You’ve filed the corporation’s first T2 income tax return with the scientific research & experimental development (“SR&ED”) claim. It’s now time to play the waiting game while CRA reviews the return.
The standard processing time for T2’s with a SR&ED claim is anywhere from 60 to 180 calendar days. The processing time varies because there are three possible outcomes after filing your first SR&ED claim:
- SR&ED claim is assessed as filed;
- SR&ED claim is selected for CRA’s First Time Claimant Advisory Service (“FTCAS”);
- SR&ED claim is selected for a CRA review.
Assessed as filed
The best outcome after filing your first SR&ED claim is having it assessed as filed within 60 calendar days. This means CRA did not review the claim in depth and did not meet with you to discuss the eligibility of the SR&ED work claimed; they are assessing the credits as filed and you will be receiving your refund soon!
CRA FTCAS
This is the second best outcome. You’ll still get your SR&ED tax credits as filed, but this outcome requires you to meet with CRA. There will be a CRA Research and Technology Advisor (“RTA”) and a Financial Reviewer (“FR”).
In this meeting, there’s an educational aspect where CRA talks about the objective of the SR&ED program, the eligibility criteria, and its income tax benefits. They’ll also briefly discuss your company’s business operations and R&D. We recommend that you include your company’s lead R&D personnel in this meeting as CRA may want to discuss specific details in your SR&ED claim.
After the meeting, CRA will provide you an FTCAS report that summarizes the meeting, but more importantly, provide your company with specific recommendations to improve next year’s claim. It’s important to implement them in your next claim because they show potential weaknesses in the current claim and provide insight into what CRA wants to see in a successful SR&ED claim.
CRA review
Unfortunately, CRA decided to choose your SR&ED claim for a review. CRA (both the RTA and the FR) will be meeting with you to discuss your R&D work to decide on SR&ED eligibility. They will discuss both the technical and financial portions of the claim, so be sure to include your R&D and financial personnel in this meeting. CRA will likely send an agenda on the meeting, since the review can take hours to complete, and request details for you to submit prior to the meeting.
If you claimed more than one project, the RTA may decide to either review specific projects or all of the projects. Regardless of what the RTA chooses, the financial review will always be for every project in the claim.
After the meeting, CRA will likely request more information for you to submit to them, so that they can make their eligibility determination. There are now three outcomes to CRA’s decision.
1: CRA determined your SR&ED project is eligible, so your claim is assessed as filed and you’ll get the expected tax credits.
2: CRA determined your project is partially eligible, so there is a reduction in the credits you claimed.
3: CRA determined your project is not eligible SR&ED according to their policies and the definition of SR&ED in the Income Tax Act. The credits claimed are denied.
In the second or third outcome, you will have the opportunity to argue against the points the CRA RTA made against your claim, which can lead to providing more evidence to CRA and another meeting with the RTA and FR to discuss the feedback in the project eligibility report. If you’re successful in this meeting, you could get back some or all of the credits you originally filed.
If the RTA holds their decision on partial or no eligibility, CRA will then issue the corporate income tax notice of assessment or reassessment that shows the result of the audit. If you still do not agree with the RTA’s determination, you can file a notice of objection to CRA within 90 days of the date shown on the notice of (re)assessment. If you still don’t agree with the decision after the objection, you can then appeal to the Tax Court of Canada. If it gets to this point, be prepared for a very long process that can take years to resolve.
How we can help
At Welch LLP, our team of SR&ED experts can provide consultation, support, and assistance preparing claims, reviewing your work, or assisting in case of CRA review or unfavourable initial reviews, and we offer help in assessing your evidence to support your work. Contact us for more information.
