Eligibility of Work for SR&ED Investment Tax Credits Policy
In 2015, the Canada Revenue Agency made changes to the guidance document, “Eligibility of Work for SR&ED Investment Tax Credits Policy,” which outlines work that can be considered as SR&ED by the CRA. One of the notable changes that the CRA implemented was to reduce the emphasis on the term “scientific method,” instead drawing attention to the importance of technological uncertainty.
The CRA has mentioned that the changes revealed in the guidance document are not reflective of tax policy changes. However, certain revisions are beneficial for taxpayers and may minimize disputes with the CRA regarding whether projects are eligible for SR&ED tax credits. The added concept of “systematic investigation or search” in SR&ED projects reveals a potentially more generous approach to eligibility than the previous requirement, which stated that, “A project must follow a scientific method.”
A point worth noting is that the guidance document stated that documentation would continue to play an important role in determining whether expenditures and work were eligible for SR&ED investment tax credits. For a while now, the Canada Revenue Authority has given mixed messages to claimants and reviewers in terms of documentation required to substantiate an SR&ED claim. This has been caused by the fact that the CRA has always maintained that documentation or evidence is required in the substantiation of a claim. On the other hand, they have written that the lack of documentary information should not discourage the firms or individuals who believe that they are eligible for the SR&ED credit to file their claims.
It is prudent for firms to have contemporaneous documentation that is duly signed, dated and describes the specific work performed. If you opt to substantiate the work performed using other evidence, it must clearly address the questions in Part 2 of Form T661. (See SR&ED Technical Review, A Guide for Claimants and Guide to Form T661).
Occasionally, companies may find the CRA challenging their project documentation. However, this does not automatically mean that their claim is invalid as the CRA does not have the final say on eligibility. As demonstrated in many court cases, the body is only responsible for administering the program. Should the CRA disagree with your SR&ED claim, please contact Swanson Reed R&D Tax Advisors. Our experts have years of experience assisting companies with audits. Furthermore, we can help you to determine your eligibility for the SR&ED tax incentive before claiming to minimize the likelihood of an audit.