If your business engages in research and development (R&D), it is likely to benefit from the Scientific Research & Experimental Development (SR&ED) tax credit program run by the Canada Revenue Agency. This is one of the most lucrative R&D funding programs available from the Canadian government.
It acknowledges the high expense of R&D and its significance to the country’s economy. On the other hand, denied claims leave companies without the credits and reimbursements they need to continue their R&D efforts.
Fortunately, a rejected claim may be overturned. Here, we’ll go through the actions that businesses may take to address the problem.
#1 Consult SR&ED Specialist for Their Opinion
Claiming SR&ED expenses is very complex and requires a large amount of supporting documentation. It’s all too simple to make a mistake throughout the submission procedure. Even individuals who are familiar with SR&ED claims may make incorrect assumptions regarding the admissibility of R&D activities.
Consult an SR&ED specialist and an income tax lawyer with expertise in this area before pursuing any alternatives to overturn a rejection. They may assist you in determining whether the CRA was right in rejecting your claim and if you have grounds to appeal.
#2 Speak with the CRA to Learn More About Your Denied Claim
Contact a CRA Research and Technology Manager or Financial Review Manager once your claim has been rejected. These agents will listen to your concerns and give you their opinion on your prospects of getting your case dismissed.
They may also put your claim rejection on hold, allowing you more time to submit more evidence of eligibility or write a convincing written justification. If your claim was found to be unfounded, this might be the only way to reverse the judgment.
#3 Request a second administrative review
The Administrative Second Review analyzes the work of the CRA personnel who assessed your SR&ED claim rather than your claim itself. The local SR&ED Assistant Director will evaluate their efforts to ensure that applicable rules were followed and that you were treated fairly.
Because of this procedure, it is doubtful that your claim will be approved. CRA agents are well-trained to adhere to all applicable rules to the letter, demonstrating a breach is uncommon.
#4 Submit a Notice of Opposition
You may submit a Notice of Objection if your attorney or other representatives still think you have a valid complaint after negotiating with the SR&ED Manager and Assistant Director.
This objection must be submitted within 90 days after receiving the latest report and Notice of Assessment that upholds the rejection. Companies who miss the 90-day limit may apply for an extension when they do so by next year.
Your Notice of Objection is a documented argument that responds to the final report’s rationale. It should include any applicable tax legislation that supports your position, as well as any additional facts that show your work meets the Tax Court of Canada’s 5-step SR&ED test.
#5 Finish the appeals procedure
After you submit a Notice of Objection, your claim will be reviewed by a CRA Appeals Officer. The key to making the most out of this process is to take a proactive attitude to communication. Inquire about any further documents or information that may help prove the legitimacy of your claim.
Following the review, the Appeals Officer will issue a written decision in the following format:
- A Notice of Confirmation backs up the CRA’s conclusions.
- A Notice of Reassessment, which necessitates a change.
Unfortunately, it’s doubtful that this procedure will provide a good result. Furthermore, even if you are successful, it may take up to two years, creating significant delays.