Current CRA Service Standards for SR&ED Claims

Posted by CRA:

On April 1, 2018, the Canada Revenue Agency (CRA) updated its service standards for processing scientific research and experimental development (SR&ED) tax credit claims. The new standards provide clearer information about the time needed to complete a detailed review of a claim. They also give a better estimate of the average processing time for most SR&ED claims that do not require additional review.

Our new service standards

As of April 1, 2018, the SR&ED program has the following service standards for processing SR&ED claims:

• Refundable claims which have been accepted as filed, will be processed within 60 calendar days of the date we receive a complete claim.
• Refundable claims selected for review will be completed within 180 calendar days of the date we receive a complete claim.

Our target is to meet these standards 90% of the time. 

What has changed?

Previously, the CRA reported the average processing time for all claims, including claims that were selected for review and those that were not. The new service standards report on each of these situations separately. This provides businesses with a more accurate estimate of how much time it will take to process their claim.
The CRA no longer reports service standards for non-refundable claims. A non-refundable claim will be processed as filed and will be subject to review or audit up to the legislated statute barred date for a given return.

Strategic Innovation Fund Update: Forget It

You may have noticed that earlier optimism of the Strategic Innovation Fund staff about processing times and effectiveness of the program has diminished. If I understand man inside source correctly, of the many applications received, only 15 have been invited to stage 2, and the ones accepted have tended to be large multi-million dollar projects. I’ve given up on the program and am no longer recommending businesses apply. The time involved versus the improbability of being successful simply dictates the folly of applying.

Whose Program is SRED? Parliament's? Or CRA's?

Canada has what is theoretically maybe the most generous R&D subsidy programs in the developed world. The SR&ED program can reimburse over 40% of eligible expenses, while the USA’s program does maybe 10% and the UK’s does about 25% for small and medium size enterprises. I say “theoretically” because over the past 4 to 5 years, CRA has chosen to become increasingly restrictive in its allowance of expenses. There has been no legislative change that would justify this. It’s simply government functionaries deciding that nothing is really innovative. I am being somewhat facetious, but the effect is fairly correct.

The attitude is often that a company only brings existing knowledge to bear on a technological objective. If you seek to reduce a technological uncertainty, you use knowledge you already have. Yes, you might build knew knowledge in the process, but you already knew something about what to do or you couldn’t have done that. It’s an absurd approach.

Another approach is to ask the applicant what new understanding was gained, and then, no matter what the response, take it further by asking “but WHY does that work? What is the new understanding there?” A mechanical engineering problem becomes a physics problem, and soon that moves from physics into cosmology and then into philosophy once that road is chosen.

The huge increase in the number of SR&ED appeals over the past several years, combined with the rate at which applicants drop the application process, shows that something is amiss. I think that the courts will start cluing into this and I hope we will see justices reminding CRA to apply the law as it is written and in accordance with Parliament’s objectives for the SRED program. Otherwise, Canada will not be competing with the 90% of the developed nations that have effective R&D subsidy programs. But at least some auditors will have the satisfaction of knowing they protected foolish Parliament from its short-sightedness and kept money out of someone’s hands.