SR&ED Filings in the time of Covid-19 - November 1, 2020
Update for November 1, 2020:
The SR&ED program administration by CRA seems to be back to normal levels and activities. We have seen some clients get selected for review (audits) and also for First Time Claimant Advisory Services (FTCAS). However, most activities are still being done remotely by CRA via phone or video conferencing. Since these activities are no longer done in person taxpayers must pay extra attention in ensuring that the work is conveyed appropriately to CRA in this new format. Phone calls or video conferencing makes it more difficult to convey complex ideas such as the nature of your SR&ED work.
Also, the CRA has confirmed the extension of SR&ED filing deadlines: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/whats-new-program/reporting-deadline-extentions.html
Extended by six months or to December 31, 2020, whichever date comes first.
Corporations with tax year ends from September 13, 2018, to December 31, 2018, that had an SR&ED reporting deadline from March 13, 2020, to June 30, 2020, are extended by six months.
Corporations with tax year-ends from January 1, 2019, and to June 29, 2019, that would usually have an SR&ED reporting deadline from July 1, 2020, to December 29, 2020, are extended to December 31, 2020.
Update for August 25, 2020:
We are starting to see CRA activity go back to normal. CRA Employees are starting to slowly return to their offices. This means that we expect CRA Review (Audit) activity to resume although we have not participated in a CRA Review since the start of Covid.
We have participated in CRA First-Time Claimant Advisory Services (FTCAS) for first time claimants which were delivered remotely via Conferencing to the taxpayer/client.
In other news, in terms of extension of filing deadlines Part 3 of Bill C-20, entitled Time Limits and Other Periods Act (COVID-19), recently received royal assent. If the Minister of National Revenue obtains approval from Parliament the SR&ED reporting deadlines will be extended for up to six months starting from March 13, 2020, and not past December 31, 2020. Since this order has not yet been issued, claimants with a SR&ED reporting deadline on or after March 13, 2020, and who were unable to file an SR&ED claim because of the COVID-19 pandemic, are encouraged to file their claim on the expectation that such an order will be released. Claimants are encouraged to submit their SR&ED claims as early as possible, preferably with their income tax return.
For clarity, The Canada Emergency Wage Subsidy and the 10% Temporary Wage Subsidy for Employers are considered government assistance for SR&ED purposes no different than other Government Assistance recieved such as IRAP, etc.. Assistance received under either wage subsidy reduces the amount of expenses eligible for SR&ED investment tax credits and film and media tax credits. We will further explain this in an upcoming blog. Stay Tuned.
Update for May 1, 2020:
The CRA send a note to all SR&ED stakeholders today as follows:
"We are closely monitoring the COVID-19 situation and we will continue to adapt as new information becomes available. The Scientific Research and Experimental Development Program is doing everything it can to ensure claimants receive the credits to which they are entitled, as soon as possible. For the time being, no new reviews/audits will be started and existing reviews/audits will be completed as soon as possible so that businesses have access to their credits faster. Most refundable claims will be processed as soon as possible with minimal burden on the claimant. Claims accepted at this time may be subject to review/audit at a future date to ensure eligibility."
We have seen many claims go through in an expedited fashion which is good news for our clients. We have also not seen any SR&ED audits (reviews) initiated as this time. We remind SR&ED claimants that audits will resume once the Covid situation is over and thus the principles, policy and 'rules' of the program are still in effect. There are no changes or extensions to the 18-month deadline that applies to SR&ED claim filing dates. We continue to encourage all clients to ensure the information in their "CRA My Business Account" is updated and accurate. We also encourage that clients sign up for CRA Direct Deposit so that CRA refunds can be sent to your bank directly via EFT without delay.
Further, government assistance programs for Covid such as the 10% Temporary Wage Subsidy for Employers or the 75% Emergency Wage Subsidy while providing much needed support for businesses may have the effect of decreasing your eligible SR&ED expenditures as SR&ED expenditures must be reduced by any government assistance received. A more detailed analysis of this will be conducted by ENTAX and posted on our Blog.
Update for April 20, 2020:
The CRA has started to process SR&ED claims since last week. We are seeing a few of our clients get assessments (approvals) come through. We have also been seeing waivers of reviews (audits). Clients who were selected for audit have now been waived. Its taken some time for these waivers to actually get processed.
The backlog appears to be at the remote and centralized processing centers across the country. When a SR&ED file is approved it must be manually entered into the CRA system by a CRA desk officer. Depending on where this file "lands" you may get inconsistent turnaround times.
We have had some success in dealing directly with CRA Auditors and their managers on direct files. The CRA at a staff level seem sympathetic to the needs of taxpayers at this time and recognize the importance of the SR&ED refunds as a source of capital but in some cases their hands are tied with the wider CRA process.
The CRA reviewers at a staff level now appear to have the capability to do work from home and the best way to get in touch with them is through telephone voicemail. We're continuing to use our Contacts to follow up with claims that are problematic.
Some First Time Claimants are getting letters which postpone the First Time Claimant Advisory Service (FTCAS) that would normally come before the approval of their claim. Instead, CRA is processing these claims without the FTCAS but doing them later in the year.
We thank the CRA for their work during this time. Our advice remains the same - file your SR&ED claim ASAP as that will enable you to be first in, first out.
We will keep you updated as events transpire.
Update for March 25, 2020:
Dear Clients, Partners, and Friends;
These last few weeks have changed our society and economy. Events are unfolding daily and there is much uncertainty. I first and foremost hope you are taking care of yourself and your loved ones during this time and also hope you take care of your health and overall wellness.
The economic and social consequences from the Covid-19 pandemic are devastating and will be long lasting. We must all be responsible to our families, community and businesses and take actions now to re-mediate the effects.
ENTAX is here to support you. Our team is working tirelessly from our homes to prepare and file SR&ED claims to ensure your business gets the funding you need and deserve.
Over the past week, I’ve called many clients and gotten their feedback on what is taking place and the effect it is having on their business. The focus is on supporting employees and customers at this critical time. The focus is also on preserving cash, cash flow and liquidity in the short, medium and long term based on best, likely and worst case scenarios.
I’ve also had calls with CRA to understand what is taking place internally within their bureaucracy. From the SR&ED processing perspective, all CRA field activity such as First Time Claimant Meetings and Audits are halted at least until April 6. After then, we do not know what will happen. The CRA currently is in a state of flux with changing priorities and many resources diverted and occupied with the new CRA Benefit Program implementation announced by the Government. All CRA auditors on March 16 were directed to not come into the office but many employees do not have remote networking capabilities due to security considerations of the Agency. We have to assume the CRA will auto process and assess tax returns/claims as per usual but anything requiring human intervention will be slowed if not stalled altogether. Many CRA processing steps require in-person, paper-based, signatories and sign-offs. Without in-person and in-office staffing at the staff and manager level, it is unclear how SR&ED audits (reviews), review proposal letters, First Time Claimant Advisory Services (FTCAS) will take place in the near term. The entire CRA bureaucracy was not built for providing remote services and thus it will take significant time and resources to figure it out. We will continue to monitor the CRA processing of SR&ED claims and provide you with updates.
In relation to SR&ED claims and our businesses, we’ve looked at many scenarios and there appears to be only one clear finding: Control what you can control.
The only thing you can control now is how quickly you file your SR&ED claims and get the funds you deserve. Filing your SR&ED claim and earning the accompanying tax credits (in some cases cash refunds) opens the door to other options in your business; like SR&ED lending or factoring. The sooner you file your SR&ED claim, the sooner you can potentially receive the benefits.
Some of our clients continue to find success with lending against their SR&ED claims. Many of these lenders such as Espresso Capital, Easly and Venbridge we have worked with and are familiar with the high-quality of our claims and clients. If you require a personal introduction to any of them, I would be happy to assist you.
Here are some resources I’ve found helpful on government funding, business advice and economic assistance options in these times:
Business Self Assessment Tool from Granted Consulting: https://granted.ca/covid-19-business-self-assessment-tool/
Summary of Economic Measures by the Government of Canada: https://www.canada.ca/en/department-finance/economic-response-plan.html
Sell to the Government on critical medical supplies: https://buyandsell.gc.ca/forms/help-canada-combat-covid-19-submission-form
Here are the CRA Programs available to your business: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update.html
Here is some additional content on how to manage the crises with you teams and businesses:
- Vancouver Board of Trade Resources and Management Videos
- An Action Plan for Tech CFOs
- CoVid Business Readiness and Continuity Plan Slidedeck
If you have a SR&ED claim in progress, now is the time to accelerate your filing deadline and work with us and your accountants to give us what we need to file your SR&ED claim.
Please reach out to us and let us know how we can help you through this unprecedented time. Our team is available and working hard to get you the funds you deserve and need for your businesses.
I will continue to update this blog as events transpire.
Please be safe and be well.
Ryan Pernia on behalf of the ENTAX Team