UNDERSTANDING SR&ED:  A GUIDE FOR CPA’s

How CPAs Can Support SR&ED Claimants

  • Understanding Eligibility
  • Obtaining Buy-In from Management
  • Interaction with Other Incentives
  • Managing the Expenditure Limit
  • Activity-Based Costing

The Jentel Decision

  • Was there a technological risk or uncertainty which could not be removed by routine engineering or standard procedures?
  • Did the person claiming to be doing SRED formulate hypotheses specifically aimed at reducing or eliminating that technological uncertainty?
  • Did the procedure adopted accord with the total discipline of the scientific method including the formulation testing and modification of hypotheses?
  • Did the process result in a technological advancement?
  • Was a detailed record of the hypotheses tested, and results kept as the work progressed?

JENTEL’S 5 STEPS

▶ SR&ED happens in business to support product development (or product improvement)

▶ Product Development itself ISN’T ELIGIBLE

▶ Consider what is going to be hard to do – if there is SR&ED it will happen here

STEP 1
▶ Ask why standard practice won’t get you where you need to go
▶ Define what standard practice is (GOOGLE search, i.e. what an average engineer or developer could achieve without much investigation)
▶ Can you buy a solution ‘off-the-shelf’? – if yes then why do SR&ED? (it could be too expensive, or may only partially meet your needs)
STEP 2

WHAT IS STANDARD PRACTICE?

▶ Trying to find a solution that doesn’t exist within standard practice IS AN HYPOTHESIS
▶ Take (and save) notes describing what you intend to do

STEP 3

HYPOTHESIS

▶ If you need to prove that your solution works you’ll need to collect data and test
▶ Document the plan (and the test results)

STEP 4

IS THERE AN ADVANCEMENT?

▶ The experiment worked = YES
▶ The experiment didn’t work = YES

STEP 5
WAS THERE A TECHNOLOGICAL ADVANCEMENT?
▶ Did you keep a detailed record of activities and results?
▶ Note that this step doesn’t happen at the end of the process but throughout (CRA calls it
‘contemporaneous documentation’)
▶ Without documentation THERE IS NO SR&ED

Simple Working Papers for CPAs

theBOOKS© is a simple, but effective replacement for Caseware that eliminates the need for specialized software and expensive annual licenses…

The structure is straightforward and resembles manual working papers that pre-date PCs. In that way it is similar to Caseware. When Caseware was developed in the late 1980s, there was no such thing as “cloud” anything. Applications were built for client-server systems that even small CPA firms were starting to use.

Today things are a lot different. Firms are small and distributed. My firm has staff across the Province of BC … and across the world, in the Philippines. My office is virtual and I use web-based conferencing software to meet with clients, and review files with staff…

Like many of my colleagues I need a solution that can readily be shared and doesn’t have “synching” challenges.

I don’t want to learn a specialized reporting tool – I’m already using Microsoft Word and Excel which are far more powerful and more easily extended.

What a Simple Cash-basis Journal Might Look Like

The data here was downloaded directly from the bank. With a little formatting the accountant or bookkeeper can quickly develop a useful spreadsheet that can search and filter transactions, calculate totals and generally serve as a useful record for the company.

With some knowledge of advanced spreadsheet techniques (see TRAINING YOUR ACCOUNTANT), your accountant can quickly build a pivot table to summarize a year’s worth of transactions into a single journal entry.

The Quality of Records

The more independent entities or people “touching” a record, the higher the quality of the record. A cheque is paid to an independent third party and processed by your bank and the recipient’s bank.

It answers the questions:

1. Did you pay?
2. Who did you pay?
3. How much did you pay?

But it doesn’t answer the question:
4. What did you pay for?

For example let’s say that you paid the local electrician to string network and telephone cable in your office. If you were to pay him with an e-transfer, your bank would likely show the name of the electrician and the amount. However you would also need the electrician’s invoice to show that it was indeed a business expense and not a personal one.

Let’s Start WORK
TOGETHER!