The Canada Revenue Agency (CRA) might audit your business in relation to your SR&ED claim for a number of reasons. If and when they do, they will request supporting evidence to ensure your claim is legitimate.
One of the primary focuses of an audit is salary and wage expenditures. The CRA wants to ensure that the amounts being claimed are indeed eligible, which goes beyond technical eligibility. They’re looking for the amount of time employees spent working on SR&ED projects.
Timesheets that document both SR&ED and non-SR&ED work are a necessary supporting document for your claim. The CRA looks for granular, activity-based time tracking that isn’t typical outside of a laboratory environment, but worth the extra bit of effort. It’s common for claimants to keep timesheets that identify employees who were directly engaged in the SR&ED project with attributes such as date, work order number, vacation time, estimated hours worked, overtime hours, and total hours.
Failure to provide activity based time tracking upon request can lead to the supporting documents being deemed inadequate.
Naturally Generated Information
The CRA isn’t concerned so much with the outcome as they are with the process. Alongside your timesheets, they want you to show your work. When providing supporting documentation, naturally generated information can help show support for your claim. This includes items such as:
- Planning documents
- Project specifications
- Project objectives and milestones
- Descriptions of problems to be solved
- Resource allocation records and budgets
- Written correspondence with customers and suppliers
- Meeting minutes
- Supervisor summaries
- Project, laboratory, or personal notebooks
- Progress and final project reports
- Organizational charts
The types of supporting documentation for SR&ED varies depending on the R&D environment. In a dedicated R&D environment, the supporting documentation will be different than that of an early stage / startup or shop floor environment.
In some cases negative time reporting can be used to segregate non-SR&ED work and in others it can vary from employee to employee. Some environments will also need more supporting documents than others. Your SR&ED consultant will help you navigate which types of supporting documentation you’ll need specific to your environment.
If you have questions regarding SR&ED qualifications or a claim, get in touch with use here to request a free consultation.
With 10,000 successful projects approved by the CRA, a success rate of over 98%, and more than 1500 different businesses served over the past decade, we have the knowledge, depth and experience to provide expert guidance on how the SR&ED program requirements apply to organizations in all sectors.
Did we mention about 75% of successful SR&ED claims each year are from small businesses?
*The information above is meant for informational purposes only, and not to be used as advice.