SR&ED (Scientific Research and Experimental Development) is a complicated program, no doubt, and that’s why many business owners decide to enlist professional help. Even with professional assistance, however, many business owners still find the program to be challenging. Who you pick can make a huge difference in your experience with the program. Among available professionals, you may find yourself talking to freelancers, bookkeepers, accountants, SR&ED departments within accounting firms, and dedicated SR&ED Consultants.

Here are 10 questions you should ask before signing any SR&ED contract.

1) Does the firm provide a methodology?

This is probably the most important question you can ask. SR&ED is not a program that just involves filling out forms and spreadsheets. Everyone gets audited eventually, and you need to be organized and ready with evidence that meets CRA’s expectations. Specifically, you need a methodology that follows the scientific method. If this is not provided to you as part of the service, that is a very bad sign.

2) Is the firm actually an accounting firm? Do they subcontract the SR&ED work out, or use in-house writers / preparers / practitioners?

Many Accounting firms, and especially the Big Five, have jumped on the SR&ED bandwagon by opening up their own SR&ED divisions. But accounting firms are first and foremost accounting firms, whereas the SR&ED program is a niche area that requires a solid understanding of the scientific method. None of the Big Five accounting firms offer a methodology that is consistent with the scientific method, so that’s a big problem. Independent accounting firms often subcontract out the technical writing to free-lance technical writers who may not be involved after the case is submitted to CRA. You need to be careful that your case isn’t mishandled by the existence of too many disparate parties and freelancers.

3) Who’s actually writing your report?

The professional that comes to interview you might not actually be the person that writes your report. This is a troubling concept. Some SR&ED firms record the technical interviews and then farm out the technical writing to writers that you will never meet. Some of these writers live in 3rd world countries and get paid peanuts for their writing, while the SR&ED firm benefits from exceptional contingency rates.

4) Who’s actually calculating your claim?

Many firms, and especially accounting firms, have two (or more) consultants analyzing your case: one that does the technical writing, and another that tabulates the claim. You may never meet the person that does the calculations. This person might be a regular accountant that is not a specialist in SR&ED. More importantly, this approach leads to inconsistencies, as the accounting person attempts to judge the value of your claim without really understanding the strength of your technology.

5) Is audit representation really included?

Many smaller SR&ED firms have no real intention to defend your case if selected for audit. Too many times unsuspecting clients find themselves with absolutely no defense when CRA comes for a visit. Either the firm completely disappears, or they are wholly unprepared. These firms are only in the business for cases that are AAF (accepted as filed). Since they know they have no chance of winning in audit, they abandon the case so that they don’t waste any more time and expense on the defense. This leaves the claimant in an absolutely precarious and awful position, especially when the claimant really doesn’t understand the intricacies of the SR&ED policy and SR&ED tax law. This is especially dangerous, if your claim is approved and your fees are paid, but then the CRA comes to visit …and then denies your claim. You’ve already paid the SR&ED fees, and the consultant may not provide a refund. This actually happens, so watch out.

6) Who’s actually going to defend your claim?

You will want to know that the consultant that worked to prepare your claim is actually the person who will appear if your case is selected for audit. You might be surprised to find out that a designated “audit” representative is assigned, who may be someone that you have never met before. This representative needs to start understanding your case from scratch.

7) Are evidence or documentation services included?

Most SR&ED firms are pure practitioners. Their job is to prepare a technical report, fill in the tax forms, and ensure proper submission to CRA. Ask them if they actually have an evidence or documentation department, with services to support you as you attempt to keep organized throughout the year, and most critically during audit.

8) Will the firm provide a strategic review of your financial statements as part of the SR&ED service?

SR&ED is part of your corporate tax return. CRA looks for a variety of factors that may represent red flags. Your practitioner should know about those flags. Additionally, your practitioner should be able to advise on special adjustments, such as accruals and proper journal entries that will allow you to optimize a potential SR&ED refund. A good SR&ED Consultant can have constructive conversations with your accountant, and conduct a meaningful analysis on the options available to you.

9) If you end up in a dispute with CRA, is the firm familiar with the processes of Second Administrative Review to the Tax Office and the Appeals process with the Chief of Appeals?

A good SR&ED Consultant should have a good relationship with the SR&ED RTAs (Technical Reviewers), FRs (Financial Reviewers), and their respective managers. Your consultant should know how to escalate a claim to management, and to the Assistant Director within your tax department, in case you need to request a Second Administrative Review. If that request is denied, your consultant will have to prepare a Notice of Objection that will be submitted to the Chief of Appeals before critical deadlines expire.

10) If you end up in a dispute with CRA, is the firm prepared to or qualified to defend you in Tax Court?

SR&ED disputes are more common these days. CRA can take a narrow position that leads to a denial. A number of things can go wrong, and you may have no choice but to escalate your case all the way to the Tax Court of Canada. This is especially true since the Chief of Appeals rarely overturns SR&ED denials.


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Julie Bond
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