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So You’re Successfully Claiming SR&ED…

So You’re Successfully Claiming SR&ED…
on October 25, 2013
SRED financial advising


Many times, I’ve engaged a stakeholder or champion within an organization who has had some previous experience filing SR&ED claims. They have submitted—sometimes two, three, or more years in a row—and successfully received a claim. This is great, as it means they are already adding value to their company.

However, how do they know that they have filed and received the best possible return they could claim?

When I’ve offered to scope their projects or review their SR&ED claim process, it is sometimes met with resistance. They feel that there is no need or value in doing so because the acceptance has been made by the CRA. This belief makes a few key assumptions that are worth addressing:

  1. All that can be recovered has been recovered
  2. Allocation of time and internal resources was applied effectively for maximum yield
  3. The technical and financial description were both accurate and eligible

The reality in these assumptions can be quite different and I am going to explain each of them in further detail below.

1. All that can be recovered has been recovered

An experienced consultant can identify many areas where expenditures were overlooked, guidelines were misinterpreted or baseline wage calculations used ratios that were below the allowable thresholds of the CRA.

In reality, a claimant with minimalfiling experience does not have the same level of experience and expertise in identifying the optimal level of recovery. This is particularly accurate if they have not previously participated in a CRA audit(s).

The question isn’t, “Are we missing any potential investment tax credits?” but rather should be, “How many tax credits are we missing out on?” In many cases, the difference may be negligible or not worth the additional effort or fee associated in doing so.

In some cases, however, the difference is significant and some claim sizes have more than doubled due to a fundamental misunderstanding of the eligibility criteria.

2. Allocation of time and internal resources was applied effectively for maximum yield.

The SR&ED claiming process requires a deep understanding of the CRA claim and auditing processes. With time and accumulated experience, SR&ED advisors develop a full understanding of the claim project model and what documentation is necessary to support and successfully defend a claim in the event of an audit. Occasional claimants simply do not have the volume of history and exposure to the CRA audit process to know where the optimal level of time and resource allocation is.

Overly cautious new claimants often generate vast amounts of record keeping and notes. Documentation is required; however, sometimes they take it to a level of granularity that is unnecessary for proper defense or they spend valuable time and resources documenting for projects that are not even being claimed.

As a result, the best minds of an organization—often times the CTO, software architect and lead engineers—are bogged down in documentation processes and report writing for weeks and months at a time to a level of resource effort that can be close to the value of the investment tax credits being recovered.

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

3. The technical and financial description were both accurate and eligible.

The CRA employs an electronic reviewing process to help identify high risk claims for audit. With over 25,000 claims submitted each fiscal year, it would not be possible to manually review every single application. When the CRA issues a Notice of Assessment (the acceptance of the SR&ED claim value), the wording of the assessment can often indicate that the claim had been accepted without a review—meaning, that aside from the electronic review process, the SR&ED division itself did not review the project manually to define acceptance.

Receiving an accepted claim does not necessarily validate the accuracy of the value or verify that the process of identifying eligible credits was 100% correct. Claims can be accepted without review due to a number of factors, including past claim history, consistency of claim values or simply random chance.

Receiving an accepted claim without a review can lead to a false sense of security, particularly for those with no audit history. If an audit were to occur, those companies are often unprepared for the outcome and surprised at how far they were from actually meeting the eligibility criteria.

In conclusion…

All of these assumptions and possible outcomes are just that: possible scenarios.

If you are successfully claiming and want to continue to do so, it is a good idea to review your claim process with a trusted SR&ED advisor—ideally, a firm who has experience with audit defense and a history of successful claims. Pride, insecurity or defensiveness could be a significant barrier to ensuring a full, accurate claim.

Many SR&ED advisors offer complimentary claim reviews and project scoping. They can offer insight into issues or indicators that would make your claim a high risk for audit. At the very least, you will be able to confirm the accuracy of your current claiming process and rest assured that you are receiving the best possible return for your company.



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