SR&ED CRA Audit: It has seen regularly in the publications that the Government of Canada is concerned about the level of Research and Development investments that are made by companies. Hence the allowed expenditures on SR&ED by the type and size of firm, credits claimed and earned and the type of their activity facilitates a wider analysis.
According to the Canadian Revenue Agency (CRA), every taxpayer is analyzed and assessed on yearly basis depending on the information available. However for SR&ED CRA audit risk factors are being monitored such as audit history, issues in industry sector, the corporate structure of the company and any major acquisitions.
Selection of a candidate for SR&ED CRA audit can cause panic in the eyes of many companies especially if they have submitted two or more SR&ED claims over the years and received their refund cheque successfully. Getting your SR&ED claim accepted as filed doesn’t mean that all the work that has been claimed is eligible for SR&ED.
Normally, The CRA starts with a request of information that is of utmost importance. This process is followed before the audit and the audit may not necessarily take place. However, if the CRA reviewer is dissatisfied with the information provided the audit is on the table through a site visit.
Kelid™ with several years of experience in the SR&ED consulting business and attending several SR&ED CRA audits has developed a comprehensive list of risk factors that may put your SR&ED claim in jeopardy. To avoid any situation like this make sure your claim is risk assessed.
The Top 20 Risk Factors That May Result in SR&ED CRA Audit:
- The scientific or technological objectives were not stated clearly or appeared to be standard practice for the industry;
- Technological Advancements and Obstacles are not clearly stated in T661 part 2 section 242 and 246;
- A systematic research or investigation through analysis or experimentation was not visible in the technical narratives;
- No extent or nature of work conducted in the tax period was apparent;
- Frequent use of triggering words in projects’ descriptions;
- Some part of the work stated is not eligible for SR&ED;
- No clear explanation of the name and the nature of the work done by subcontractors if substantial part of the expenditures belong to subcontracts;
- CRA’s matching program compares the information with the third parties to confirm your filing accuracy;
- Very huge claims especially if you are a 1st time SR&ED claimant;
- The project is the continuation of the previous year;
- The claim has increased tremendously from the previous years;
- The claim is for high subcontractor expenditures without adequate explanations such as statement of work carried out by subcontractors;
- The claim of high material expenditures in relation to the labour expenditures without any solid evidences;
- Claiming high percentage of time spent on SR&ED by owners, shareholders, or non-technical people;
- Submission of a claim in the past which was drastically modified, declined or adjusted;
- The claim does not comply with CRA requests for information;
- All boxes on T661 in part 2, section C are checked to support the claim;
- Participation in high-risk and aggressive tax strategies;
- There are referrals from other CRA departments;
- Incomplete information about the SR&ED consultant helped to file or submit the claim.
If your SR&ED claim has been audited or reviewed in the past or seeking for risk analysis of your current SR&ED claim, do not hesitate to contact us and seek for professional advice. For further information for eligibility of your projects check out our Assessment LookUP. If you have any concerns regarding SR&ED CRA audit that you feel can help other people in similar situations, leave a comment below.