CRA Reminder, May 30, 2023: What you need to know about SR&ED
On May 30, 2023, the CRA published a news article, Are you preparing to claim SR&ED tax incentives? Here’s what you need to know, in which they reminded SR&ED claimants not to miss their filing deadlines and remind readers of some important things they need to know about SR&ED before filing. We have summarized this article here.
What you need to know about the SR&ED program
To begin the CRA would like to remind taxpayers that “Maintaining the fairness and integrity of the SR&ED program is a top priority” and they ask claimants:
to make sure the information you provide, including information submitted on your behalf by a tax professional or claim preparer, is valid.1
Working with a Tax Professional or Claim Preparer
As the process of claiming SR&ED can be a complicated process, many claimants prefer to employ a 3rd party tax professional or an SR&ED consultant to ensure they submit without any error which may cost thousands of dollars. In their article, the CRA advised taxpayers on what they need to know about when working with tax professionals or SR&ED consultants:
- Select a preparer who is knowledgeable about SR&ED tax incentives and eligibility requirements. Your preparer should know what counts as eligible SR&ED work and expenditures and what information you need to support your claim.2
The eligibility rules for SR&ED underwent huge changes in 2021 when the CRA archived the Eligibility of Work for SR&ED Investment Tax Credits Policy and put the Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives into practice. Be sure you and your tax preparer are both up to date with these guidelines. It is important to keep in mind that it is always the taxpayer’s responsibility to confirm the accuracy of the information being submitted on their behalf, even if using a third party to prepare your claim. SR&ED is a complex tax credit, with many related policies and guidelines. Be sure that the tax professional you employ is well-versed and knowledgeable on the ins and outs of the SR&ED program so you do not miss out on any money. The CRA’s article also emphasizes the importance of proper documentation:
- Discuss what you will need to support your claim, as your preparer can help you organize and categorize your documents. They can also help ensure that you are not missing any important information.3
The presence of supporting documentation can be the difference between an accepted or denied SR&ED claim, and your supporting documentation must be clear and well organized as well as your tax professionals supporting documentation. See our article Why do I need contemporaneous documentation in SR&ED? for a detailed explanation of the supporting documentation sought out by the CRA in the case of an audit. Furthermore, the CRA highlights the importance of completing Part 9 of Form T661:
- Make sure to provide the information requested for each preparer you are working with when completing Part 9 of Form T661. This information is a requirement per subsection 162 (5.1) of the Income Tax Act. Be leery of any preparer who asks you to omit this information from your claim.4
See our article Fine or Fined? Listing Your SR&ED Claim Preparers (T661 Part 9) for details on how to properly list the information the CRA needs to know about your Tax Professional or Claim Preparer.
Best Practices for Tax Professionals
The CRA’s article goes on to discuss some key practices which tax professionals should adhere to in order to provide the best possible SR&ED support to claimants. These practices advise tax professionals to:
- Assist clients in creating a list of supporting information they will need to gather and track to support their claim.5
Again the importance of exceptional documentation is stressed. Effectively writing an SR&ED claim application is made easier by having good evidence for your project. Our article Line 270-282: Prove it! Supporting Evidence for SR&ED discusses the various types of supporting evidence that CRA reviewers look for and why you need to keep them and keep them organized.
- Avoid delays and work with your clients to respond promptly to requests for information from the CRA. If a client requires an extension, notify the CRA in advance.
- Contact the CRA if you have questions following a request for information.
- During review meetings, come prepared to discuss your client’s SR&ED project with the CRA. Ensure that your client and any key employees who worked on the project under review are included in your meetings with the CRA. They can provide important details to the CRA about costing and expenditures and explain how their work resulted in scientific or technological advancement.6
It is advantageous to understand how the SR&ED review process works. The more you know, and the more prepared you are beforehand, the smoother the process will be. We discuss this in our article The CRA SR&ED Claim Review Process.
Common Errors in SR&ED Claims
The last topic, and arguably the most important, addressed in the CRA’s recent article is the common mistakes that the CRA sees in SR&ED claims.7 The CRA encourages taxpayers to be aware of the following errors, and we have linked some articles which may help reader understand what they need to know about that error underneath each:
Incomplete or incorrectly filled forms
- Common Mistakes New Claimants Make in their SR&ED Technical Narratives,
- Critical SR&ED Mistakes: Product Names
- 5 Red Flag Words That Cost Thousands in SR&ED
Confusion about business types
Lack of supporting information
Ineligible expenditures claimed
Lack of information on scientific or technological advancement
Other financial assistance not disclosed
- The Government of Canada: Assistance and Contract Payments Policy
- Assistance and Contract Payments for SR&ED: Key Differences
Claims submitted with false information
- Enforcement Notifications: Fraudulent SR&ED Claims & Tax Evasion
- Important CRA Reminder and Warning for Claimants Issued April 6, 2022
Delays in sending information or scheduling meetings with the CRA
Conclusion
Be sure to do your research and that any tax professional or SR&ED consultant you hire does theirs as well. SR&ED is a fantastic ITC program which can put thousands of dollars back into taxpayers’ wallets, however, it can also be unreasonably complicated and money can easily be lost or misplaced in the process by simply entering one item incorrectly. The CRA’s article is a good summary of the SR&ED topics and elements that claimants need to know, be sure to review it and quadruple-check all work before filing.