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Is the CRA Becoming More Strict on SR&ED Requirements?

Is the CRA Becoming More Strict on SR&ED Requirements?
on December 17, 2014
Is the CRA Becoming More Strict on SR&ED Requirements?

“I’ve heard the CRA is becoming more strict on its SR&ED program requirements and denying more claims than ever before. Is this true?”

We’ve heard this numerous times from both first time and experienced claimants. They have either just received a request for a Canada Revenue Agency (CRA) Review or have read some of the speculative articles that have been surfacing more recently. To weigh in on the discussion, we interviewed Boast Capital’s Managing Partner Alex Popa. Alex has filed numerous Scientific Research & Experimental Development (SR&ED) claims, maintained an above average success rate, and has an ongoing relationship with the CRA.

1. How has the SR&ED program changed since you first started filing claims years ago?

The SR&ED tax credit program is part of the Canadian Income Tax Act and has been around since the 1980’s. While a majority of the wording in the Act has not been updated, the financial incentives and CRA’s interpretation of qualifying criteria certainly have.

In 2012, the federal government made a few legislative changes to the law which are mostly financial changes designed to minimize the SR&ED program Investment Tax Credits (ITC’s) granted. The federal government lowered the percentage allowed for eligible subcontractor expenditures from 100% down to 80%. The proxy overhead (the amount of overhead allowed for salaried employees performing SR&ED eligible work) was reduced from 65% in 2012 to 55% as of January 1, 2014. The CRA also removed capital expenditures from qualifying expenditures altogether as of January 1, 2014.

The CRA has modified the Research and Technology Advisor (RTA) training and review process. RTA’s are the technical reviewers which the CRA employs to review technical merits of SR&ED claims. In the past, reviewers used to focus on three criteria: technological advancement, technological obstacles/uncertainty, and the systematic approach. Since the new RTA training guide was released late last year, reviewers are now focusing on the following five questions:

“Was there a scientific or a technological uncertainty that could not be removed by standard practice/engineering?”

“Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty?”

“Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypothesis?”

“Did the process result in a scientific or technological advancement?”

“Was a record of the hypothesis tested and results kept as the work progressed?

(For a full explanation of each question, visit the “5 Questions the CRA Uses to Determine SR&ED Eligibility” blog post.)

Bonus: click here to download this 20-page SR&ED Guide to learn everything you need to know to prepare a successful claim.

2. With these changes in mind, do you think the CRA is becoming more strict on the eligibility requirements? If so, why do you think that is?

With the new review approach, the CRA seems to be much more focused on the evidence/documentation available to support the claim. Contemporaneous documentation, (documentation that was generated at the time work was conducted) is becoming more critical to support claims that are given a review. Timely documentation has always been a part of the criteria, but now more than ever, the CRA has emphasized its importance.

3. Can the CRA deny your claim entirely?

Yes, the CRA can deny the entirety of a claim. Those claims without substantial supporting documentation run the risk of being denied altogether, even though there may be SR&ED eligible work. The CRA reviewers are looking for very specific documentation, which I will explain below.

4. If a claimant is denied, can they appeal the CRA’s decision? What does that process look like?

Once the CRA reviewers have made a decision to review a SR&ED claim or deny it outright, claimants have a few options:

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  • Second Administrative Review – The claimant can request a second administrative review. A secondary CRA reviewer (usually a manager or a senior reviewer) will examine all available information and make a decision on the correctness of the initial reviewer’s decision. This process is unlikely to yield successful results unless there has been a major error made by the initial reviewer or if you have additional information that is significant to support your SR&ED claim position
  • Formal Appeal – The claimant can appeal the SR&ED reviewer’s decision. Through the appeal process, the CRA will assign another appeals reviewer to your file which will examine all available information and also the process which the initial reviewer(s) have taken to perform the review.  This can take up to two years to assign a reviewer to the appealed file once the request is received by the CRA. This process is very lengthy and the claimant can be successful if major “due process” errors have been made by the initial reviewer and the claimant has documented the lack of process followed by the CRA.
  • Tax Court of Canada – The final option a claimant has is to take the CRA to Tax Court. This is a very expensive and lengthy process that can take anywhere from 2 to 10 years or more and can be an option for very large claimants. In the past, Tax Court rulings have been favourable to the claimants and this can be a good option if it makes financial sense.


While there are appeal options, none of them are desirable as they can be expensive and the likelihood of a successful appeal is low.

5. What can claimants do to protect their claim and reduce the risk of being audited or reviewed?

The CRA has committed to reviewing 25% of the filed claims each federal fiscal period and the likelihood that your claim will be reviewed is very high especially if you file SR&ED claims for a number of years in a row.  During a review the CRA reviewers are looking for specific documentation to support the claim such as:

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  • a documented hypothesis
  • documented iterations and technical challenges
  • documented test results
  • detailed time tracking.


(Here are a few more tips to improve your contemporaneous documentation).

6. Do you anticipate any major changes to the SR&ED program for 2015?

No, I don’t anticipate any major changes to the SR&ED program over the next year or so.  The major changes made in the 2012 federal budget have just been implemented and should generate the savings that the federal government has been looking for.

Additionally, the CRA has roughly doubled their SR&ED review staff in most major centers and have implemented a more narrow and stringent review process which should generate additional savings for the government.

However, it should be noted that the federal government has the authority to modify the SR&ED program as they see fit during each federal budget and they may decide to do so if economic and/or political pressure arises.

There you have it! Supporting documentation and an understanding of the SR&ED reviewing process can help you meet updated interpretations and review processes.

Have a question for Alex or one of the team members? Leave a comment below or send us a confidential note through the contact us form and we’ll get back to you as soon as possible.


About Alex Popa, Co-founder and Managing Partner, Boast Capital


Alex Popa manages Operations and Finance at Boast Capital. He is also a partner at Plug and Play  Canada. Previously, Alex managed KPMG’s Software and IT SR&ED practice for Western Canada, and managed the national Software and IT SR&ED practice for Alma Consulting Group, a global operations consulting firm with offices in 12 countries. Prior to becoming an SR&ED consultant, Alex co-founded an e-commerce startup specializing in providing online recruitment resources to high turnover industries, and was a Business Intelligence Engineer at Johnson & Johnson.

Alex is a certified Project Management Professional, and holds a B. Eng. in Software Engineering with Electrical minor from Lakehead University and a Postgraduate Diploma in Accounting from The University of British Columbia.



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