SR&ED tips and tricks

So, you’ve decided to go after a SR&ED tax credit and you believe you have solid intellectual property that qualifies. Where to start? Think of your SR&ED claim as that grade nine book report you did a hundred years ago. Your book report table of contents should look something like this:

Introduction and Overview
SR&ED Claim
Project 1 - [insert project name]
Project 2 - [insert project name]

The Introduction and Overview should be one page to provide them with context as they review your projects. Items that should be included are: when you were founded; where your headquarters are; how many offices you have; how many employees you have; the ownership (sole proprietor, venture backed, etc.); and a general description of the products and services you offer - this is usually the three sentence marketing blurb you include at the bottom of your press releases. As well, I like to include a quick blurb that shows you are not being greedy about how much money you are requesting. It would look something like:

Business Ready primarily [insert what you do] for the [insert what market you are in] market based on [what is the basis of your technology] technology. The Business Ready SR&ED claim for this fiscal year does not include costs to build the business logic but rather focuses on [what general area are you trying to expand on that doesn't already exist]. The [insert work being done in the projects - software development?] work being claimed by Business Ready is approximately xx% of the total R&D costs during this claim period.

Then for each project provide a description of the projects as requested by the Canada Revenue Agency (CRA) - look closely at Part 2: Step 1 - Detailed project description. Use the exact same headers and try not to exceed 4 pages for each project. Remember, the trick is not to describe what product, process, prototype or custom equipment was created but to describe what underlying technology was advanced.

Book report complete!

In general, keep the following tips in mind if you are going to be going after regular SR&ED claims:

• Take the time to set up a proper system to track the hours / capital associated with each project and have the discipline to keep it up to date. Remember, when you get audited (it always happens) you need to be able to defend the work and time spent.
• Make sure you identify all the eligible projects early on and make sure the technical staff are talking to each other as well as the finance folks as to how it will play out.
• Without going overboard, remember to document your R&D activities (project plans, systems reports, notes, market information, available technologies that don’t meet your needs, etc.) this is the back bone of your narrative. When it comes to the technical review, no matter how you slice it, R&D is subjective so it is extremely important that the technical piece is solid and well understood.
• File your claim with your taxes (within six months of your year end). This ensures it is reviewed in a timely manner, along with your taxes, and you will get the money faster. If you file after six months but before the deadline of 18 months, claims take longer.
• Don’t be greedy with claiming expenditures. Keep it real because you will only end up fighting CRA later if you don’t. If the expenditures are reasonable and properly supported the financial review runs smoothly.
• First time claimants should consider using the Pre-Claim Process Review offered by CRA that way you know you somewhat qualify before preparing the submission and you get a feel for the process in general.