SR&ED financial evidence is very important for your claim. You already know that the CRA requires technical evidence in the event of a CRA SR&ED audit. However, it’s also important to keep in mind that financial evidence is another requirement during the CRA review process. Being prepared to present the appropriate financial evidence in case of an audit will help ensure that the process goes well.
The following guidelines can help you understand what SR&ED financial evidence entails in the context of your claim. In addition, they can help ensure that you have everything you need at the start of the audit process. Here’s everything you need to know about the financial evidence requirement of the SR&ED Tax Credit Program. For even more information on everything SR&ED Bloom Technical SR&ED guide. .
Before reviewing what SR&ED financial evidence you have, it’s important to ensure that what you do have is appropriate for your claim. This will help the CRA audit go as smoothly as possible. Some of the most essential financial records to keep with you include invoices, T4s, and contractor contracts.
It’s important to ensure that each of these items is collated into a complete financial report. This report will also need to tie in with the claimed amount in each of the three categories. Be sure that you take care of all these steps prior to the filing process to prevent any complications or misunderstandings from taking place.
The best way to understand what SR&ED financial evidence entails is to refer to a real-life example. For this example, picture you have four material invoices. Here are the amounts of each invoice for reference:
A) Invoice 1: $1,200.00
B) Invoice 2: $200.00
C) Invoice 3: $567.50
D) Invoice 4: $100.00
In this situation, you will need to demonstrate to the CRA how each of these four invoices agrees with the total claimed amount. For Invoice 1, it’s worth noting that $500 of this amount went toward a visual redesign project for a website. However, keep in mind that this amount is not eligible for SR&ED Tax Credits. Because the redesign project must now be excluded from the claimed amount, there is a notable difference between the invoice total and the SR&ED total.
This means that when the SR&ED claim is filed for $1,567.50 during the audit process, you must submit a total of $2,067.50 in material expenses to the CRA. The CRA is not expected to know what was included or excluded, as well as the reasons for it. It’s therefore your responsibility to include a summary of the claimed amounts along with the invoices. This allows you to accurately break down the SR&ED financial evidence invoices into the claimed and unclaimed amounts.
The same idea applies to salaries or wages, as well as contractor invoices. When you’re compiling all of the relevant financial evidence for the CRA SR&ED audit process, it’s crucial to ensure that you do so in advance. The CRA requires you to submit all of these items within the first 14 days of an audit. Always be prepared so that you can avoid running into problems later on. As always if you want more information on SR&ED financial evidence, check out what the CRA SR&ED Guide
Do you have a SRED question? Planning for the future or perhaps you want to know how much your claim might be? Don’t worry, our CPA is always ready to answer any question. Get a SRED expert in your corner.