You submitted your first SR&ED tax credit claim for your business that operates in a field of science, technology, or medicine, and you were worried. Are we going to get audited?
Then a few months later, you get a call from an SR&ED Auditor within CRA and they say they want to talk to you. Oh-oh!
Then you worried a bit more. Are we eligible? Did we present our case properly? Did we calculate the SR&ED credits properly? Anxiety sets in perhaps.
Should you be worried? Probably not. Chances are you’ve been selected for FTCAS, which stands for First Time Claimant Advisory Service.
About five years ago, CRA began this initiative in order to provide brief introductions to the SR&ED program for those businesses that were claiming for the first time, or those that hadn’t claimed in excess of 3 years.
First, the good news. An FTCAS means that your recent SR&ED case submission has been approved. CRA is not going to audit or negotiate the value. You have been “Accepted as Filed”.
Next, the bad news. If your FTCAS appointment goes poorly, your chance of audit next year skyrockets.
Your appointment with CRA should be very straightforward, however, be careful. CRA may attempt to begin an SR&ED audit interview in order to determine whether your case will be audited next year. This may be an intimidating process and you could get nervous or confused, especially if you are not an SR&ED policy expert. It’s definitely a good idea to have an SR&ED expert, or an SR&ED consultant with you on the call.
Be careful, however. Not all first-time claimants qualify for FTCAS. This is entirely up to CRA’s discretion. An FTCAS process is assigned to cases that appear to be eligible, and appear to be low-risk. CRA is not obligated to advance the FTCAS process to all first-time claimants.
That’s right; some first-time claimants get fully audited.
If you receive a call from CRA, you should ask – is this an FTCAS meeting or a full audit?
If it turns out you’re being audited, it is highly advisable to seek out professional assistance immediately, if you haven’t done so already. An SR&ED consultant will help you prepare a large volume of evidence that CRA is going to demand – timesheets, invoices, proofs of payment, contracts, financial statements, and the toughest one, proof of systematic investigation.
If CRA challenges your work on eligibility, you may find yourself feeling like a deer caught in headlights, talking to someone who appears to be speaking an entirely foreign language (Shredish) and you may also think, these SR&ED reviewers aren’t listening. CRA is listening, but their idea of eligibility is entirely different than yours.
If you find yourself in this position, we recommend you pursue an SR&ED Rescue engagement. An SR&ED Rescue may be necessary to get your case back on track and preserve future year benefits which could be wiped out with just one bad audit.
If you don’t speak Shredish, and if your SR&ED tax credit claim is in trouble, contact the SR&ED Rescue Experts, Bond Consulting Group.