Why do I need contemporaneous documentation for SR&ED?
The Canada Revenue Agency’s (CRA) T4088 1 — the guide to the T661 form used to claim the Scientific Research & Experimental Development (SR&ED) tax credit — says the following under the heading “Supporting the SR&ED Work Claimed”:
Contemporaneous documentation that is dated, signed, and specific to the work performed are the best supporting evidence that you can provide.
It’s obvious that documentation is essential to an effective SR&ED claim, but what is it exactly and how do you obtain it while performing SR&ED rather than after the fact?
What is contemporaneous documentation?
The CRA defines contemporaneous documentation as “documents generated as the SR&ED was being carried out.” This definition has two implications for innovative companies:
- Contemporaneous documentation is generated in the performance of SR&ED.
- Contemporaneous documentation is generated as a result of SR&ED.
While it may seem onerous, this diligent and thorough documenting can help during a CRA review. 2
In the eyes of the CRA, the best documentation is not created once the project is complete; rather, they favour businesses that have set up the necessary processes to collect the required information as it is created via the work performed.
For example, in the case of Dock Edge + Inc. v. The Queen (2019), keeping thorough and contemporaneous documentation was pivotal to the judgment. The Appellant had many opportunities to keep contemporaneous documentation (for example, taking detailed minutes from their regular meetings) but did not have any documentation aside from three pages of handwritten notes and photographs of prototypes for one of the submitted projects. Thus, the Appellant failed that criterion and their appeal was dismissed.3
How do I contemporaneously document my SR&ED work?
Waiting until a project is over to collect documentation—or worse, waiting until after you have submitted your claim—could cost you thousands if faced with a CRA review. Gathering documentation after the fact is counterproductive for three reasons:
- It’s a time-consuming process that could have been done as SR&ED was being performed.
- The risk for error is high.
- You could accidentally include irrelevant information.
To effectively collect contemporaneous documentation for your claim, enact the following action items in your company:
- Use project management software. There are many software options available to businesses that want to stay on top of their SR&ED project. Employing one of these programs will allow you to easily track SR&ED as it happens—and collect documentation in the process. In our post Useful Tools for SR&ED Documentation, we list all the tools that you may find useful for project management, like BassCamp, JIRA, and Zoho Projects. However, note that software development-related claims will need specific project management tools. 4
- Hold regular technical meetings. Minutes taken at technical team meetings are perfect examples of contemporaneous documentation. Hold meetings that cover the aspects of the technical narrative (uncertainties, work performed, and advancements); the notes taken will be invaluable both for filling out the T661 and for documentation purposes.
- Track hours spent doing SR&ED eligible work. One simple way to make sure you are allocating your time correctly is to have a time tracking process in place. It can even be as simple as using a time tracking sheet.
- Keep logbooks that match your timesheets. While timesheets are acceptable to the CRA, they prefer if they are accompanied by logbooks—regular summaries of the SR&ED work performed each day. The ability to not only present when SR&ED work was performed but also what was done will allow you to effectively back up your claim.
- Assign one person or a set team of personnel to keep track of SR&ED work. Aside from daily tasks, these individuals should collect, assemble, and file daily reports, with supporting documents attached. These daily reports should then be immediately added to the appropriate SR&ED file.5