More than half of Canadian companies have a December 31 fiscal year-end, but regardless of when your year-end falls, the actions you take now can meaningfully impact the size of your SR&ED claim and how defensible your claim will be.
The period leading up to your year-end is your best opportunity to lock in your projects, clarify eligible expenses and sharpen your documentation to reduce your year-end SR&ED stress.
Take a moment now to review this list to ensure your SR&ED claim is as large as possible, as strong as possible and as defensible as possible.
Team Alignment on SR&ED
Before the year ends, your team should have a discussion to review ongoing SR&ED projects, ensure all involved team members are clear on what is and isn’t eligible for SR&ED, and discuss all projects underway that may qualify. When everyone in the team – especially the technical employees like developers and engineers that actually do the SR&ED eligible work – is fully clear on what qualifies for SR&ED, that translates to stronger documentation and larger SR&ED claims.
We recommend quarterly or bi-annual meetings with technical team members, their managers, and financial managers to discuss SR&ED, ensure projects that qualify are being documented correctly, and confirm that any new employees are clear on documentation practices.
Review and Confirm SR&ED Documentation
During the year, it is important to stay on top of SR&ED documentation. Now is the time to confirm you have all the required project information while the details are fresh. The Canada Revenue Agency (CRA) needs to see contemporaneous documentation – documents recorded at the time of the project taking place. Before year-end, make sure you have these in place and organized for all projects for the fiscal year.
Clearly separate the eligible SR&ED work from routine engineering, maintenance, or production activity, which typically are not SR&ED eligible. Organize time sheets, meeting minutes, design notes, code logs, prototype records, project management documentation, invoices, and communication relating to projects. Read this article for more information about SR&ED Time Tracking.
As a reminder, in case of an SR&ED audit/review, the CRA needs to see that you can prove that the project qualifies for SR&ED and was tracked and accounted for properly. Mainly, you need to confirm that the work addressed a technical uncertainty with a systematic investigation. Read this article for more information about what you need to do in case of a CRA SR&ED audit.
Pay Eligible Expenses Before Year-End
The size of your SR&ED claim depends on costs paid/incurred in the fiscal year. When possible, increasing your current fiscal year spend often makes sense rather than waiting for the following year, since that delays your SR&ED returns by over a year. Whenever possible, accelerating payments for contractors, materials, or other eligible inputs before year-end expands the base you can claim.
Remember: expenses = credits. If you can purchase and use materials now, or pay a contractor/employee to do SR&ED eligible work in this fiscal year, rather than waiting for the following fiscal year, there is a significant benefit. If the expense occurs in this fiscal year, you will see the SR&ED refund for that within, typically, one to four months of the end of your fiscal year. If you wait and push off those expenses even a month or two after your new fiscal year starts, that delays your SR&ED refund for a full year, plus the 1-4 months to apply and receive the refund.
Receiving that refund a full year earlier is worth its weight in gold for startups and scaleups. Ensure you are documenting and dating your expenses properly with ties to specific technical challenges.
Cross-Reference Other Grants and Funding
If you have received any other government funding such as the Industrial Research Assistance Program (IRAP), Mitacs, or any others, you need to carefully account for these costs and allocations in your accounting to be sure you aren’t “double dipping”. More info about how different government grants interact is available here.
Maintain strong bookkeeping that links expenses to different funding pools. Be clear on which grants cover which work/projects and document accordingly. Often times IRAP and Mitacs cover 50% of eligible project costs, so it is important to know which costs are eligible for each grant/funding program.
Accurate cost allocation gives you a stronger claim and lowers the risk of reductions or audit adjustments. It is easier to clean this documentation up during the year, vs trying to retroactively clarify expenses after the year-end.
Plan Ahead for Next Year, Starting Today
The best time to set up next year’s SR&ED claim process is now. Instead of letting documentation and SR&ED to-dos pile up until year-end, create a routine of logging work, time and costs as you go.
Our GrowWise platform supports this by enabling real-time project tracking, linking financials to R&D work to simplify the end-of-year SR&ED process.
Conclusion
If you are approaching your fiscal year-end, take this moment to do the following to maximize your SR&ED claim before it is too late:
- Team meeting to discuss SR&ED
- Review your SR&ED documentation
- Pay material, contractor or salary costs
- Cross-reference other grant funding to ensure no double-dipping
- Plan ahead for next year’s SR&ED claim
Get ahead now, and your submission will be stronger, less stressful and better supported. If you’d like to see how GrowWise can simplify the entire year-end process for you, connect with us and let’s get you set up for a smoother SR&ED season.
Connect Now – Contact@GrowWise.ai
