I recently had to go to traffic court to serve as a witness to a traffic accident. Although the case never actually made it to the trial, there were a number of traffic violation cases which served as a source of entertainment during my wait. It was particularly interesting to watch the cases and the variety of defenses.
Purely by coincidence, a friend of mine was the court recorder. So I had a chance to chat about the different effectiveness of the defense representation. The insights were somewhat surprising. There were defenses mounted by lawyers and there were those mounted by paralegals, but I couldn’t tell you who was who. My guess would have been that it was the lawyers who were the ones that were winning. But as it turns out, it was the paralegals who ruled. They knew the Highway Traffic Act inside and out better than anyone.
The whole experience resonated with me and the comparability to the SR&ED audit process. Many first time claimants believe that they are prepared for an audit. The best that I could acknowledge is that they may be ready for an audit. But being prepared is a completely different matter. I would argue that one can only be prepared if they have actually been through the process. It’s a bit like learning to swim. You can understand all the steps. But it’s not until you get in the water that you find out how it really works.
The SR&ED process is not like any audit that you have ever participated in. Whether it be a financial tax audit, or an ISO audit, there is no comparable. The audit process is part of CRA’s business model. Make no mistake about it. It is about the money.
CRA does not mandate any special process to follow in the pursuit of SR&ED. Your regular development processes are just fine. Or so they say. The reality is that you will walk through those regular processes as you seek to show where the qualifying work occurred. During the discussion, the CRA reviewer will be the most engaged listener that you have ever met. And in fact, they may be quite keen about all the work discussed. Unfortunately, in the back of their mind, they are building a case, mostly against you.
The main difficulty is that you are unable to ascertain whether you are winning or losing. Generally, it is an arduous task to recall large amounts of project details that may have occurred on the order of 12 month ago. Hence a great amount of effort is exerted to put together the picture as the auditor continues to probe. And as you are driving yourself to a pretty good level of mental fatigue, you are often putting things in everyday language, that is in fact implicating you in the case of non-SR&ED.
Your great epiphany only comes at the end of the project review, when that highly engaged, highly empathetic auditor presents his opinion against you. And then it is impossible to recover. It behooves you to take an SR&ED audit as a serious threat to your claim. No one enjoys the unexpected persecution. Review your claim with someone who has been through the process. This will help you to sooth the process and maximize your chances. It still is not an easy process, but it is better to have a life vest if you have never been in water before.