When it comes to SR&ED, CRA audits (now commonly referred to as CRA reviews) will occur inevitably. Now this is strictly for the SR&ED program, your company and financial statements will not be audited outside of the SR&ED claim that you have made.
Every company gets reviewed and even after you get reviewed, you should expect to get reviewed again. In fact, back to back reviews are a common occurrence, however, even if this doesn’t occur, you should expect to get reviewed every few years.
There are four types of CRA reviews
It is extremely likely for a first time claimant to be selected for a FTCAS or a financial & technical review. If you are selected for the FTCAS, this means that the CRA will conduct an in-person information session. They will come to your business, discuss the claim, conduct a presentation about the SR&ED program, and provide recommendations for future claims.
This will be a relatively painless process as they will not be reviewing the technical and financial details in detail. Rather this is to determine whether improvements are required, ensure that you are aware of what the SR&ED program is, and identify whether there should be a financial and technical review the following year.
Desktop reviews means that someone has manually reviewed the claim. Frequently during a desktop review, the CRA will make the determination to escalate it to a financial review or a financial & technical review. If they decline to do so, they will send a letter indicating that they have conducted the desktop review.
Financial reviews means that the CRA will review the financial aspects of the claim without reviewing the technical aspects of the claim. This is mostly a mechanical exercise to recalculate the claim and confirm that it was prepared accurately.
The financial and technical reviews is the most important and common type of review. They will review both the technical and financial aspects to the claim. This will include a request for information, an on-site interview, review of documentation, and much more. It will be a time consuming back and forth process during which they will make a determination whether the technical requirements of the SR&ED program are met by the claimant and whether the claimed expenditures are appropriate.
Depending on the type of review, this process can delay the payment of the refund for months and reduce the size of the claim.
