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).

These instances include (but are not limited to):

  • expenditures claimed in a given fiscal year and are not paid within 180 days of the end of that fiscal year
  • restatement of a prior year’s income of the company or an associated company’s income
  • identification of non-arm’s length transactions affecting qualified SR&ED expenditures
  • fraud or misrepresentation

The items listed above are direct examples taken from CRA SR&ED claim acceptance letters. The first three items in the list all relate to financial variables that can affect the SR&ED return rates and/or have specific financial treatments that must be followed. Fraud or misrepresentation is a criminal offence and may lead to charges over and above the rejection of a prior SR&ED claim.

While the risk of a claim being reassessed after being accepted is extremely small, it is essential to maintain your supporting documentation both on the financial and technical side. As the SR&ED legislation is a part of the Income Tax Act, claimants are required to keep these records for six years from the end of the fiscal year to which they relate.