Audit Rates Continue to Rise, how to protect yourself

• June 1, 2017 11:06
• admin

Have you recently been contacted by the CRA about a review of your SR&ED claim? Worried that your claim might be reduced or rejected? You might have good cause to be.

In past years the CRA has rejected upwards of almost 20% of SR&ED claims, not to mention the number of claims that were reduced.

What is the best way to prepare for and defend during an audit?

Get it in writing

You can’t be prepared to discuss the CRAs concerns with your claim unless they tell you what the concerns are. Ask for the CRAs feedback in writing prior to the audit. This way you can have pictures, prototypes, etc. readily available to address their specific concerns during their visit to best position your claim

Be able to address the big three

There are three common issues the CRA identified that customers bring to the assistant directors level at a recent industry meeting:

• Too low level review – keep the discussion at a high enough level to ensure eligibility, if the CRA drills down too deep everything can just be considered typing or wrench turning
• Rationale of denial/reduction not explained – again get it in writing, not only before the audit, but also after the audit. Ask the CRA to specifically tell you why and what they are denying
• Auditors arrive with preconceived notions of technical eligibility – frame the discussion correctly from the start (this can be a challenge), your claim is eligible and the conversation needs to be positioned around providing the evidence to demonstrate it is

Make sure you have filed a solid claim

It may be too late this year, but going forward you can be better prepared for audits by doing the following:

• Write a strong T661 – Easier said than done, but how you explain what you are claiming can position you properly to get past the first gate of being flagged for an audit
• Build a strong claim around only the technological uncertainties – if you try and throw in the kitchen sink, not only will your claim be reduced or denied, but you will also be a target for future audits
• Incorporating the feedback provided by the CRA into your process for the next years audit – The CRA will be looking for this next year
• If you aren’t already, get current with your SR&ED filings – if you are still a year behind, it will be hard to convince the CRA that you are able to remember what happened almost 2 years ago
• Keep an organized binder of documentation both financial and technical – if the audit had a lot of findings, the CRA will likely be out again next year

If you are not sure how to respond, get help

Going through an audit alone is akin to defending yourself in court, it might be okay for a $100 speeding ticket, but I doubt you would do it when $100,000 is on the line. With a rejection rate of almost 20% having someone who is experienced, knowledgeable, and able to position your claim effectively can be the difference between an approval or rejection.