project’s
technology/eligibility issues, to determine that the project is eligible for claiming under the
SR&ED program. The second side focuses on the financial details of the claim. |
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| Q: |
Why does the SR&ED eligibility criteria use the term "Technological" instead
of "Technical" when they are describing the objective, advancement and uncertainty
aspects of the SR&ED claim? |
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| A: |
CRA is trying to convey that activities which can be fairly easily resolved through the
application of existing technology, knowledge, or processes in a straight forward fashion usually
do not contain sufficient technological risk to qualify as SR&ED projects by themselves,
although they can be claimed as eligible supporting activities if necessary as part of the larger
eligible SR&ED project. There have to exist significant limitations, knowledge gaps,
constraints, etc. that causes the claimant to undertake a process of research, experimentation,
testing, analysis and redesign to attempt to overcome the problems. Basically there has to
be some item(s) of technological uncertainty & risk that requires the claimant to undertake
activities to try to resolve the uncertainties. |
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| Q: |
What if this is our first SR&ED claim and we haven’t kept formal R&D records? |
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| A: |
Normally "first-time filers" will not have kept very detailed records, as most
didn’t even know that the SR&ED program existed when they performed their R&D. We
have the expertise to work with our clients to help them identify the material they have available
to support, directly & indirectly the eligibility of their projects. This is just one of
the key areas in which our specialized knowledge and experience can provide our clients with a
significant advantage in terms of the preparation and defense of their SR&ED claims. |
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