If your Scientific Research and Experimental Development (SR&ED) claim has been denied by the Canada Revenue Agency (CRA), there are many options available to dispute the outcome of your SR&ED application for a better chance at receiving an approval on tax credits. Whether specific costs are disallowed, projects are denied, or the entire claim is rejected, you can dispute the CRA’s decision. To potentially overturn the SR&ED review results, there are several mechanisms available. However, these approaches have strict requirements, deadlines, and procedures. Knowing how to navigate these dispute methods is critical to overturning unfavourable SR&ED reviews.
Steps to Working With the CRA
Although the specific ways to disputing a SR&ED result may vary from project to project, we have outlined a few general steps to get you started on the process.
- Speak directly to the CRA reviewers. Your first step when disputing a SR&ED claim should be discussing the pertinent points with the CRA. Talk to the reviewers to understand why the SR&ED application failed. Try to understand their concerns and what can be done to address the SR&ED eligibility issues. If you are not receiving sufficient feedback, get their manager involved. They can force responses when talks with the reviewers have stalled. Raising issues with the CRA management can also help with future dispute mechanisms.
- Work through the review report. The CRA will eventually issue a review report. This will include their assessment of your SR&ED claim and why the SR&ED application failed. If you don’t understand their reasoning for the denial, ask for clarification. Try to understand what information would serve to change their decision.
- Then, prepare a document to respond to their conclusions. Focus on rational arguments and use Jurisprudence and CRA policy to support your position. If the CRA was having difficulty understanding how or why your project is eligible, try approaching it from another angle as well by including new information or documentation. This ensures the CRA must respond to what you’ve included. If you restate what you’ve already discussed with the CRA, they are unlikely to change their stance.
Several dispute mechanisms exist to help you address the SR&ED result and potentially overturn the decision. We have outlined a few below.
The administrative review is one of the most effective methods for overturning a SR&ED decision. However, it is only applicable when the CRA reviewers haven’t followed proper procedures. The CRA has a review process that they are supposed to follow. The procedures are outlined in the SR&ED review manual. Depending on the merits of your case, you could be eligible for a second opinion.
Prior to the claim being closed, file the administrative review form. Focus the document on the items where the CRA review manual was not followed; don’t focus on SR&ED eligibility at this point. Provide documentation as evidence if possible. Your package will be reviewed by the CRA Assistant Director. If successful, you will get a new team to look at your claim. While there is no guarantee you will get a favourable result, you may get a second chance.
If your claim is closed by the CRA, the next step is filing an objection. This is an opportunity to state your arguments to the CRA Appeals Office. You must provide a clear description of the issues and why you are disputing them. Include all the relevant documentation and reference it in your response. The information will be reviewed by the appeals office. The process typically takes over a year to a year and a half.
If all else fails, you can take your claim to court. This is a long and expensive process. It can take several years before you get your day in court, and you will need lawyers with expert witnesses. Tax court is typically reserved for large claims where a denied claim would affect the eligibility of the company’s future projects. However, there is an alternative process called the informal procedure where the claimant can represent themselves. This process is faster and cheaper but is limited to $25,000.
A CRA review of your SR&ED claim can be stressful and contentious. Knowing your options is critical to achieving a positive result. Throughout the processs, remember to keep to rational arguments using facts, law, and CRA policy. Generally speaking, it is always advisable to resolve the issues with the SR&ED review team at the lowest level possible. If you need help navigating the process, we have experienced consultants to guide you.
The SR&ED consultant team at Mentor Works, a Ryan Company, can help your business get approved for tax credits and with stacking funds from other Canadian government grant and loan programs, such as the Industrial Research Assistance Program (IRAP). Message our team to find out how your business can successfully apply and dispute funding through SR&ED and other forms of funding. Our toll-free number is 1-888-599-3111.
Author: Shaun Button
Shaun started his career in SR&ED consulting in 2011. Working as a SR&ED consultant, Shaun found he loved hearing about cutting edge R&D projects. He took great pride in sharing his knowledge of tax credits and helping clients prepare strong SR&ED claims. In 2016, Shaun brought his passion for helping clients to Ryan.