A SR&ED application must be sent to CRA within 18 months of a company’s tax year-end. There is no leeway to be late (on this 18-month deadline). Even if you file on time, but a form is missing or important information is missing, your entire application may be disallowed by CRA.
Procrastination or inaccuracy can cause you to lose out on SR&ED benefits.
Hint: it’s usually not the same as the “company project”.
If your company is creating or improving a product, your “company project” will include all the effort of designing, developing and launching that product. Within that effort, you may need to do some R&D, or experimenting. This is the “SR&ED project”, and it is often a subset of the overall “company project”.
It is often difficult to identify where routine development ends and experimental development begins. This can lead to one of two problems;
This dilemma is especially true for software and IT claims, which are commonly the most contentious of all SR&ED claims audited by CRA.
The project description is a key part of the SR&ED application. There are many ways to write a poor project description. A common misstep is to describe your experimental work as solving problems by “trial and error”. These words in a project description will most likely raise a red flag with CRA, and an audit is sure to follow.
Each SR&ED project should have records that document what work was done, by whom, when, for how long, as well as how the work was done. CRA is looking for records that were created at the time the work was done. Documents may be informal, and even handwritten or a drawing, but records of some sort need to exist.
Keeping weekly time sheets recording the time spent by each person doing SR&ED work is a best practice. Being able to show them to CRA, in the event of an audit, is the best way to support salary expenses that you are claiming.
Question: “But we just learned about SR&ED and we haven’t been keeping time sheets. Can we still apply for SR&ED?”
Answer: CRA does not discourage companies from applying for SR&ED, even if they have not yet started keeping proper supporting documentation, especially if the company is applying for SR&ED for the first time.
A few useful terms: