The Importance of Documentation in an SR and ED Claim

When reviewing a Scientific Research and Experimental Development (SR&ED) claim, there is always the possibility that the Canada Revenue Agency (CRA) would like to take a deeper look at your claim through a formal in-house review.

There are two types of reviews – financial and technical ones. The technical ones take a look at the actual content that you are claiming, in order to see whether your claim meets the three criteria of the SR&ED program (technological uncertainties were faced, technological advancement was made, and that there is some sort of technical content supporting the claim). The financial review takes a look at all costs associated with the claim, in order to confirm that the correct fiscal amounts were claimed for the work done and materials used.

When a review happens, the CRA always likes to take a look at documentation that was created at the same time that the work being claimed for was being done. They call this “contemporaneous documentation.” By looking at this documentation, the CRA gets an idea of what it is that your company has been working on in the past year, which is why it is necessary to have the documentation to support the SR&ED work that you are claiming for.

So what can be included when looking to provide the CRA with contemporaneous documentation? A lot of the documentation that can help support your claim are items that you probably have already – emails, meeting minutes, time sheets, prototypes, costing documents, and progress reports can all be beneficial. Other tracking can easily be put into place, like logbooks where your employees can track any technical issues they run into when working on a specific product or process.

A couple of pointers to help you get the most out of your documentation:

-Remember to date everything as you create it. This can be especially easy when taking photographs by turning on the setting on your digital camera to date stamp your photos.

-Keep printed copies of your documentation in one central location, so that when it comes time to show the CRA your documentation, you will be able find what they are requesting to see quickly and easily.

-When submitting your SR&ED claim, there is an opportunity to let the CRA know what kind of documentation you have on file – double check to make sure that you are representing what you have accurately.

Documentation is an essential portion of your SR&ED claim, and should not be overlooked when you are preparing your SR&ED claim. Keep in mind that you may need this documentation in the future to support your claim, should the CRA call for a review. Lastly, it’s never too late to start putting some of this tracking documentation into place for future SR&ED claims.