Canada

SR&ED program’s increased focus on auditing claims

ARTICLE  | 

Does your growth strategy depend partly on freeing up cash through the Scientific Research & Experimental Development (SR&ED) tax credit program? If so, stay up to date with changes to the program outlined below.

More auditors, more on-site visits

One of those changes has been the recent addition of hundreds of new auditors across Canada. These people are tasked with making sure that the benefits of the program support work that actually meets requirements.

This new audit force allows the Canada Revenue Agency (CRA) to change how it interacts with SR&ED claimants. Previously, the agency focused on limited numbers of audits of high risk claims submitted. This included a reliance on Requests for Information – RFIs – when the agency discovered questionable claims.

The CRA is now more proactive, with more site visits, so that auditors can explain what an eligible claim must contain, and can look for potential problem areas that will result in a claim being denied.

In particular, the mandatory First-Time Claimant Advisory Service (FTCAS) involves an on-site visit by CRA staff to provide first-time SR&ED claimants with advice on how to identify potentially eligible work prior to submitting a claim. Companies are often asked to participate in FTCAS if the agency has concerns about the validity of the future SR&ED claim. In subsequent years the agency will pay special attention to the company’s claims, possibly through an audit.

A new approach to supporting claimants

In 2016, CRA cancelled its Pre-claim Project Review (PCPR) service, which provided guidance to claimants on potential SR&ED credits, but did not provide any certainty of acceptance once filed.

PCPR has been replaced by new services called the Pre-Claim Consultation (PCC) and Pre-Claim Review (PCR), which saw a gradual rollout across Canada in 2016. The PCC is a free service which helps businesses understand whether their work may qualify for SR&ED before a claim is filed. The PCR service is intended to provide a determination on how much of the R&D work is eligible and what expenditures qualify for SR&ED tax incentives, prior to filing.

At this stage, it is too early to understand the impact of participation in the PCC and PCR service programs. Seeking professional advice is recommended to help with preparing these claims.

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