The Canada Revenue Agency (CRA) has made known its intention to step up its presence with taxpayers who conduct scientific research and experimental development (SR&ED) activities. This involvement usually takes the form of an accounting and scientific audit.
In principle, there should not have been any changes to the program. However, we’ve currently noted that a new approach is being taken with respect to the interpretation of the program, the file analysis process and reliance on contemporaneous evidence.
In this context, your SR&ED tax credit claims risk being significantly reduced by the CRA if you are unable to clearly defend your case. So what do you do if the CRA informs you that it will be auditing your file (which means that the CRA considers certain aspects of your claim as being unacceptable)?
Your first step is to question the government agents in order to get a firm handle on the points that they would like to verify. Will their audit focus exclusively on financial data? Which of your technical projects do they want to discuss? Ideally, you should receive a written response to these questions.
Usually, the CRA provides a list of the information that you will be required to produce. We recommend that you promptly reply to the CRA’s demands. If you don’t have the information in the format required by the CRA, contact them immediately to discuss the matter further.
When preparing for an audit, you should consider the points raised by the CRA. It is imperative for you to be able to properly state your case concerning your claim. If you haven’t already done so, you must see to it that you still have at hand the contemporaneous documentation that was produced during your tests, which can easily be accessed for reference during the audit. Also, you may want to re-read the technical descriptions that were submitted along with your income tax returns.
When the day of the audit arrives, stay calm! Answer the questions and try to obtain the opinion of the government agents before the meeting ends. If it isn’t possible for you to obtain this opinion, ask when you can expect to receive it.
Do not hesitate to contact us for more information about the SR&ED tax credit program.