Every Scientific Research & Experimental Development program claim is risk-assessed before filing. Based on this assessment, some claims are accepted as-is and filed accordingly, and others are selected for review. If you have been selected for an SR&ED audit or review, realize first this is common. Thousands of SR&ED claims are made every year, and of those, many are reviewed.
You may be selected for a partial review or a full audit. It may be a technical review or a financial review. Find out first what kind of SR&ED audit or review is being conducted. If you are a regular claimant of the SR&ED program, expect some sort of re-assessment like this every 4-5 years on average.
Here are some tips for an SR&ED audit and how to best manage the request for review.
Requests For Information (RFIs)
You will typically receive a request for information when your SR&ED claim is audited. If that happens, don’t panic. Prepare what needs to prepare and get it sent off within a reasonable time frame.
There is no way to avoid an SR&ED audit if your claim has been selected for review. Compliance is the best policy for any sort of request like this. Don’t wait to respond to RFIs. Fast, sufficient responses communicate confidence. Also, if more information is required after the initial response, you’ll have plenty of time to gather it.
Assign a Project Manager
Task someone with doing what needs to be done to put together a response to the SR&ED audit. Your SR&ED consultant can gather project progress, timesheets, contracts, resource allocation breakdowns, budgets, timelines, designs, summary research reports, transcripts, emails, and other relevant documents.
Have All Audit Requirements in Writing
To avoid any misunderstandings, get all audit requirements in writing. This should include what documents and information the CRA expect to receive or is evaluating. These requirements should include a review meeting agenda, a criteria list for accepted supplementary information, and clear reasoning for the SR&ED audit.
Your technical narrative should demonstrate why your project’s eligible for SR&ED funding. Your reports should clearly state the scientific or technological uncertainty your project addresses, how your approach was a systematic investigation, what scientific or technological advancement was the project’s aim, and a detailed record of progress.
Exclude All Promotional Language
An SR&ED audit is to judge a project’s eligibility for SR&ED funding. To this point, there’s no need to use non-technical, marketing-friendly language to highlight business strategies or business goals or to use these buzzwords. These are not relevant to whether your SR&ED project qualifies. Be careful structuring the reports and narratives you present in response to an audit.
Hold A Rehearsal Review
Bring in your team. Sit them down. Hold a rehearsal for your SR&ED audit. Ensure team members are responding appropriately and can field questions easily. If there are weak points or inconsistencies, this is an opportunity to correct those as well. Make clear any talking points and common knowledge that all should know.
When you’re in a real meeting with a CRA agent, answer any questions directly and be concise. There’s no need to elaborate on anything unless specified. An auditor is looking for specific information to approve or deny your claim. Provide only the required information to avoid any accidental inconsistencies or details that could be applied out of context to deny your claim.
Have Someone Technical Present
If you typically deal with more business and marketing and are less scientific or technical, it’s a smart move to bring with you into any meeting with the CRA someone who can explain the technical aspects of the project. An SR&ED auditor will be interested in understanding the project’s hypothesis, frustrations, failures, and development.
The SR&ED program encourages scientific or technological risks rather than funding success from a financial or business standpoint.
SR&ED Consultant
If you aren’t sure about how to respond to an SR&ED audit and feel out of your depth, there’s no reason not to hire an SR&ED consultant experienced with reviews and audits. A consultant can spot weak points in your project narrative, identify red flags, and provide insight into current SR&ED policies and how to navigate the review your claim is placed under.
The best way to prepare for an SR&ED audit is to anticipate it. You may be audited again in another year. Be sure that you’re keeping more than enough technical and financial records. Have audit-friendly documents at the ready in case they’re needed. Monitor any changes surrounding SR&ED rules or regulations to ensure full compliance.
