SR&ED Audit Prevention – 3 Tips to Avoid Reviews
Audit Prevention…Avoid complacency and avoid SR&ED reviews.
We’ve been accepted before using this style of writing, why mess with success?
Past experiences with the SR&ED program have a tendency to lull companies into a sense of complacency. Becoming complacent after past successes with SR&ED claims often means claimants are caught out by extensive technical and financial reviews, many of which can lead to their claims being denied in full.
Claim denials can be due to any number of things, i.e. you’ve used a single term that implies ineligible work, etc. Defend yourself against a review (the official term for when the CRA re-visit your SR&ED claim) and keep the CRA at bay, or at least minimize their time onsite, with the following tips.
3 Tips to Avoid (or ease the pain of) CRA Audits and SR&ED Reviews
1. Stay Up-to-Date with SR&ED Legislation (and administrative changes)
SR&ED legislation changes very little between years, but internal mandates can vary widely. While legislation is slow to change, the administration of the SR&ED program can vary widely depending on reviewers, new mandates and policies. Know what the reviewers are looking for in your reporting period, and who would likely be reviewing your claim. Stay up-to-date on legal rulings by signing up to be an SR&ED Master and gain access to our legal rulings database.
2. Assume the CRA Will Audit You (Eventually)
Assume you’re going to get audited every year. The best prevention for claim adjustment is to always be prepared. This includes documenting your work and ensuring subcontractors invoice you properly. The most effective way to stave off a thorough audit is to demonstrate that you have a substantial enough paperwork trail to cover most of a boardroom table (although you can keep it in softcopy). Sign up to be an R&D Manager and gain access to our guide to CRA Audits and Reviews.
3. Practice How You Will Interact with the CRA
You wouldn’t speak in front of a large crowd without preparing your speech in advance. Bring this same mentality to your interactions with the CRA. In the event of an audit, take the time to prepare what you will be discussing with the reviewers and ensure that you are giving them the information they require to approve your claim. These reviewers are just doing their job – an antagonistic approach will not help your situation. The prospect of receiving a $100,000+ tax credit for your project should make courtesy and preparedness a no-brainer. Read our post on speaking about SR&ED in the CRA’s language to help prepare what you’re going to say.
Conclusion: Avoid Complacency
Always keep in mind that having an overly confident or overly relaxed approach to your SR&ED claim could potentially cost you your entire claim – thousands or even hundreds of thousands of dollars that won’t be refunded. While we can not guarantee audit prevention, these tips will help you if you are ever audited as well.