Understanding the CRA reports

After producing SR & ED tax credit claims for more than 20 years, we have developed our understanding of the analysis process, language and key conclusions that the CRA can come up with. In this article we share this understanding to clarify what happens between the time you submit your SR & ED claim and when you receive their conclusions.

These are personal interpretations and under no circumstances can you use this text to discuss with the CRA. It is also possible that I am wrong for some very specific aspects. But I remain convinced that the vast majority of the observations that follow are correct.

1- The Claims Analysis Process

A first sorting is performed upon receipt of your SR & ED claim at the CRA processing center.

The majority of claims for SR & ED tax credits are « Accepted as Submitted », which is what we all want. This means that they were not identified as “at risk” files based on financial criteria (eg.: % increase in amounts claimed, history of conflicting claims, etc.).

Other files are selected for a more detailed analysis (eg.: randomly selected files, unverified claims for more than 3 years, etc.)

The files thereby identified and those potentially « at risk » are subjected to a more detailed analysis, an examination at the local CRA office (desk audit).

2- The desk audit

The purpose of the desk audit is to identify whether there are technical or financial issues that could warrant further analysis or even an audit.

The texts are read by senior RTAs to identify risks, weaknesses and issues such as: low SR & ED potential, uncertainty about uncertainty, confusion between the business plan and the SR & ED project, work claimed for three years or more, activities not clearly described, experimental production claim (EP or CP + EP), etc.

These claims are also reviewed by Senior FRs who apply other risk indicators such as employee claimed at 100%, the specified employee claimed, a relatively high percentage (%) of expenses claimed versus Total expenses of the company, etc.

At the end of these analyzes, one of the following three conclusions is sent to the claimant:

– « Accepted as Submitted »

– « Supplementary request for information »

– « Audit Meeting Request »

If the claimant does not respond within the specified time frame (normally two weeks to one month) or if the information received is insufficient to determine eligibility, then an « Unsubstantiated » conclusion is issued for the project. This means that there is insufficient evidence to validate activities that may be eligible for SR & ED. In the case of a « Request for Additional Information », if the information is insufficient but the RTA believes that it is possible to obtain better evidence, the conclusion may be converted into an « Audit Request ».

3- Following the audit meeting

The audit meeting (s) shall normally be held at the claimant’s premises.

If the oral or written information submitted by the applicant does not meet the definition of SR & ED, then a « No Eligible Activities » conclusion is drawn for this project.

If the written or oral evidence submitted shows that some work may be eligible but there is insufficient evidence to validate the SR & ED activity, then an « Unsubstantiated » conclusion is drawn for this project.

If evidence is found that corroborates SR & ED, then one of two conclusions can be drawn:

– « Some Eligible Activities » because there is evidence of SR & ED for certain activities in addition to oral testimony, but other activities still do not meet the SR & ED definition.

– « Accepted as Submitted » is the conclusion sought by all.

These conclusions per project are normally reflected in the technical report issued by the RTA as a result of his audit activities. This report is often presented to the taxpayer at the same time as the notice of assessment. Sometimes you have to ask the person responsible for the file, usually the FR. These conclusions must be justified, that is, explained in sufficient detail to understand the issues that have not been resolved with the meetings and the documentation submitted.

4- Understand what is written on the Notice of Assessment

It is important to read the SR & ED notice of assessment (and the letter or technical report sometimes accompanying this notice). It is easy to “read” only one thing: it is accepted without paying attention to detail. We get our credits and it’s over. But it does not work like that.

When the written conclusion in the notice of assessment is « Accepted as Submitted » this means that the claim has been accepted without having been revised in detail. But there are sometimes two very significant complementary texts:

• The CRA often adds a phrase meaning « May be Subject to Subsequent Audit ». The CRA reserves the right to reverse this decision. This is often the case where federal credits are non-refundable, but this can happen for refundable credits. When the CRA gives this indication, it frequently comes later to audit two or three years at a time.
• The RTA can accept a project requested but warn you of his expectations at the next opportunity. He may recall, for example, that an eligible project « Must be accompanied by dated and detailed documentation ». When you see this type of remark, consider this as a serious warning. The CRT has overlooked for this time, but at the next request for information or audit meeting, when he requires to see this support material, and if he does not find it, he will treat it rigorously, stating that you have been notified in writing.

5- Conclusion

The CRA uses several words to close a claim. It is important to read and understand the language of the CRA in these short sentences often included in the technical report or notice of assessment. Without that, you may be faced with big surprises.

Do not hesitate to ask your consultant, your FR or your RTA as soon as they are received. Again, this article is a personal but enlightened interpretation of the terminology encountered in written exchanges with the CRA.

And you ? Do you have other examples or interpretations to supplement these? What were your experiences with this?

Did you like your reading? Tell us so. What should be added? What topics are you interested in? You did not like this reading? Tell us so. What have you less appreciated in this text?