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Tax season is here for many businesses across Canada, and for those that claim SR&ED, making sure they’re audit-free for 2023 is essential. If your company conducts research and development (R&D), claiming Scientific Research and Experimental Development (SR&ED) tax credits is a great way to stay cash-positive and support your operations. Each year, the SR&ED program provides thousands of Canadian-based companies with eligible R&D initiatives with over $3 billion in tax credits.
While some will claim SR&ED credits and experience minimal headaches, others may experience a CRA review which can create serious cash flow issues for business owners. With long delays in receiving your refund at stake, knowing how to avoid triggering a review, as well as how to react if you do experience one, is vital. If you’re claiming SR&ED, below are important details to be aware of when it comes to avoiding negative CRA attention. Read on to learn more!
What Triggers an SR&ED Audit?
It’s important to know that the CRA can technically review anyone applying for SR&ED. Reviews aren’t necessarily a sign that you’ve done something wrong or fraudulent, but they mean that certain details and clarity points are missing in your current application. Common issues include:
- Poorly qualifying or ineligible SR&ED projects
- Insufficient documentation and/or record-keeping
- Above-average subcontractor expenditures, as well as high overseas expenditures
- Claiming multiple grants AND SR&ED in the same year
Avoiding Reviews
If your application is subject to any of the above, you may be more likely to experience a review. To lower your chances of having your claim investigated by the CRA, the best practices to keep in mind are:
Stay Up to Date with Legislation
Government programs can be subject to constant changes as details are tweaked to suit the evolving needs of Canadians and businesses. To increase your odds of a successful, hassle-free application, ensuring you know exactly what you need to do and include when claiming SR&ED is essential.
Assume You Will Be Audited at Some Point
Whether you’re a first-time filer or a repeat SR&ED claimant, it’s important to know (and accept) that there is a chance you will be audited at some point. Being audited may not be pleasant, but knowing that you have the right documentation and proof to back your claim goes a long way to expediting the process. Ensure you keep quality records of your SR&ED projects and associated expenditures.
Learn How to Interact with the CRA
The CRA is very particular in its reviews and requires businesses to know how to provide what is requested of them in the review process. Keeping proper records and being able to communicate them confidently with those handling the audit will reduce headaches and keep things moving.
Know the Pros and Cons of DIY
It’s tempting to save money by filing in-house. With that said, it’s just as important to remember that sometimes bringing the professionals in can not only save you far more in the long run but also increase the size of your current claim. Partnering with a skilled SR&ED consultancy will help ensure you don’t miss important details, shield you from common pitfalls and make it easier to get approved faster. When considering your route for filing a claim, it’s integral to factor in all aspects before submission. Easly works closely with many top consultancies. Contact us if you’d like to be connected with a SR&ED professional.
What If I Am Reviewed?
So, what happens if you are reviewed? Stay Calm; This, too, shall pass. Stay focused on the details of your SR&ED claim and provide the right documentation, be as transparent and reasonable as possible with all involved parties, and be prepared to listen along the way. Reviews may not be the most convenient of experiences, but they provide you with an opportunity to learn how to better prepare in the future and avoid further issues moving forward.
Advance Your Accruing SR&ED Tax Credits with Easly Advances
One of the other challenges for businesses claiming SR&ED is receiving funding in time to start or maintain their R&D initiatives. SR&ED is only available once a year and can take months to arrive once you’ve submitted your claim. This can often leave business owners feeling like they need to exchange equity for capital in the interim. Instead of giving up valuable shares in your company, financing your tax credits with a Capital-as-a-Service (CaaS) firm, like Easly, can be a far more stable way to receive capital fast and bring balance to your capital stack.
At Easly, we know that time spent seeking capital is valuable. For SR&ED-eligible businesses, Easly offers reliable, non-dilutive capital at a low cost, with a short life cycle allowing you to pursue R&D without losing valuable time and resources. Within two days of approval, you can receive your capital, allowing you to get the support you need with minimal slowdowns or interruptions to your operations.
To learn more about the role of SR&ED refund financing in your company’s capital-raising efforts, contact Easly today!
