Form T661 asks you to describe the work and calculate your expenditure. Keep records made as the work happens, such as hypotheses, test results and time records, that show the systematic investigation. The CRA's phrase is supporting evidence, and its guidance is consistent: evidence generated as the work was performed carries more weight than anything written afterwards. This page sets out what the CRA expects, what to keep, how to tie records to the T661 projects, and the gaps reviewers find most often.
What the tax authority expects
No particular form of record is prescribed. The T4088 guide lists the kinds of evidence the CRA looks for, and the eligibility guidelines tie them to the two questions: evidence of the uncertainty and the state of knowledge for Why, and evidence of the hypothesis, the testing and the conclusions for How. Reviewers are told to assess whether the claimed work meets the definition on the evidence, and to give weight to records that are dated and contemporaneous.
Two features of the Canadian review shape the records. First, the technical review is conducted by a Research and Technology Advisor with a science or engineering background who will interview the technical staff; the records need to let those staff explain the uncertainty and the experiments. Second, the financial review tests the allocation of salaries and costs to projects, so the time records and the ledger must use the same project names as the T661.
Records to keep during the year
| Record | Shows | Kept by | When |
|---|---|---|---|
| Project charter or objective note | The technological objective, the state of the art, the uncertainty | Technical lead | At the start of the project |
| Hypotheses and test plans | What was proposed and how it would be tested | Technical lead | Before each iteration |
| Test results, lab notebooks, logs, version control history | The experiments and their results, including failures | Scientists and engineers | As the work happens |
| Analysis and conclusions | What was learned; the advancement or the finding that it was not achievable | Technical lead | At milestones and at the end |
| Timesheets by project | Hours directly engaged, by employee | All staff whose salaries are claimed | Weekly |
| Payroll records | Salary or wages, taxable benefits, specified employee status | Payroll | Monthly |
| Material and purchase records coded to projects | Materials consumed or transformed; what happened to prototypes | Finance | At purchase and disposal |
| Contracts and invoices | Contract payments, arm's length status, where the work was done, rights to results | Finance or legal | Before the work starts |
| Grant and assistance agreements | Assistance that reduces qualified expenditures | Finance | On signing |
Agile and iterative teams can meet all of this with their ordinary tooling if tickets and commits are tagged to the SR&ED project and the uncertainty they address, and if each sprint review records what was learned. A one-page project note written at the start, naming the uncertainty and the planned experiments, is the single most valuable document in a review.
Linking records to projects and costs
The T661 project is the unit. Part 2 describes it; Part 5 gives its costs; the financial review reconciles Part 5 to Part 3 and to the ledger. A workpaper per project should hold:
| Item | Content |
|---|---|
| Project | Title as on the T661, field of science or technology, start and end dates, personnel |
| Narrative support | Pointers from each of the three Part 2 answers to the records that evidence them |
| Salaries | Employee, directly engaged hours or percentage, salary base, specified employee limits |
| Materials | Purchases, consumed or transformed, disposition of prototypes, recapture check |
| Contracts and third-party payments | Performer, arm's length status, location of work, 80% calculation |
| Overheads | Traditional method itemisation with the directly related and incremental test, or the proxy calculation |
| Reductions | Government and non-government assistance, contract payments received, provincial credits |
Common gaps
- No statement of the uncertainty at the start. Projects described by what was built rather than what was unknown.
- Narratives written by the preparer. The RTA interviews the engineers; a narrative they cannot explain fails.
- Time allocations without timesheets. Year-end percentages are accepted only with a credible basis.
- Specified employees unflagged. Owner-managers' salaries claimed in full with bonuses included.
- Assistance omitted. Provincial credits and grants not deducted from qualified expenditures.
- Commercial production claimed. Work continuing after the uncertainty was resolved.
- Prototype sales ignored. No recapture where a prototype was sold.
Illustrative example
Illustrative example. Kootenay Instruments Ltd., a hypothetical CCPC, develops a low-power gas sensor. Its chief engineer's January project note records that published sensor designs cannot hold calibration below minus 30 degrees Celsius and sets out two hypotheses about heater control. Engineers log time to project KI-3 and tag firmware commits and chamber test results to it; finance codes sensor components and the university lab's invoice to KI-3. When the CRA selects the claim for technical and financial review, the RTA interviews the chief engineer with the chamber logs on screen and the Financial Reviewer ties Part 5 to payroll and the ledger in an afternoon. The claim is allowed as filed. The same work with a narrative written by the preparer in June and a 60% estimate for the whole engineering team would have been reduced.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.