CRA Audit Defense
The vast majority of SR&ED claims are not audited by CRA but to ensure adherence to the SR&ED program requirements
your claim may be selected for audit. Over the years the CrossDynamix team has represented claimants through hundreds of CRA audits. We have been exposed to the full gamut of CRA personnel, from the highly professional and knowledgable to the opposite. You can be sure we possess the in-depth
knowledge of CRA's audit process, applicable policy and law. We will advocate on your behalf to ensure your claim is reviewed in a fair and objective manner, as you are duly entitled to per the Taxpayer's Bill of Rights.
The CrossDynamix team has unmatched expertise guiding clients through the SR&ED claim
audit process. We will handle all aspects of the audit so you can focus on your business. Contact us to discuss CRA's review of
your claim.
The SR&ED Audit Process
After you submit your SR&ED claim it is reviewed by CRA and may be selected for an in-depth review or audit. CRA does not have
the resources to review all SR&ED claims and unfortunately some claimants and SR&ED consultants have abused the process to maximize profits. Logically, CRA has to work to ensure tax dollars are not
wasted.
To do this, the CRA routinely reviews or audits a portion of SR&ED claims submitted each year. Unfortunately, in some instances, CRA policy and tax legislation are not always applied
correctly by the CRA's Research and Technology Advisors (RTA) or Financial Reviewers (FR). And when CRA's incorrect or indefensible position is not effectively countered the result is the denial of otherwise valid SR&ED claims.
Once your claim is submitted to CRA it is reviewed for risk. If the CRA is convinced of the strength and validity or your claim
it will be accepted as filed (AAF). If not the claim is forwarded to a local tax service office (TSO) for further review. This may be a
desk review or an in-depth audit. If the claim is accepted after the desk review it is considered AAF. If it is not accepted the CRA
will advise you by phone or letter that it is being audited.
Normally, you will receive a Request for Information (RFI) letter. This letter will outline what information and documentation
CRA will expect you to provide to support your claim. A standard RFI may include a request for the following:
- Details of incorporation;
- Organizational chart;
- Payroll records including timesheets and T4s;
- Contracts and invoices;
- Financial statements for the respective claim year; and
- Projects plans, meeting minutes, test plans and results.
Following completion of the RFI, the claimant and CRA will arrange a date and time for an in-person meeting to discuss
the claim. It is essential that you attend the meeting with a SR&ED expert so that the CRA is not in a position to rely on the nuances of
the SR&ED criteria / policy to deny your claim.
After the meeting, the RTA or FR will outline the CRA's position in a proposal letter. Normally, you will have 30
days to respond (extensions can be granted for good reason). If you are not satisfied with the outcome of the audit and you believe CRA policy
was incorrectly applied or due process was not provided you can request an Adminstrative Second Review (ASR).
The Legal Test
The RTA is mandated to review your claim to determine if it meets the criteria outlined in the Tax Court of Canada decision in Northwest Hydraulic Consultants Ltd. v. The Queen, 1998 CanLII 553 (TCC):
- Was there a scientific or a technological uncertainty?
- Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
- Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
- Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
- Was a record of the hypotheses tested and the results kept as the work progressed?
While the above criteria may appear rigid, in the work / industrial environment they can be satisfied in many forms.
Evidence
It may be clear from the project description that your claim meets the criteria necessary to be considered SR&ED. However, that
may not be enough. If you are audited you will need to demonstrate, through contemporaneous documentation and oral evidence, that
the criteria are met.
The following lists types of evidence you can rely upon to support your SR&ED:
- Project planning documents
- Documents on design of experiments
- Experimentation plan
- Design documents and technical drawings
- Project records, laboratory notebooks
- Design, system architecture and source code (software development)
- Records of trial runs
- Project progress reports
- Minutes of project meetings
- Test protocols, data, results, analysis and conclusions
- Final project report or professional publication
- Photographs, videos
- Prototypes, samples
- Scrap, scrap records
- Contracts, lease agreements
- Records of resources allocated to the project, time sheets, activity records, payroll records
- Purchase invoices and proof of payment
- Accounting records
Our SR&ED experts have defended claimants through hundreds of CRA audits. We possess the in-depth knowledge and experience
to successfully guide you through the process and we can work to settle the claim on a basis mutually agreeable to the CRA and
your organization.
How We Can Help
Whether you are in the middle of an audit or CRA has notified you of a pending audit, CrossDynamix can help. We will review
your claim, CRA's position, and advise you on the steps to take for a successful resolution. We will represent you at the audit
meeting(s) and escalate concerns to senior CRA officials if necessary.
Relying on years of audit experience, CrossDynamix will advance your position in the best possible manner. Contact us to
discuss audit representation on a risk-free basis.
Guidelines for resolving claimant's SR&ED concerns
Taxpayer Bill of Rights
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Notices of Objection
If you are not satisfied with the CRAs assessment of your SR&ED claim, CrossDynamix can dispute their decision by filing a Notice of Objection and subsequently also facilitate appeals to the Tax Court of Canada. Taxpayers have 90 days from the date of the corporate notice of assessment they wish to dispute to formally start the appeals process by filing a Notice of Objection with the CRA. An additional one year may be granted upon submission of an extension of time request. Normally, the CRA will grant the extension request if a taxpayer has a valid reason for missing the 90-day deadline. The extension of time application should demonstrate 1) taxpayer was unable to act or to instruct another to act in the taxpayer's name; 2) taxpayer had a bona fide intention to object to the assessment or make the request given; 3) the reasons set out in the application and the circumstances of the case; or 4) it would be just and equitable to grant the application, and the application was made as soon as circumstances permitted. If the CRA denies the extension request, an application can be made to the Tax Court of Canada to overturn the CRA's decision.
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Tax Court Appeals
CrossDynamix can review your denied SR&ED claim and advise on the likelihood of success in Tax Court. If we believe you have the evidence to prove SR&ED then we will work with our partnered Tax Law firm to advance your appeal, on a cost-effective basis.
Once a valid Notice of Objection has been filed, a taxpayer can choose to continue the objection process to completion. However, the taxpayer can also choose to initiate an appeal to the Tax Court of Canada 90 days after the objection has been filed. CRA is extremely delayed in the processing of objections, therefore an appeal can speed up the dispute resolution process. Of course, if the taxpayer chooses to complete the objection process and a notice of reassessment or confirmation is issued, and the matter is not resolved satisfactorily, the appeal process can continue to the Tax Court of Canada.
CrossDynamix can facilitate SR&ED appeals to the Tax Court of Canada. Similar to the objection process, the taxpayer has 90 days from the notice of reassessment or confirmation, issued following the completion of the objection, to appeal (as mentioned, an appeal can be filed 90 days following the filing of the objection). An extension of time application can also be made to the Tax Court of Canada within one year following the date of the notice of reassessment or confirmation.
The general steps in a Tax Court appeal are as follows:
- File the Notice of Appeal by uploading the appeal document to the Tax Court of Canada website. There is a nominal filing fee depending on the amount at issue. The Tax Court Registrar will serve the appeal upon CRA.
- The Department of Justice (DOJ), 60 days from service, will respond with a written Reply to the appeal on behalf of CRA.
- You can choose to file an Answer to the Reply within 30 days from the date of the Reply, if necessary. At the end of these initial steps the pleadings stage of the appeal has ended.
- Next, our Tax Lawyers and DOJ will agree on a timetable for the remaining steps, including:
- List of Documents;
- Examinations for Discovery;
- Undertakings from Discovery;
- Notify the court of settlement discussions or schedule a Trial date; and
- Trial.
The above steps are mandated for a general procedure appeal, when the amount at issue is greater than $25,000. If the amount, per tax year, is less than $25,000 you can appeal to the Tax Court through the informal procedure. As a result the preceding steps are not mandated.
CrossDynamix is an industry leader in filing and defending SR&ED claims as well as appealing the CRA's SR&ED assessments. We will review your SR&ED assessment and help you dispute CRA's decision.
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Process Improvement & Documentation Management
Utilizing our vast experience in SR&ED we are able to expertly advise your organization on the proper record keeping and documentary requirements to ensure you have the necessary evidence to support your claim. CrossDynamix can also review your previous claims to identify gaps and provide guidance on optimizing future claims.
Example supporting financial and technical documentary evidence includes:
- Project planning documents
- Documents on design of experiments
- Experimentation plan
- Design documents and technical drawings
- Project records, laboratory notebooks
- Design, system architecture and source code (software development)
- Records of trial runs
- Project progress reports
- Minutes of project meetings
- Test protocols, data, results, analysis and conclusions
- Final project report or professional publication
- Photographs, videos
- Prototypes, samples
- Scrap, scrap records
- Contracts, lease agreements
- Records of resources allocated to the project, time sheets, activity records, payroll records
- Purchase invoices and proof of payment
- Accounting records
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Project Descriptions
The CrossDynamix team has reviewed and drafted thousands of SR&ED project descriptions. To lessen the chance of an audit and ensure your SR&ED is properly presented we can review your work and accurately draft your project descriptions.
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Project Eligibility Review & Compliance
CrossDynamix can review your projects to determine qualification for SR&ED tax credits. We are expert at advising on the steps claimants must take to lessen the chance of a CRA audit.
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SR&ED Contracts
Are you contracting out your SR&ED but still want to claim the tax credits? Have you been contracted to perform SR&ED and the contractor has agreed that you retain the intellectual property? Either way your claim for SR&ED credits will be denied if the written contract is not properly worded. CrossDynamix can advise you on the required contract structure and language to effectively evidence the intention of the contracting parties.
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CrossDynamix is an industry leader in filing and defending SR&ED claims. We will review your projects and help you file a strategic claim.