Written by Lior Zehtser, CPA, CA – ConnectCPA
Establishing SR&ED eligibility is the first milestone. The one that often catches companies off guard comes next: the accounting side can unravel a perfectly valid claim – simply because the financial records were not in place to substantiate it.
A CRA review that reduces a wage claim by 20-30% is rarely the result of ineligible work. More often, the time logs are thin, the reconciliation between hours and payroll is incomplete, or the activity notes provide no meaningful context. The technical case holds. The documentation does not.
What the CRA Is Looking For on the Financial Side
The CRA does not mandate a specific tool or format for labour tracking. What it does require is that documentation be contemporaneous – meaning records are created as the work occurs, not reconstructed from memory months later.
When a claim is reviewed, advisors look to trace a clear line: who performed the eligible work, on which project, doing what, and at what cost.
This means documentation must connect:
- People – the employees or contractors who did the eligible work
- Activities – what specifically they were doing (investigation, testing, model training, etc.)
- Projects – which SR&ED-eligible project that work belongs to
- Costs – what payroll dollars map to those hours, by project
When that line cannot be followed clearly, reviewers draw their own conclusions (those conclusions rarely favour the claimant).
Why “Contemporaneous” Is the Most Important Word in SR&ED Accounting
Contemporaneous does not mean perfect. It means records were created close in time to when the work occurred, as part of normal operations – not assembled retroactively to support a filing.
Reviewers apply a straightforward test: do the records reflect the natural variation of real work, or do they appear constructed with a specific outcome in mind? Uniform allocations every month, identical activity notes week after week, and timesheets signed off in bulk are patterns that signal reconstruction. What reviewers find credible is variation: notes that reflect genuine experimentation, hours that fluctuate with project activity, approvals that happened at the time.
The Cost of Weak Labour Tracking
A claim with $200,000 in eligible wages, backed by vague time logs and activity notes that do not differentiate SR&ED from routine development, may see 25% disallowed in a review. That is $50,000 removed from the claim, with direct implications for cash flow and runway. Poor documentation also extends reviews, generates follow-up requests, and pulls internal teams away from productive work.
The 3 most common reasons wage portions are reduced:
- No clear project attribution – hours logged but not tied to a specific eligible project or feature
- Weak activity notes – vague descriptions that don’t show investigation or experimentation
- Broken reconciliation – the hours claimed don’t tie cleanly to payroll dollars in the GL
3 Tracking Systems That Meet the CRA Standard
The CRA does not require a specific tool. The objective is consistency: a system that produces contemporaneous, project-attributed records and connects hours to payroll to the general ledger. Each of the following approaches can meet that standard.
Option A: Payroll-Centric
Best for: teams already using a payroll tool with department or job-code functionality
If your team already runs payroll through a platform like Payworks, Wagepoint, ADP, or BambooHR, you may not need new software at all. Set up project codes or departments that map to your eligible work, require employees to log hours against those codes each week, and have a manager sign off. The output (payroll by project) feeds directly into your accounting. Clean, minimal friction, and easy to reconcile.
Option B: Project-Centric
Best for: software and AI teams already working in Jira, ClickUp, Notion, or Azure DevOps
If your team lives in a project management tool, you’re closer than you think. Enable time tracking at the ticket level, ask people to add a brief note about what they worked on, and export weekly. The records are naturally contemporaneous – they’re created as part of how the team already operates. The one step to add: a monthly reconciliation that ties those hours to payroll dollars, since the two systems typically sit separately.
One thing worth flagging here: the most common thing we hear from founders going into a review is “we log everything in Jira, it’s all there.” It usually is – the hours exist, the tickets are there. What’s missing is the bridge between those hours and the payroll dollars claimed. Jira tells you what someone worked on. It doesn’t tell a CRA reviewer what it cost, which project it belonged to for SR&ED purposes, or how it reconciles to your GL. That reconciliation step isn’t optional – it’s the whole point.
Option C: Spreadsheet-Centric
Best for: lean teams that need a practical solution without additional software
A shared spreadsheet works fine – the CRA has no objection to it. The columns you need: Date, Employee, Project, Task, Activity Note, Hours, Approver.
The discipline you need: a manager signs off every week, without exception. Lock the sheet after sign-off so entries can’t be edited retroactively. The teams that make this work put the approval on a recurring calendar invite and treat it like a close, not an afterthought.
Activity Notes: The Detail That Determines Claim Quality
Across all 3 systems, activity note quality is what gives a reviewer confidence that genuine SR&ED work took place. Notes do not need to be lengthy- they need to document what was attempted, what was observed, and what was concluded.
Weak note:
“Worked on the integration.”
Strong note:
“Tried 3 different approaches to sync customer data in real time: 2 failed due to latency issues, 3rd looks promising but hasn’t held up under load yet. Need to test with larger data sets before we know if this actually works”
The stronger note documents a hypothesis, an action, a measurable outcome, and a remaining uncertainty – the language of systematic investigation. GrowWise helps technical teams articulate their work in these terms, both in the formal claim narrative and in how day-to-day documentation is structured throughout the year.
The Monthly Reconciliation Loop
A strong tracking system only protects a claim if the records are tied together at month-end. This is the process that does that (and the one reviewers most want to see), because it demonstrates the records were maintained as normal practice:
- Weekly: Timesheets closed and approved by a manager
- Step 1: Export payroll detail by employee – hours, gross pay, cost centre
- Step 2: Produce a mapping file tying hours by project to payroll dollars, with non-eligible time noted explicitly
- Step 3: Post project costs to Xero tracking categories or QBO classes
- Step 4: Save the audit pack: timesheets, payroll export, mapping file, GL report (YYYY-MM SR&ED Audit Pack)
Documentation Patterns That Invite Scrutiny
- Uniformly round allocations: Every employee at exactly 50% SR&ED every month is inconsistent with how real project work is distributed.
- Identical activity notes across weeks: Copy-pasted descriptions indicate notes were not recorded in real time.
- Hours without technical context: Time logged to a project but described only as “development” or “coding” carries little evidentiary weight.
- Payroll totals that do not reconcile: A discrepancy between hours claimed and payroll records is one of the most direct red flags in a financial review.
- Retroactively completed timesheets: Records signed off in bulk after the fact, rather than approved weekly as work occurred.
- Hours logged but not project-attributed: This is the one that surprises people most. Time exists in the system, but it’s logged against a team or a sprint, not a specific SR&ED-eligible project. When a reviewer asks which hours belong to which claim, there’s no clean answer. The hours were always there. The structure to make them usable wasn’t.
Quick-Reference Checklist
Copy this and use it to tighten your process before the next filing.
Weekly
- Everyone logs hours by project with a short activity note
- Manager approves timesheets
- Non-eligible time is coded separately
Monthly
- Export payroll detail and hours by project
- Reconcile hours > payroll > GL (mapping file)
- Post to Xero or QBO using tracking categories or classes
- Save the audit pack: timesheets, payroll export, mapping file, GL report
Pre-Claim/Year-End
- Confirm activity notes reflect investigation and learning, not just output
- Verify records are contemporaneous (created as work happened, not reconstructed)
- Ensure contracts, invoices, and payroll records are organized alongside the audit pack
- Review for red flags: round allocations, copy-pasted notes, reconciliation gaps
Need help getting your books SR&ED-ready?
SR&ED is filed on a retrospective basis, but the records that substantiate the claim must have been created as the work occurred. The strongest claims come from companies where the SR&ED consultant and the accounting function are aligned from the start of the fiscal year, not only at filing time.
ConnectCPA helps SR&ED claimants set up the payroll coding, time-tracking workflows, and monthly reconciliation process so the financial records are clean, organized, and audit-ready before the filing (not after). Reach out to book a call: connectcpa.ca/contact
GrowWise works with companies to simplify year-round SR&ED documentation and expedite the year-end claim preparation process. Reach out to book a call: https://growwise.ai/lv30/
Together, both firms help make the process more organized, more efficient, and more predictable – from the first project log to the final filing.
