cra


Can a SR&ED Claim Be Retroactively Reviewed?

The majority of SR&ED claims submitted are accepted without being subjected to a detailed review. In these cases, the claim is considered “accepted as filed”. When this occurs, the CRA will send out a letter stating that the claim was accepted, but no determination was made about the eligibility of the work, but that they are accepted the claim in good faith. Typically once an SR&ED claim has been accepted as filed, it is not subject to reviews retroactively. This means that if you file a claim in the next fiscal year which may be a continuation of previous work and is rejected, in our experience it will not trigger a review of a claim previously submitted. With that said, the CRA has outlined several instances where a SR&ED claim that was was previously accepted as filed may be sent back for re-assessment (i.e. reviewed and possibly reduced or rejected). […]

SR&ED

Taxable Capital and SR&ED

To paraphrase the Canada Income Tax Act, Section 181.2, taxable capital (for companies that are not financial institutions) is the excess capital a company has in its possession that exceeds its investment allowance for the year. Taxable capital includes capital stock, retained earnings, long term debt, advances received, surpluses, reserves, etc. The exact definition can be found in the full text of the Income Tax Act available online at http://laws.justice.gc.ca/en/frame/cs/I-3.3//20090714/en or http://www.iijcan.org/en/ca/laws/stat/rsc-1985-c-1-5th-supp/latest/rsc-1985-c-1-5th-supp.html. Historically, taxable capital has been used to identify and tax “large corporations” that hold excess cash. Because the tax on capital is often viewed as a punitive tax, Canada and its provinces are phasing it out. While some provinces still levy this tax, the federal government has administered a 0% rate beginning in 2008. Despite the 0% tax rate of taxable capital, taxable capital remains an important parameter because it is a determinant for tax deductions and tax […]


Mother Goose and the Tale of the SR&ED Audit

“The third claim has to be less than the second claim, but more than the third….” “You aren’t supposed to claim all of your SR&ED eligible work in the first year….” “If my first claim is audited, they won’t accept any subsequent claims….” Over the years, we have heard all sorts of different reasons as to why companies have had their SR&ED claims audited. However, in our experience it is safe to say that these arcane reasons are not why a claim is audited. MCN consultants have attended dozens of SR&ED audits, and have had the chance to ask CRA reviewers why claims are audited. Consistently they respond with the following answers: “The technical report did not demonstrate a good understanding of SR&ED eligible work….” “There were some mistakes, or misunderstandings in the financial components….” “Every year a certain number of clients are selected for audit at random….” The SR&ED […]