The CRA reviews SR&ED claims before assessing them, not years later, and it reviews them in two halves. A Research and Technology Advisor (RTA) decides whether the work described is SR&ED. A Financial Reviewer (FR) decides whether the expenditures were incurred and allowable. The two reviews can run together or separately, and the published Claim Review Manual sets out how the RTA is to proceed. This page covers how a review starts, what it asks, how to respond and what follows; the CRA reviews page looks at current practice in more detail.
How reviews start
Every claim passes a risk assessment when it is received. Claims the CRA considers low risk are accepted as filed and processed within the service standard; others are selected for financial review, technical review or both. Selection factors are not published in full, but the Claim Review Manual and CRA practice point to first-time claims, large changes in claim size, sectors the CRA considers high risk such as software and food processing, claim preparers with a history of adjustments, project descriptions that read as routine development, and inconsistencies between the T661 narrative, the costs and the company's other filings. A review usually begins with a letter or call from the RTA or FR proposing a review and listing the information wanted; a refund is not paid until the review ends.
What is requested
| Reviewer | Area | Typical requests | What satisfies them |
|---|---|---|---|
| RTA | Each project's eligibility | The technological uncertainty and the state of the art; the hypotheses, the testing and the conclusions; who did the work; when SR&ED started and ended | Dated project records, test results, interviews with the technical staff |
| RTA | Extent of eligible work | Which activities within the project were SR&ED and which were commercial production, routine testing or style changes | Project timeline tied to the records |
| FR | Salaries and wages | Who was directly engaged and for what portion; specified employee status; payroll | Timesheets, payroll, share register |
| FR | Materials and contracts | Invoices, what was consumed or transformed, prototype disposition, contractor arm's length status and location, 80% calculation | Purchase records, contracts, disposal records |
| FR | Method and reductions | Proxy or traditional support; assistance and contract payments received; provincial credits | Grant agreements, provincial schedules, ledger |
| FR | Status and limits | CCPC status, associated corporations, taxable capital, expenditure limit allocation | Corporate structure, associated group returns |
The RTA will almost always want an on-site or video meeting with the people who did the work, and the manual requires the RTA to explain the review's preliminary findings and allow the claimant to respond before the report is finalised.
Responding to a review
- Agree the scope and timetable at the first contact, including which projects are being reviewed and who will attend the technical meeting.
- Prepare the technical staff. They should walk the RTA through the uncertainty and the experiments in their own words, with the dated records to hand. A claim preparer may attend but should not answer for them.
- Reconcile the numbers before the FR arrives. Part 5 project costs to Part 3, Part 3 to the ledger and payroll, the proxy calculation to the salary base.
- Answer the preliminary findings in writing, point by point, with evidence. This is the stage at which most disagreements are resolved.
- Concede what cannot be supported and ask for the review report to reflect agreed adjustments. The CRA treats cooperation favourably when considering penalties.
- Use the review's own escalation. Disagreements about the technical findings can be raised with the RTA's manager and, in some regions, through an administrative second review before assessment.
Outcomes, penalties and appeals
Review report and assessment. The RTA's SR&ED review report states, project by project, whether the work is SR&ED in whole or in part; the FR's report adjusts the expenditures. The claim is then assessed, with the credit allowed, reduced or denied, and any refund paid accordingly.
Penalties. A false statement or omission made knowingly or in circumstances amounting to gross negligence attracts a penalty of 50% of the understated tax or overstated credit. Missing or incomplete claim preparer information in Part 9 of the T661 attracts a penalty of C$1,000, for which the claimant and the preparer are jointly liable. Interest runs on repaid refunds.
Objection and appeal. A corporation that disagrees with an assessment files a notice of objection within 90 days of the notice of assessment; the Appeals Branch reviews it independently of the SR&ED directorate, and an unresolved objection can be appealed to the Tax Court of Canada, with further appeal to the Federal Court of Appeal. The Tax Court's SR&ED decisions have turned on whether the evidence showed a technological uncertainty and a systematic investigation, and the court has accepted oral evidence from technical witnesses where documents were thin, while giving far more weight to contemporaneous records.
Illustrative example
Illustrative example. Niagara Food Technologies Inc., a hypothetical CCPC, files a claim with C$600,000 of qualified expenditures across three projects and is selected for coordinated review. The RTA accepts two projects on the strength of the process engineer's trial logs and interview. For the third, a packaging line change, the records show installation and commissioning of purchased equipment with no uncertainty, and Niagara withdraws it. The FR finds the owner-manager's bonus included in the salary base and removes it. Qualified expenditures fall to C$470,000 and the credit to C$164,500, paid with the assessment. No penalty applies: the errors were not grossly negligent and the company corrected them during the review.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.