Preparing for an SR&ED CRA Audit (2024 Guide)

Receiving notice that CRA will review your SR&ED claim can be stressful, but proper preparation significantly increases your chances of a successful outcome. This guide covers what to expect and how to prepare for an SR&ED audit or review.

Understanding CRA SR&ED Reviews

Types of Reviews

1. Administrative Review

Desk review of submitted forms
Quick verification of calculations
Usually no contact required
Most common for straightforward claims

2. Financial Review

Detailed examination of expenditures
Verification of calculations
May request supporting documentation
Usually conducted remotely

3. Technical Review

Assessment of SR&ED eligibility
Examination of project descriptions
May involve interviews or site visit
Focus on whether work meets SR&ED criteria

4. Combined Review

Both financial and technical review
More comprehensive examination
Common for larger claims
May involve site visit

Who Gets Reviewed?

Higher likelihood:

First-time claimants
Large claims (>$500K)
Significant year-over-year increases
Complex technical work
Previous adjustments or issues
Random selection

Lower likelihood (but not exempt):

Repeat claimants with clean history
Small, consistent claims
Clear documentation

Review vs. Audit

Review: CRA's term for most SR&ED examinations. Generally cooperative, clarification-focused.

Audit: More formal, detailed examination. Often triggered by specific concerns.

In practice, most SR&ED "audits" are technically "reviews"—but preparation is similar.

Preparing Before You're Reviewed

Proactive Documentation

The best preparation happens during the claim:

Document projects contemporaneously
Keep organized records by project
Track time allocations
Save experimental evidence
Maintain financial records

See Documentation Requirements →

Claim Quality Checks

Before filing, verify:

Technical narratives clearly explain uncertainty
Expenditure calculations are accurate
Time allocations are reasonable and supported
Supporting documents are organized and accessible
Narratives match financial claims

Create an "Audit File"

Organize materials proactively:

Project summaries and timelines
Technical documentation by project
Financial records by category
Personnel information
Prior year claims for reference

When CRA Contacts You

Initial Contact

CRA will typically:

Send written notice of review
Identify scope (financial, technical, or both)
Request specific information
Provide response deadline (usually 30 days)
Assign reviewer contact information

First Steps

Note the deadline - Mark calendar, set reminders
Review the request - Understand exactly what's asked
Contact your consultant - If you used one, engage immediately
Gather your team - Identify who will participate
Assess readiness - Review available documentation

If You Used a Consultant

Contact them immediately. Professional SR&ED consultants:

Have audit defense experience
Understand CRA's process
Can handle communication
Know how to present information
Should be included (per engagement terms)

If You DIY'd the Claim

Consider engaging help: Even if you prepared the claim yourself, audit defense may benefit from professional expertise.

Responding to Information Requests

General Principles

Do:

Respond on time (request extension if needed)
Answer what was asked—specifically
Provide supporting documentation
Be honest and consistent
Keep records of all communications

Don't:

Over-volunteer information
Provide speculative answers
Contradict your claim without explanation
Ignore requests or delay without communication
Be confrontational

Written Responses

Structure your response:

Reference the specific request
Answer each question directly
Attach supporting documents
Label everything clearly
Keep a copy of everything sent

Example response format:

Reference: SR&ED Review - [Company Name] - Tax Year 2023

In response to your letter dated [date], please find:

Question 1: [Restate question]
Response: [Direct answer with reference to attachments]

Attachment 1: [Description]
Attachment 2: [Description]

Please contact me if you require additional information.

Common Information Requests

Financial:

Detailed time allocation methodology
Payroll records for claimed employees
Material invoices and consumption records
Contractor agreements and invoices
Overhead calculations (if traditional method)

Technical:

Additional project descriptions
Evidence of experimentation
Test results and analysis
Technical personnel backgrounds
Proof of technological uncertainty

Technical Reviews and Interviews

Phone Interviews

CRA may call to discuss:

Technical details of projects
Clarification of narratives
Understanding of methodology
Evidence of uncertainty and experimentation

Preparation:

Review your project descriptions
Have documentation accessible
Identify key technical personnel
Practice explaining work in clear terms
Be ready to describe uncertainties and experiments

During the call:

Take notes
Ask for clarification if unclear
Answer factually
Don't speculate
Follow up in writing

Site Visits

What to expect:

CRA reviewer(s) visit your facility
Tour of R&D areas
Interviews with technical staff
Review of documentation
Duration: few hours to full day

Preparation:

Identify participants (technical leads, project managers)
Prepare participants on what to expect
Organize documentation for easy access
Plan tour route through R&D areas
Have meeting space available

During the visit:

Be professional and helpful
Answer questions factually
Show evidence of SR&ED work
Have documentation ready
Take notes on discussions
Follow up in writing

Preparing Technical Personnel

Coach your team:

Explain SR&ED criteria (uncertainty, hypothesis, experimentation, advancement)
Review project descriptions
Discuss what they worked on and technical challenges
Practice explaining technical work in clear terms
Emphasize factual, consistent answers
Remind them it's okay to say "I don't know" or "I'd need to check"

Common interview topics:

What was the technical objective?
What didn't you know at the start?
What approaches did you try?
What experiments did you conduct?
What did you learn?
How did results inform next steps?

Common Review Issues

Technical Issues

1. Insufficient technological uncertainty

Work appears routine or standard practice
Uncertainty not clearly explained
"We developed" without technical challenge

Response: Provide more detail on what wasn't known, why standard approaches weren't adequate, what experimentation was required.

2. Lack of systematic investigation

No evidence of hypotheses
Random trial-and-error
Missing test documentation

Response: Show hypothesis → experiment → analysis → iteration. Provide test records, meeting notes, design iterations.

3. Advancement not demonstrated

Unclear what was learned
No measurable progress
Results not documented

Response: Quantify results, explain new knowledge gained, show how uncertainty was resolved.

Financial Issues

1. Time allocation unsupported

No time sheets
Claiming 100% without basis
Inconsistent allocations

Response: Explain methodology, provide whatever records exist, show consistency with project scope.

2. Material consumption unclear

Can't distinguish SR&ED vs. production materials
Missing invoices
No consumption records

Response: Provide invoices, explain how materials were consumed in SR&ED (not in sold products), show project-specific allocation.

3. Contractor work not SR&ED

Vague contracts
Routine services claimed
No evidence of SR&ED work

Response: Provide detailed contracts, describe SR&ED work performed, show deliverables.

Outcomes and Next Steps

Possible Outcomes

1. Claim accepted as filed

No changes
Credit confirmed
Notice of Assessment issued

2. Claim accepted with minor adjustments

Small calculation corrections
Reclassification of some costs
Substantially preserved

3. Claim reduced

Projects denied
Expenditures disallowed
Lower credit amount

4. Claim denied

All or most projects denied
Significant reduction
May have assessment issues

If Your Claim is Reduced

Review the explanation:

Understand why amounts were denied
Identify specific issues
Determine if CRA misunderstood

Options:

Accept - If reduction is reasonable
Discuss - Speak with reviewer for clarification
Object - Formal objection within 90 days
Appeal - Tax Court if objection unsuccessful

Filing an Objection

When to object:

CRA misunderstood your work
Evidence wasn't properly considered
Significant amount at stake
You have strong documentation

Process:

File Notice of Objection within 90 days
Case assigned to Appeals Officer
Provide additional information/arguments
Potential for negotiated settlement
Formal determination

Success rate: Many objections result in partial or full recovery—but requires strong case.

Working with Professionals

Professional Services for Audit Defense

If you're facing a CRA review, specialized services can significantly improve outcomes:

Audit and Objection Support:

CRA Audit Support Services - Expert guidance through the entire review process
Appeal & Objection Support Services - Formal objection and appeals support
Compliance Review Services - Ensure your claim is defensible

Additional Support:

Technical Documentation Services - Strengthen technical narratives
How to Choose an SR&ED Consultant - Find audit-experienced specialists

When to Engage Help

Consider professional audit support when:

Large claim value at stake
Technical review scheduled
You didn't use a consultant for filing
CRA requesting site visit
Claim significantly reduced
Objection needed

What Consultants Provide

Experience with CRA review process
Technical writing for responses
Interview preparation
Communication management
Objection support if needed
Often included in original engagement

Fees for Audit Support

Many consultants include basic support in original fee
Complex audits may have additional fees
Objections typically extra
Hourly or flat fee structures common

Prevention: Reducing Audit Risk

Best Practices

Strong claims have:

Clear technical narratives explaining uncertainty
Documented systematic investigation
Reasonable, supported expenditure calculations
Consistent year-over-year approach
Good contemporaneous documentation

Red flags to avoid:

Vague project descriptions
Unreasonable time allocations (100% without support)
Dramatic year-over-year changes without explanation
Poor documentation
Claims that don't match business activities

Frequently Asked Questions

How long do reviews take?

Typically 2-6 months from initial contact to resolution. Complex cases or objections take longer.

Can I request an extension for responding?

Yes. Contact reviewer before deadline to request extension. Usually granted for reasonable requests.

Should I attend the site visit even if I have a consultant?

Yes. You know your projects best. Consultants guide process; you provide substance.

What if I disagree with the reviewer?

Discuss professionally. If unresolved, you can request supervisor review or file objection.

Will being audited affect future claims?

Not necessarily. Clean resolution builds credibility. Issues may trigger closer future scrutiny.

How far back can CRA review?

Typically 3-4 years. Extended to 6 years if misrepresentation. No limit for fraud.

Summary Checklist

When CRA contacts you:

For information requests:

Answer specifically what was asked
Provide supporting documents
Label clearly and keep copies
Respond on time or request extension

For site visits:

Get Help with Your Audit Defense

If CRA has contacted you about an SR&ED review, professional support can make a significant difference:

CRA Audit Support Services - Navigate the review process
Appeal & Objection Support Services - File objections if needed
Find SR&ED Consultants →

Last updated: November 2024. CRA review procedures may vary. Consult a qualified professional for your specific situation.