SR&ED Basics: For What Are Reviewers Looking?

The in-person review of your SRED claim involves determining whether you did eligible work, and then if it is decided that you did, a reviewer makes a decision as to what it cost, i.e.: what expenditure amounts are eligible.

The determination of the eligibility of the work done relies upon the 5 questions addressed in a series of posts:

http://gordonfeil.blogspot.ca/2016/11/the-5-sr-questions.html

http://gordon-feil-sred.blogspot.ca/2017/01/uncertainty.html

http://gordon-feil-sred.blogspot.ca/2017/01/the-second-question.html

http://gordon-feil-sred.blogspot.ca/2017/01/question-3.html

http://gordon-feil-sred.blogspot.ca/2017/01/question-3-continued.html

http://gordon-feil-sred.blogspot.ca/2017/02/question-4.html

http://gordon-feil-sred.blogspot.ca/2017/03/the-last-question.html

Quantifying your claim also involves reviewing the costs associated with eligible work: engineering, design, operations research, mathematical analysis, computer programming, data collection, testing, and psychological research.  This doesn’t mean that everything you spend on these are eligible costs. The costs have to have been incurred to do the research or experimental development that comprises the project. If the expense was incurred for a reason other than to aid in resolving the technological uncertainties of the project or to obtain technological advancement, it is not claimable as part of that project.

Certain types of work are specifically excluded: market research or sales promotion, quality control or routine testing, research in the humanities or social sciences (excepting psychological research);  exploring for minerals or petro-chemicals (but developing tools for these activities can be eligible), commercial production, style changes, and routine data collection.

SR&ED Basics: Disputing the Review

Once the CRA reviewers have looked over your claim and received as much of the requested information that they think they are likely to get, they will either accept the claim as filed, or they will write a proposal to amend the claim. The claimant normally has 30 days to tell them in what way the proposal errs. This can lead to further discussion and may even lead to modification of the proposal. At this stage it is key to offer new information if possible. A CRA reviewer is like you and me: he doesn’t want to look stupid. Once he has committed his position in writing, it is easier to change his proposal if he can say “If only I had known this new information in the first place, I would have made a different proposal.”  

If, as a claimant, you don’t agree with the outcome, you and your representative may discuss it with the reviewer’s supervisor, and if you still don’t agree, you may request an administrative review. Here someone else outside the audit group that did the review will take a fresh look at your claim. These steps are not available to you once the reviewer has “closed the file”, so don’t procrastinate.

In the event that you still think you are right and CRA is wrong, you may file a Notice of Objection within 90 days of the date of CRA mailing the Notice of Assessment or Notice of Reassessment. I tend to I discount this step.  CRA seems to be about 3 years behind in processing SRED appeals.  I think that the reason is that over that past few years there has been about a HUGE increase in the number of appeals. 

If CRA does not resolve the appeal within 90 days of the Objection being filed (and I don’t think I have ever seen any resolved that quickly), you can then appeal to Tax Court, which you can also do within 90 days of CRA mailing their verdict on the Notice of Objection.

This doesn't mean that you should take the Notice of Objection step lightly.  Your Objection should read like pleadings to the Court since it will be evidence later.

SR&ED Basics: Reviewing the Claim

Once the claim is filed (within 18 months of the corporation’s year-end…..NO exceptions), CRA processes it. The initial review is a computer assisted one that assigns a risk assessment score based on the wording and financial info provided. That will determine if a further review will take place.  A further review might be someone at the Taxation Centre looking at it and deciding that the answer to the flagged concern is obvious, or it may be referred to a District Taxation Office for review by field agents.

The technical side of the claim is subject to review by a Research and Technology Advisor, known as an RTA. The financial part of the claim is reviewable by a Financial Reviewer, or FR.  Often the review will be a co-ordinated review which means they both show up at the claimant’s place of business to make comments and ask questions. Sometimes one of these reviewers will also bring their supervisor, and it can happen that both supervisors attend. If a supervisor attends the site meeting, that is usually predictive of a denial of the claim.

A first-time claimant will often receive a visit under CRA’s FTCAS service. FTCAS is First Time Claimant Advisory Service. This is usually mainly educational: the claimant learns more about the SR&ED program and the reviewers learn more about the ongoing operations of the claimant. An FTCAS visit normally means that the claim has been approved already.

CRA reviewers tend to be cordial and even quite friendly.  Friendliness is not to be interpreted as favor.  They know it’s not a bad idea to pet the cow when you milk her.