Are you looking for ways to avoid a CRA SR&ED audit? Although, it may not always be possible to avoid a SR&ED audit, there are steps you can take to minimize the chances of having one. By understanding the risk factors of each claim and what triggers a red flag on an application, you can easily minimize and even avoid an unnecessary CRA review.
Keep in mind that a review of a SR&ED claim does not trigger a full tax audit. A SR&ED review is an isolated review, which only covers the submitted projects. Although SR&ED claim reviews are becoming more common in the recent years, as long as you understand the review risk factors, you can effectively manage them.
According to the Canadian Revenue Agency (CRA), the claim of every taxpayer is analyzed and assessed on an annual basis based on the provided application. CRA conducts a risk assessment to establish a risk factor whether to accept a claim or carry on a review. Below are 10 tips that can help you to significantly improve your claim strength and avoid a CRA SR&ED audit:
- Clearly state all technological obstacles (not routine activities) and the technological advancement
- Ensure the systematic investigation is visible in the project description
- Project start/finish dates are actual and consistent with CRA guidelines
- Ensure all schedules and forms are filled out correctly and completely
- Avoid a sudden increase in a claim value from the previous year, unless it is justifiable
- Keep detailed records of project activities
- Don't put through a huge claim, especially if you are a 1st time SR&ED claimant
- Leave out weak activities from the project description
- If possible, don't continue a project into the next fiscal year
- Avoid using audit triggering words
- Ensure the time invested by owners, shareholders and management on a claim are actual
- Include detailed description of the subcontractor's contribution to the project
- Ensure the material expenditures are reasonable and accurate
- Avoid resubmitting a claim to CRA with an increase to its expenditure
- If your last year claim was rejected, don't file another claim unless it meets all SR&ED guidelines
If your claim is under a review or it has been rejected by CRA, contact us for a free assessment of your claim. We will let you know EXACTLY what triggered the audit and show you EXACTLY how to prevent it in your future claims.