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How to Use Documentation & Time Tracking to Maximize Your SR&ED Claims

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Boast Capital
Boast Capital

This document outlines the key requirements for claiming Scientific Research and Experimental Development (SR&ED) tax credits in Canada. It discusses what SR&ED is, the eligibility criteria which requires technological challenges and iterations. It notes the benefits of SR&ED credits for small and medium enterprises. The Canada Revenue Agency's documentation requirements are that work be documented as it progresses with technical challenges, dates and iterations. Time must be tracked by project and qualifying activity. Financial statements within 18 months of year-end are also needed to claim credits. The presentation provides guidance on documentation best practices and common CRA review processes.

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EVERYTHING YOU NEED TO KNOW TO CLAIM SR&ED TAX CREDITS – Time Tracking and Documentation Webinar Presented by Jeff Christie, Partner, Boast Capital October 8, 2015  
OUTLINE I.  Overview of the SR&ED Program II.  Benefits of Claiming SR&ED III.  CRA’s Requirements I.  Documentation Requirements II.  Time Tracking Requirements III.  Financial Requirements IV.  Do’s and Don’ts V.  Q&A
I. OVERVIEW OF THE SR&ED PROGRAM
WHAT IS SR&ED?
APPLICABLE INDUSTRIES
QUALIFYING CRITERIA Must meet three criteria to qualify for SR&ED: 1.  Technological Challenges 2.  Technological Uncertainty 3.  Technical Content or Iterations
ELIGIBILITY The CRA’s 5 questions: 1.  Was there a scientific or a technological uncertainty that could not be removed by standard practice/engineering? 2.  Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty? Continued…
ELIGIBILITY 3.  Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypothesis? 4.  Did the process result in a scientific or technological advancement? 5.  Was a record of the hypothesis tested and results kept as the work progressed?
EXAMPLES
II. SR&ED BENEFITS
WHO CAN CLAIM? SMEs = defined as generating less than $500K taxable net income in the prior fiscal year.
SR&ED BENEFITS Return rates for SME CCPCs:
SR&ED BENEFITS Return rates for non-CCPCs:
III. CRA REQUIREMENTS
TECHNICAL DOCUMENTATION CRA requires that SR&ED documentation must: §  Have been documented at the time the work was completed §  Highlight technical obstacles or challenges §  Be dated
QUALIFYING CRITERIA Must meet three criteria to qualify for SR&ED: 1.  Technological Challenges 2.  Technological Uncertainty 3.  Technical Content or Iterations
TECHNICAL DOCUMENTATION §  Most important thing is to document the technical challenges/ obstacles as the work progresses. §  Capture: the problem and the iterations undertaken to attempt to resolve the problem §  What are the different hypotheses and how was each hypothesis tested?
TECHNICAL DOCUMENTATION §  For a typical software project, only the major technical challenges/obstacles encountered by the team in a month need to be documented -- not every little problem.
TIME TRACKING
TIME TRACKING Track time by project and activity §  For a software company, time should be tracked by the following activities: §  Development §  Testing §  Project Management §  Assignment of Resources §  Technical Analysis §  Technical Requirements §  Non-SR&ED (catch all for time that doesn't fit into activities above)
TIME TRACKING §  Any type of system can be used (i.e. Excel or web time tracking system) §  Important thing is that time is tracked and broken down by project and activity §  Specified employees who are likely to be included in the claim, need to track time as well. §  Time claimed for specified employees comes under additional CRA scrutiny §  Time sheets can be entered daily or weekly and at half or quarter day intervals §  no need to be too precise; more important that time is captured
FINANCIAL STATEMENTS
WHEN TO CLAIM? 18 Months Past Fiscal Year End §  Current Claim = Within 6 mo §  Amended Claim = Within 7 to 18 mo
TURNAROUND TIMES From receipt of a complete claim: §  CCPC Current Claim – 4 months §  CCPC Amended Claim – 8 months §  Non-CCPC Claim – 12 months
CRA REVIEWS CRA Review ≠ Tax Audit Multiple types of Reviews: §  Desktop §  Financial §  Technical & Financial §  First Time Claimant Advisory Service (FTCAS)
IV. THE DO’S AND DON’TS
THE DO’s Do: §  Pay yourself and staff §  Start time tracking and proper documentation now §  Incorporate your company
THE DON’T’S Don’t: §  Underestimate the importance of documentation §  Focus on the business opportunity §  Leave SR&ED claims until the last minute
How to Use Documentation & Time Tracking to Maximize Your SR&ED Claims
JEFF CHRISTIE PARTNER 403 589 2809 | jchristie@boastcapital.com BoastCapital.com | @BoastCapital | @ChristieLuge

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How to Use Documentation & Time Tracking to Maximize Your SR&ED Claims

  • 1. EVERYTHING YOU NEED TO KNOW TO CLAIM SR&ED TAX CREDITS – Time Tracking and Documentation Webinar Presented by Jeff Christie, Partner, Boast Capital October 8, 2015  
  • 2. OUTLINE I.  Overview of the SR&ED Program II.  Benefits of Claiming SR&ED III.  CRA’s Requirements I.  Documentation Requirements II.  Time Tracking Requirements III.  Financial Requirements IV.  Do’s and Don’ts V.  Q&A
  • 3. I. OVERVIEW OF THE SR&ED PROGRAM
  • 6. QUALIFYING CRITERIA Must meet three criteria to qualify for SR&ED: 1.  Technological Challenges 2.  Technological Uncertainty 3.  Technical Content or Iterations
  • 7. ELIGIBILITY The CRA’s 5 questions: 1.  Was there a scientific or a technological uncertainty that could not be removed by standard practice/engineering? 2.  Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty? Continued…
  • 8. ELIGIBILITY 3.  Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypothesis? 4.  Did the process result in a scientific or technological advancement? 5.  Was a record of the hypothesis tested and results kept as the work progressed?
  • 11. WHO CAN CLAIM? SMEs = defined as generating less than $500K taxable net income in the prior fiscal year.
  • 12. SR&ED BENEFITS Return rates for SME CCPCs:
  • 13. SR&ED BENEFITS Return rates for non-CCPCs:
  • 15. TECHNICAL DOCUMENTATION CRA requires that SR&ED documentation must: §  Have been documented at the time the work was completed §  Highlight technical obstacles or challenges §  Be dated
  • 16. QUALIFYING CRITERIA Must meet three criteria to qualify for SR&ED: 1.  Technological Challenges 2.  Technological Uncertainty 3.  Technical Content or Iterations
  • 17. TECHNICAL DOCUMENTATION §  Most important thing is to document the technical challenges/ obstacles as the work progresses. §  Capture: the problem and the iterations undertaken to attempt to resolve the problem §  What are the different hypotheses and how was each hypothesis tested?
  • 18. TECHNICAL DOCUMENTATION §  For a typical software project, only the major technical challenges/obstacles encountered by the team in a month need to be documented -- not every little problem.
  • 20. TIME TRACKING Track time by project and activity §  For a software company, time should be tracked by the following activities: §  Development §  Testing §  Project Management §  Assignment of Resources §  Technical Analysis §  Technical Requirements §  Non-SR&ED (catch all for time that doesn't fit into activities above)
  • 21. TIME TRACKING §  Any type of system can be used (i.e. Excel or web time tracking system) §  Important thing is that time is tracked and broken down by project and activity §  Specified employees who are likely to be included in the claim, need to track time as well. §  Time claimed for specified employees comes under additional CRA scrutiny §  Time sheets can be entered daily or weekly and at half or quarter day intervals §  no need to be too precise; more important that time is captured
  • 23. WHEN TO CLAIM? 18 Months Past Fiscal Year End §  Current Claim = Within 6 mo §  Amended Claim = Within 7 to 18 mo
  • 24. TURNAROUND TIMES From receipt of a complete claim: §  CCPC Current Claim – 4 months §  CCPC Amended Claim – 8 months §  Non-CCPC Claim – 12 months
  • 25. CRA REVIEWS CRA Review ≠ Tax Audit Multiple types of Reviews: §  Desktop §  Financial §  Technical & Financial §  First Time Claimant Advisory Service (FTCAS)
  • 26. IV. THE DO’S AND DON’TS
  • 27. THE DO’s Do: §  Pay yourself and staff §  Start time tracking and proper documentation now §  Incorporate your company
  • 28. THE DON’T’S Don’t: §  Underestimate the importance of documentation §  Focus on the business opportunity §  Leave SR&ED claims until the last minute
  • 30. JEFF CHRISTIE PARTNER 403 589 2809 | jchristie@boastcapital.com BoastCapital.com | @BoastCapital | @ChristieLuge