The Canadian Advanced Technology Alliance says it has come to an agreement with the Canada Revenue Agency over how companies should report the time they spend on research and development in order to qualify for tax credits.
document described as a “”guidance paper”” will help Canadian firms write up a “”labour allocation”” to file claims under the Scientific Research & Experimental Development (SR&ED) program, CATA said in a letter to its members Tuesday. The paper was jointly developed between the Canada Revenue Agency (CRA) and Russ Roberts, a Deloitte accountant who has been working with CATA as its senior director for SR&ED.
Roberts said companies may be able to avoid submitting time sheets by demonstrating a methodology that can prove how R&D time has been spent. Some project managers, for example, may keep diaries that show what they’re working on and when. Copies of these could be submitted in lieu of time sheets.
“”There has always been an issue of what kind of documentation supports the apportioning,”” Roberts said. “”This formalizes some of the thinking around it and gives some examples.””
CATA has spent years campaigning for a comprehensive overhaul of the SR&ED program that would allow greater access and flexibility for filing claims. Studies commissioned by CATA and the Information Technology Association of Canada have shown poor acceptance and use of the program.
The CRA tends to give most companies the benefit of the doubt when they report time as long as it’s reasonable, said Brian Cookson, a principal of RDP Associates, a financial consulting firm that helps small and medium-sized businesses apply for credits under the SR&ED programs.
“”It has been an issue out there, and I know where CATA is coming from,”” he said. “”No one keeps time records. There are very, very few.””
The problem is some employees pay put down as little time as possible devoted to R&D because it might seem like they’re not being productive in other areas, Cookson said. Others don’t have a good grasp of what R&D encompasses, he added.
“”To do it properly, there should be one person inside the company — or if they hire an outside professional — to co-ordinate and quarterback the claim,”” he said. “”That person should be assessing the labour effort towards a project.””
Projux, based in Vancouver, offers time tracking software that is sometimes used by clients to prepare SR&ED claims. Colin Reid, the company’s president, said the guidance paper could clear up some of the misunderstandings about the process.
“”It would probably mean they’d use us less,”” he admitted. “”In our experience, with SR&ED there’s a lot of time tracking that’s a bit of a waste of time. You end up with fairly loose numbers for what they spend the time on. People end up estimating retroactively.””
Roberts said some Canadian firms suffer from a misperception that the SR&ED program is designed primarily for “”white collar research”” and not simply improvements in existing technology. CATA will be working with the CRA and specialists in accounting firms like Ernst & Young and KPMG to develop a training course on the process to be delivered this fall.
“”When it works, our clientele are very satisfied,”” he said. “”Our advocacy is for continued improvements.””