Author: Bikram Johal, President of Banhall Consulting ltd.
“What happens if I get audited?” The CRA states that 25% of the claims they review get audited. If your claim faces an audit, it is important to understand what an audit is and what to expect.
The way an audit works is that the CRA has a SR&ED review department with a technical and financial team. They look over every SR&ED claim that is submitted. When an SR&ED claim is audited, the CRA will ask to inspect all SR&ED-related documentation. They are trying to determine if all areas of your SR&ED claim are valid and meet all the necessary guidelines. The CRA may ask you if you have project-planning documents, photographs, videos, or similar evidence that can support your claim.
Here are some tips that will help you navigate a SR&ED audit:
1. Preparation
Being prepared is vital to establishing a good track record with CRA and avoid audits in the future. It is critical to make a strong presentation of the R&D work you performed. This includes providing thorough technological details regarding your project processes, the ideas and results behind your experiments. You need to keep all supporting documentation on hand in case the CRA requests to see it during the audit. On the financial side, gather all the R&D expenses, like salaries and wages as well as subcontractors, overhead, and materials. This will improve the credibility of your claim that your numbers are backed up by evidence and not just estimates.
2. Meet with your R&D Team
Along with meeting with your SR&ED consultant, it will be important to review the claim with all the members of your R&D project. Everyone should help prepare for the audit meeting and ensure that you are not leaving out any details. You and your team should also be prepared to show the CRA that you clearly understand what is and is not SR&ED eligible.
3. Be direct when you are answering the CRA’s questions
When you are meeting with a CRA reviewer, they will ask you direct questions regarding your claim, and you need to respond in the same manner. Be honest, straightforward, and only provide the information that is asked for without adding unnecessary detail. Keep it simple.
4. Stick with your technology
What often gets companies in hot water during a review is because they focus too much on the business details. But this is not what the CRA wants to hear, and it can distract them from the strengths of your claim and risk it being denied completely. Always stick to the technical aspects of your projects during a review. This way, you can stay focused on presenting the challenges and the obstacles you had to overcome during the project and your systematic approach to solving those obstacles.
5. Being Proactive
If your SR&ED claim is selected for a review, look at it as a chance to learn how to file your claim the next time. The CRA reviewer may make some recommendations, and you can collaborate with your consultant on the best way to implement their recommendations. But the most crucial part of filing your claim is to be prepared from the start. As you are beginning the R&D phase of your project, meet with your consultant to ensure you are following all the necessary SR&ED protocols.
Previous entry in the SR&ED blog series: How do I Claim SR&ED?
Next entry in the SR&ED blog series: Why Hire an SR&ED Consultant?
About Banhall Consulting
Banhall Consulting LTD. was founded based on our passion for helping Canadian companies get the funding they need for their innovation to grow and thrive. Our dedication is helping companies with the SR&ED tax incentive program and how to navigate the complexities of the process and understand all necessary guidelines. Our team has decades of combined SR&ED experience and has worked on
thousands of SR&ED claims. Our financial and technical experts have the versatility to assist companies in various industries in all areas of their SR&ED claim. Combining this experience and knowledge with our detailed-oriented methods has allowed us to achieve proven results with a 96% success rate on SR&ED claims.
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