CRA Audit: an excellent opportunity to get valuable insight into SR&ED

Written by Raj Phalpher.

I always welcome CRA Audits of SR&ED claims.  It p an excellent opportunity to get valuable insight into CRA’s perspective.  It is a continuous learning experience, highlighting the pitfalls to avoid, and provides a better understanding of the kind of development activities that are likely to qualify for SR&ED claims.  Every audit underscores how to structure and frame one’s subsequent submissions. 

I find, compared to 12 years ago, there is a lot more clarity about the intent of the program and how CRA administers it.  In addition, there is far more consistent application of the program, and more uniformity across various auditors and offices.

CRA is doing its part in expediting SR&ED claims, are you?

Written by Raj Phalpher.

CRA has substantially improved its performance in expediting SR&ED claims over the past few quarters. 

Of more interest to CCPC’s is the wide gap in response time of 60 days vs.160 days for the claims filed within 6 months of year end vs. those filed between 6 and 18 months.  CRA's performance is as follows:

Success Rate and Average Processing Times: April 1, 2013 to June 30, 2013

Type of Claim

CRA
Success Rate

Average Days within
CRA's control

Average Days outside
CRA's control 

Total
Average Time (days)*

Refundable claims 120 Days

97%

32

27

60

Refundable claimant-adjusted claims 240 Days

93%

106

54

160

Non-Refundable claims 365 Days

96%

88

85

173

Non-Refundable claimant-adjusted claims 365 Days

92%

166

142

308

All claims

96%

61

47

108

* The average days within CRA's control and the average days outside CRA's control may not add up to the Total Average time due to rounding.

Situations that may lead to delays outside of the CRA's control include:

  • Filing an incomplete claim
  • Filing an SR&ED claim without filing the associated income tax return
  • Not filing a claim at the appropriate tax centre or filing a claim at a tax services office
  • Being unable to respond to CRA's requests for information in a timely manner
  • Postponement or inability to schedule meetings with the CRA
  • Being unable to respond in a timely manner to a proposal letter sent by the CRA
  • Reviews of prior year SR&ED claims impacting the review of the current year claim
  • Modification to a claim during the course of a review
  • Requests by claimants that the review of their claim be delayed

2013 Budget and SR&ED

Written by Raj Phalpher.

Canada's 2013 Budget introduces measures to address a minority of claims where the risk of non-compliance is perceived to be high and eligibility for the SR&ED program unlikely; specifically, it proposes a $1,000 penalty for missing, incomplete or inaccurate information about SR&ED program preparers and billing arrangements.* This measure would help CRA characterize the approach deployed by consultants in preparing the claim, and help identify those that believe in ‘throw and see if it will stick’ approach.  On the other hand, it will help those who perform the requisite due diligence, and submit only those projects that meet the intent of the program and are most likely to get approved.  These consultants make CRA Reviewers jobs easier by vetting the projects and weeding out the ones that are not likely to make the cut.

Annex 2: Tax Measures:
Supplementary Information and Notices of Ways and Means Motions
Scientific Research and Experimental Development Program

Budget 2013 introduces measures to provide the Canada Revenue Agency with new resources and administrative tools to better respond to the minority of Scientific Research and Experimental Development (SR&ED) program tax preparers and SR&ED performers who participate in claims where the risk of non-compliance is perceived to be high and eligibility for the SR&ED program unlikely.

One of these measures will require more detailed information to be provided on SR&ED program claim forms about SR&ED program tax preparers and billing arrangements. In particular, in instances where one or more third parties have assisted with the preparation of a claim, the Business Number of each third party will be required, along with details about the billing arrangements including whether contingency fees were used and the amount of the fees payable. In instances where no third party was involved, the claimant will be required to certify that no third party assisted in any aspect of the preparation of the SR&ED program claim. This information will facilitate the identification of SR&ED program claims with a higher risk of non-compliance. 

In order to support the requirement to provide more detailed information, Budget 2013 proposes that a new penalty of $1,000 be imposed in respect of each SR&ED program claim for which the information about SR&ED program tax preparers and billing arrangements is missing, incomplete or inaccurate. In the case where a third-party SR&ED program tax preparer has been engaged, the SR&ED program claimant and tax preparer will be jointly and severally, or solidarily, liable for the penalty.

This measure will apply to SR&ED program claims filed on or after the later of January 1, 2014 and the day of Royal Assent to the enacting legislation.

Job Creation: The Real Intent Of The SR&ED Program

Written by Raj Phalpher.

It is well known that Federal and Provincial governments provide direct support to the auto industry, and the benefits of these hundreds of millions of dollars support are readily visible in Oakville, Brampton and Oshawa in terms of the manufacturing jobs in the auto industry.  Benefits of the support to the large assembly plants trickle down the supply chain to the small and medium parts suppliers.

In addition to this direct support, we also have the Scientific Research and Experimental Development [SR&ED] program, the real intent of this is to create more high paying skilled jobs in Canada.  Instead of paying workers ten dollars an hour unloading products made in Mexico. China and Vietnam, the program is designed to encourage creation of skilled jobs at higher wage levels. Similarly, the program encourages software development in Canada, instead of outsourcing to Bangalore. 

The key difference between the two programs is that SR&ED is bottom-up, instead of top-down.  The program provides over four billion in tax credits to over 22,000 businesses, mostly small Canadian Controlled Private Corporations (CCPC’s).  The program, however, is not limited to small companies – Research in Motion, now BlackBerry, is also one of the beneficiaries of this program.

Of note is that software development by itself does not constitute SR&ED and software development firms are not automatically entitled to SR&ED tax credits.  For the tax credit claim to be eligible, the organization has to prove that it stretched the technology envelope – overcame technological obstacles, achieved some technological advancements through systematic investigation. 

Typically, R&D in the conventional sense is usually a sub-set of the total product development effort, and R&D, in turn, may have some slivers of SR&ED.  It is these slivers that are eligible for the tax credits.  As any experienced programmer knows, a substantial portion of the development effort is spent on these slivers – in pushing the technology envelope, and it is these slivers that provide the edge in the competitive market place.  The onus is on the development organization to identify these slivers and claim their fair share of the SR&ED tax credits.

Are You Getting Your Fair Share Of SR&ED?

Written by Raj Phalpher.

Needless to say, particularly in unsettled times of today, every business needs to explore all potential sources of revenue - particularly credits that go directly to the bottom line.

Canadian information technology firms are major beneficiaries of SR&ED benefits. Their claims represent 40 percent of the total claims. The government of Canada recognizes this and wants to reward you and other Canadian organizations that are constantly striving to develop new products and improve their processes.

The SR&ED program provides nearly $3 billion in credits to over 24,000 claimants each year. And, yet an estimated $3 billion goes unclaimed! This is because many of the small and medium sized companies are not aware of the program, or do not think that their activities qualify for R&D funding, or just do not know how to go about it. The refund is available regardless of whether you have paid any taxes.

We help identify unclaimed, potential SR&ED tax credits. Once we identify that there is SRED potential we have the expertise to put together the required paperwork in the format and presentation required by CRA. Two components of the claim submission are: technical and financial. The technological assertion is more critical and challenging to deal with than the financial assertion. The key to success in this program is to have engineers and scientists do the technical write-ups. The documentation process is complex, but correctly documented efforts provide a critical source of funding for many.

Call us at 905-829-0636 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. to discuss how we can help you get SR&ED funding.

What Projects Are Eligible For SR&ED?

Written by Raj Phalpher.

Most Software Development

Regardless of whether you are developing apps for sale or software as a service or modules for internal deployment – usually has slivers of SR&ED eligible activities. As long as you are developing apps that require leveraging state of the art technologies or developing software that requires stretching the technology envelope, you probably have SR&ED.

Project Outcomes / Failed Projects

Sometimes the project outcome does not produce a workable solution.  SR&ED can still be claimed as long as you can demonstrate that systematic investigation was required to overcome technological uncertainty or achieve technological advancement.

Project Size / Small And Big

Software development is very labour intensive, and very expensive labour at that. At the prevalent salary / consulting rates for computer scientists / IT professionals / software engineers, a project with six person-months of development effort can still provide tens of thousands of SR&ED tax credits. Canadian Controlled Private Corporations (CCPCs) can recover over 70% of salary expenses. That is why almost half the claims are by software development and hi-tech organizations.

Project Claims Timing

You have 18 months from the end of your fiscal year to file for SR&ED. You can amend an existing tax filing any time prior to the end of the 18-month period.

Call us at 905-829-0636 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. to discuss how we can help you get SR&ED funding.

Resultel Technologies  |  1295 Chedboro Crescent  |  Oakville, ON, Canada  L6J7A2  |  Phone: 905-829-0636  |  Fax: 905-829-2863
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