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Claim Review Manual for Research and Technology Advisors

SR&ED Program

Chapter 2.0 Overview and general information

Table of contents

2.1.0 Summary of chapter

This chapter provides general information about the claim review process, including information that applies to all audit-type work in the Canada Revenue Agency (CRA), not just scientific research and experimental development (SR&ED) reviews. The main sections cover:

  1. an outline of the SR&ED claim review process;
  2. an outline of the CRA information sources;
  3. special SR&ED terminology;
  4. an introduction to dispute resolution in the CRA;
  5. the legislated authority of CRA officials;
  6. the legislated requirements for taxpayers;
  7. procedures to follow when communicating with claimants;
  8. safety, security, and health considerations during a review;
  9. information security requirements; and
  10. service standards for the SR&ED claim review.

2.2.0 Requirements of chapter

Following from Chapter 1.6.0, the research and technology advisor (RTA) must follow all CRA approved procedures and job requirements for:

  1. communication of information to the claimant or their authorized representative;
  2. safety and security;
  3. information security;
  4. service in the official languages; and
  5. consultation with the research and technology manager (RTM) in certain specified circumstances involving safety, security or difficulties with the claimant.

2.3.0 Outline of the review process

The following chart outlines the main steps in the review process and provides references to the main sections of the CRM that discuss each step. Note that the chart is a general guide only and does not cover every possibility or exception encountered during a review. The RTA should consult the CRM for details. The chart generally follows the usual steps of a review, but this does not mean that these steps must always follow this sequence.

Review Flowchart

Step 1: The RTA receives the claim from the control function (CF) (main references are chapters 1 and 2).

Step 2: The RTA studies the information as received (main reference is chapter 4).

Step 3: the RTA contacts the FR to initiate coordination (main reference is chapter 3).

Step 4: The RTA begins planning the review by identifying issues and obtaining additional information (main references are chapters 4 and 5).

Step 5: The RTA assesses risk and determines the scope of the review (main reference is chapter 4.).

Step 6: The RTA develops a review plan (main reference is chapter 4).

Step 7: The RTA communicates with the claimant, gathering information by letter and/or telephone (main reference is chapter 5).

Step 8: the RTA visits the claimant on site (main reference is chapter 5).

Step 9: the RTA analyzes information and resolves issues (main reference is chapter 5).

Step 10: the RTA gathers additional information by letter and/or telephone (main reference is chapter 5).

Step 11: The RTA prepares the review report (main reference is chapter 6).

Step 12: the RTA communicates the review results to the FR (main references are chapters 3 and 7).

Step 13: the RTA assists the FR with the proposal package (main reference is chapter 7).

Step 14: the RTA addresses any representation from the claimant on review results (main reference is chapter 7).

Step 15: the RTA concludes the review (main reference is chapter 7).

2.4.0 CRA Information sources

2.4.1 Publications

Understanding CRA's SR&ED documents and using them effectively during the technical review is critical. The SR&ED reference guide has links to key information. The following are the key reference materials needed to resolve review issues:

There are also many other links to relevant policies, directives and guidelines in the CRM.

2.4.2 CRA information systems

Much information, including the tax centre (TC) risk assessment sheet, is available only from the internal CRA information systems referred to in the CRM. For tax years ending after 2008, claimants can file project information electronically, and the TC does not always print it. Therefore, the RTA may need to access the following systems, or have someone else access them, in order to review project information, verify authorized representatives, record delays, record the results of reviews and carry out other information management activities:

The CRA has given RTAs a profile that identifies the particular information systems and levels that they are authorized to access. Local offices manage access profiles.

2.5.0 Special terminology

2.5.1 Control Function

The Control Function (CF) is the function in each CTSO that receives/ screens SR&ED claims referred to them from the TC. The CF decides if the claim must be reviewed in more detail by the RTA or the FR, or both.

2.5.2 SR&ED project and activity

The CRM uses the word "project" frequently. Although the Act does not define or use the term "project", form T661 requires SR&ED work to be claimed as SR&ED projects. The CRM will use the term as defined in the eligibility policy:

"Every project claimed must fall within the definition of SR&ED in subsection 248(1) of the Act. An SR&ED project is defined as a project comprising a set of interrelated activities that:

A project may consist of one or more activities. An activity is therefore an element of work within a project. Chapter 4.6.2 discusses how to address situations when not all the claimed activities are part of an SR&ED project.

2.5.3 "Eligible" and "ineligible"

The terms "eligible" and "ineligible" (including the forms "eligibility" and "ineligibility") are widely used in the SR&ED program, although the Act does not define these terms. For the purposes of the CRM, "eligible"/ "ineligible," without any other qualifier, means work which meets/ does not meet the definition of SR&ED in subsection 248(1) of the Act.

2.5.4 "Determination", "conclusion", and "decision"

The term "determination' is used in the CRM to mean the result of the technical review conducted by the RTA with regard to whether the claimed work meets or does not meet the definition of SR&ED in subsection 248(1) of the Income Tax Act. The RTA’s determinations will include situations where:

  1. all of the reviewed work meets the definition of SR&ED (AW);
  2. some of the reviewed work meets the definition of SR&ED and some does not (SW); and
  3. none of the reviewed work meets the definition of SR&ED (NW).

The term "conclusion" is used with this meaning: the RTA "concludes" that the claimed work is unsubstantiated (UN). This situation occurs when the claimant is unable to provide sufficient evidence to substantiate the claimed work and so, it is not possible for the RTA to determine if the claimed work meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.

The term "decision" is used with respect to the RTA’s work that does not relate to the definition of SR&ED. It includes "decisions" concerning joint technical-financial issues. It also includes cases when the RTA decides to accept as filed (AAF) all or some of the claimed work without conducting a review to determine if the claimed work meets the definition of SR&ED in subsection 248(1) of the Income Tax Act.  The decision to AAF the claimed work means that the CRA has neither confirmed nor refuted the eligibility of the claimed work.

2.5.5 Desk, on-site, limited and detailed reviews

These terms are used when coding the RTA's work in AIMS. More information on this subject can be found in the AIMS online guide.

2.6.0 Dispute resolution, notices of objection and appeals

2.6.1 Dispute resolution

During the review process, the claimant may not agree with decisions made by the RTA. Because dispute resolution is important to the CRA and the SR&ED Program, a process for dealing with disagreements has been developed and described in Application Policy (AP) 2000-02R "Guidelines for Resolving Claimant's SR&ED Concerns" and is applicable to RTAs when they conduct reviews. It describes a three step process whereby the claimant is encouraged to talk first with the RTA or FR to resolve disputes, second to talk with the RTM or financial review manager (FRM), and third to request an administrative second review (ASR). Other procedures and approaches recommended for the RTA for effectively resolving claimant concerns are presented in Chapter 5.

2.6.2 Notices of objection and appeals

At various places in the CRM, there are references to notices of objection (NOO) and appeals to the Tax Court of Canada. The following website contains details on the CRA formal dispute resolution process: Complaints and disputes.

Disputes that are not resolved to the satisfaction of the claimant during the review can be resolved via a more formal process that begins after a notice of assessment/ reassessment is issued to the claimant. In the case of amended claims, sometimes a reassessment is not issued and the process is different. Directive 1997-02 Scientific research and experimental development (SR&ED) – Requests for investment tax credit (ITC) refunds has details.

In most cases, a claimant must file a NOO within 90 days of the "Notice of Assessment/Reassessment." Claimants can file an objection by using the My Account feature on the CRA Internet site or by writing to the chief of appeals at their appeals intake centre. The file then becomes the responsibility of the CRA's Appeals Division who does an impartial review. Sometimes the RTA is involved in this process. Refer to the Stakeholder Relation Division in SR&ED Headquarters (HQ) for a more detailed discussion of this review process. Refer to Appendix A.6 for a discussion of some specific considerations for dealing with files where there is a NOO or appeal, and when the RTA may be involved in the appeals review process.

If the claimant still disagrees with the outcome of the appeals decision, they have the right to file an Appeal to the Tax Court of Canada. The Tax Court of Canada publishes their decisions and they are available from a number of sources such as the Tax Court of Canada website and Knotia News. RTAs can subscribe to Knotia News using this link in order to receive copies of published judgments.

When objected to by the claimant, the RTAs decision can be reviewed by other branches of the CRA and by the Tax Court of Canada. It is important that the RTA follows the principles set out in the CRM so that the decisions are appropriately documented and supportable.

2.7.0 Legislated authority of the RTA to conduct reviews

Subsection 231.1(1) of the Act provides the legislated authority for authorized CRA staff to conduct reviews, and the RTA is an authorized person under this section of the Act. The RTA is issued an RC121A authorization card indicating that they are so authorized. The following extract from the CRA audit manual section 4.5.1 states the following about the card:

"Auditors are provided an RC121A authorization card that outlines that the person named on the card is authorized to carry out the following functions under the relevant provisions of the ITA and the ETA:

Entering a personal dwelling without the occupant's permission is expressly forbidden under the legislation unless a judge has issued a warrant that authorizes entering the dwelling.

The legal name as shown on the authorized person's birth certificate or other official document (certificate of name change, marriage certificate, certificate of Canadian citizenship) should be shown on the RC121A authorization card. A new authorization card must be issued when a person legally changes their name.

The RC121A authorization card must not be used as a personal identification card or for any purposes for which it is not intended. It must be kept separate from the employee's building identification and should never leave the employee's possession. Any requests to photocopy it must be denied for security reasons but taxpayers/ registrants may copy the wording by hand.  A lost or stolen card must be reported immediately as a security incident and a security incident report must be completed."

The status of authorized person is not restricted to CRA employees. For example, an outside consultant (OC) can also be an authorized person, but the CRA normally gives this authorization on a file-by-file basis, and it is limited by the terms of the contract. Chapter 4.7.3.1 contains more information on OCs.

Chapter 5.10.0 discusses of procedures for dealing with problems concerning entering the claimant's premises, conducting the review or obtaining information from the claimant.

2.8.0 Legislated requirements for taxpayers and compliance

2.8.1 Requirement to provide information

Section 231.1 of the Act allows CRA officials to inspect, audit, review or examine the books and records of a taxpayer and any document of the taxpayer or of any other person (including third parties) that relates or may relate to a taxpayer's books and records that may be relevant to the administration or enforcement of the Act. This is discussed in greater detail in Chapter 5.4.2 of the CRM and Chapter 10.6 of the audit manual.

Section 231.1 requires anyone (not just the taxpayer) to provide documents or information needed to administer the Act, although, in practice, requests from third parties are not routinely made. Under the provisions of subsection 231.5(1) the RTA can require a taxpayer to make copies of documents.

Information requests made under Section 231.2 of the Act are known as requirements. A requirement is a legal document issued by the CRA that compels a taxpayer/registrant or third party to provide information and/or documents under this section. This is discussed in Chapter 5.12.3. Requirements have a force of law equivalent to a court order but should be used only when necessary. Failure by the recipient to comply with a requirement could result in prosecution.

Accountant's and authorized representative's working papers relate to a taxpayer's books and records, and CRA officials have the legal authority to request such working papers at any time during an inspection, audit or examination for any purpose relating to the administration or enforcement of the Act.

Provisions in the Act provide the CRA with many legislated compliance tools that enable an official to request or require information for verification and administrative purposes.

Chapter 5.4.0 contains a discussion of the procedures for acquiring information from claimants and third parties. This chapter also lists the applicable Compliance Programs Branch (CPB) Communiqués that discuss CRA policy and the legislated compliance tools.

Chapter 5.10 and 5.11 discuss procedures for dealing with claimants who fail to provide information.

2.8.2 Requirement to maintain records and books

Subsection 230(1) of the Act requires that taxpayers keep records and books

"…in such form and containing such information as will enable the taxes payable under this Act or the taxes payable or the taxes or other amounts that should have been deducted, withheld or collected to be determined."

The Act defines records as follows:

"'record' includes an account, an agreement, a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map, a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other thing containing information, whether in writing or in any other form."

This definition is broad enough to include the kinds of supporting evidence claimants need to substantiate an SR&ED claim. Chapter 5.6.6 has more details.

Subsection 230(3) of the Act allows the CRA to require a taxpayer to keep adequate records and books if they have failed to do so. Subsections 238(1) and 238(2) outlines the consequences of failing to keep adequate books and records. Chapter 5.11.3 discusses procedures for dealing with problems of inadequate records and books.

2.9.0 Contact and communications with the claimant

2.9.1 General considerations 

All RTAs must know and follow the CRA policy on communications security for protected information. All forms of contact must adhere to CRA information security protocols. Please note that the CRA communication policy is currently under review. 

The key points of CRA’s policy are:

2.9.2 Authorizations / contact with the claimant

While the RTA is authorized to speak to anyone in order to obtain information for purposes of reviewing a claim, the RTA has no authority to provide information about a claim to any individual who is not authorized by the claimant to receive that information.

When the RTA initially contacts the claimant, the first person to contact is the technical contact person listed in Box 115 of Form T661. This person may refer the RTA to other people within the company in order to answer questions or arrange meetings. If the contact person is not an employee, or refers the RTA to someone outside the company, the RTA must ensure that an authorization is on file before speaking to them. If there is no authorization on file, the RTA must contact the company (the contact person or the person who signed the T661) to obtain a signed copy of the RC59 Business consent for access by telephone and mail (for corporate use) or Form T1013 Authorizing or cancelling a representative (for individual use). For authorization purposes, the CRA also accepts letters or other written communications that the claimant has signed and that clearly defines this authorization.

Alternatively, the RTA can check the Business Number System to identify the owner or authorized representative and the limits to the authority of the authorized representative (such as the years, time limits, and whether it applies to a firm or a single individual), but sometimes this is not up to date. The most recent communications from the company owner are the most accurate. If a new authorized is received, the RTA should put a copy in the files and send the original to the TC so that Business Number System may be updated.

The RTA must be vigilant when a third party is requesting or wishes to discuss confidential information. Even when the claimant makes a verbal request to authorize a third party, an authorization must be indicated in the CRA Business Number System or completed and signed by the claimant and in possession of the CRA before the third party request can be satisfied. The RTA may contact a person who is not the owner or an authorized representative to obtain information about a claim, but it does not mean that any information regarding the review or the claimant's tax matters can be divulged to that person. It is important to remember to discuss confidential information only with the claimant or their authorized representative. Confidential information must not be disclosed to an unauthorized person according to the provisions of Section 241 of the Act. Chapter 5.4 discusses obtaining information from third parties.

The RTA should work with the authorized representative to schedule interviews and meetings with the claimant's personnel. However, at the beginning of every review, the RTA should confirm with the claimant the communication protocol preferred by them (such as information requests, scheduling of interviews, communication of results), and emphasize the importance of timely responses to queries made to both the claimant and the authorized representative. Discussing these expectations with the claimant at the outset of the review will help to avoid potential communication problems.

2.9.3 Official languages

Communications with claimants must follow the provisions of the Official Languages Act.

2.9.4 Claimant's representatives

Claimants frequently use the services of tax professionals to prepare their tax returns and act on their behalf with the CRA. Claimants may also hire representatives to write the project descriptions as well as assist them during the claim review. The claimant's representatives may be present during meetings and may answer questions on behalf of the claimant.

The choice to use a representative is right  #15 of the Taxpayer Bill of Rights and must be respected by the RTA.  However, that right does not negate the RTA’s right to obtain information they need or the right to directly contact anyone they need about the claim, which includes the claimant or the scientists or engineers having responsibilities for the claimed work. For example, if the RTA cannot obtain needed information through a representative, the RTA can go directly to the claimant. A claimant representative does not have the right to restrict the RTA from access to information or people that the Act permits. In fact, sections 231.1 and 231.2 of the Act give the RTA the authority to require anyone to provide information or documentation. If problems arise with the representative, such as miscommunication or undue delays, and the claimant has asked that all communications be sent via the representative, the RTA must discuss this with the RTM and document the facts before contacting the claimant directly. When a claimant has an authorized representative, the RTA should discuss with the claimant whether they want verbal and written requests for information to be sent to the representative or not.

2.9.5 Access to Information and Privacy (ATIP)

Two Acts are relevant to the disclosure of information, including the information generated in the course of the review of SR&ED claims. The Access to Information Act deals with the rights of access by the public to information under the control of the Government of Canada. The Privacy Act protects personal information and gives individuals rights of access to their personal information held by the government.  

For more information about ATIP, including discussion of what does not have to be released and the RTA’s obligation to keep the information he/she created, refer to the Access to Information and Privacy Directorate website.

2.9.5.1 Informally requested information

Claimants can make a formal ATIP request for information in their tax file, or informally by simply asking the RTA or their manager. According to the Access to Information and Privacy Directorate, the informal method is considered to be the preferred method of access for claimants to their tax file, and a response should be provided if possible. The response depends on whether the file is currently under review or not.

If an SR&ED file is currently under review, informally requested information may be disclosed after a proposal letter is issued to the claimant.  

If an SR&ED file was reviewed, (re)assessed and sent back to the TC, the files may be borrowed from the TC, copies made and the informally requested information disclosed to the claimant.

All ATIP and informal information requests should be coordinated through the RTA’s manager to ensure consistency in handling them. Most of the TF98 file and the audit file could be released to claimants after the review is completed, but some important information must not be released.

Examples of information that may be released include:

Examples of information that cannot be released include:

2.10.0 Safety, security & health considerations

2.10.1 Introduction

As noted in Chapter 1, the CRA policy summaries in the following section do not eliminate the RTA's responsibility to follow all applicable legislation and current CRA policy.

In any potentially dangerous situation, the RTA's safety must be the first priority. CRA employees must remove themselves from any threatening situation. CRA employees must protect themselves at all times to ensure their own safety and that of their families, together with the safety of their fellow employees and the claimant. Such situations cannot be predicted but the RTA, along with their RTM, can use their experience and best judgement to identify potentially threatening situations when conducting reviews. To do this, the RTA must know and follow CRA work procedures, preventative measures, guidelines and the related reporting requirements. Currently these include:

In addition, the RTA must:

The CRA offers the Employee Assistance Program as a service to employees in dealing with a variety of concerns, whether personal or work-related.

2.10.2 Requests by a claimant to video or audio record

Although claimants and their representatives may take notes during a meeting, the RTA must not consent to being recorded by any video or audio recording equipment. If the RTA discovers that the claimant is recording a meeting, they must immediately terminate the meeting, and inform the claimant that CRA management will be in contact with them to discuss the issue and make other arrangements. The RTA must then immediately inform the RTM of the situation.

2.10.3 Offensive or threatening interviews

In later chapters, the CRM provides suggestions and best practices for managing reviews that are difficult. However, if during the course of the review, the claimant's or their representative's language or behaviour becomes offensive or intimidating, and the business purpose of the meeting cannot reasonably be achieved, the RTA must:

When the potential for assault exists and the RTA's safety appears to be at risk, the RTA must:

2.10.4 Demands for personal information or other information

If requested by the claimant, the RTA must present their CRA RC121A authorization card and explain to the claimant the reason for, the nature of and legal authority for their review. However, the RTA must never provide any personal information such as a home phone number or address, or produce personal documents like a driver's license. The RTA can also show the claimant their government identification card, but if this does not satisfy the claimant, the claimant can speak to the RTM. If the claimant continues to demand other irrelevant information, and those demands hinder the RTA from performing their duties, they must terminate the meeting. The incident must be reported immediately to the RTM. The RTA can submit to normal company security procedures (such as baggage searches and reasonable requests for information), if this is standard for all visitors. If there is any concern about the nature of the procedures, the RTA should contact the RTM.

2.10.5 Questionnaires, forms and non-disclosure agreements

Claimants might ask the RTA to fill out questionnaires or forms before allowing them access to the records and premises. The RTA must not, under any circumstances, complete questionnaires, forms, or other non-CRA documents. The RTA must inform the RTM that the claimant made such a request. This restriction does not, however, prevent the RTA from such routine practices as signing the visitors' log identifying their name and organization. If the RTA is not sure whether the information should be provided, they should contact their RTM.

Some claimants are concerned that their confidential information may be divulged inappropriately and may request that the RTA sign a non-disclosure agreement before allowing access to the records and premises. If this request is made, the RTA must not sign the agreement. Instead, the RTA must inform the claimant that section 241 of the Act includes strict confidentiality provisions that, if breached, will result in fines and/or incarceration. In addition, the RTA must inform the claimant that all federal public servants, including them, have appropriate security clearance and have taken the Oath of Office and Secrecy and swore or affirmed that they would not disclose any information they may become aware in the course of the exercise of their duties.

A refusal by the claimant to allow the RTA to conduct a review because they have refused to sign a form will be dealt with by first informing the RTM of the situation. If the claimant continues to prevent the RTA from conducting a review, the RTA must communicate to the claimant in writing to explain that the claim will consequently be disallowed.

2.10.6 Health and safety during on-site visits

The CRA has developed a number of policies, standards, regulations and guidelines concerning employee safety and health to ensure protection from exposure to occupational hazards and environmental conditions and factors. As mentioned earlier in Chapter 1, the RTA must know and follow applicable legislation and CRA policies.

Some of the important points from these policies are:

2.11.0 Information security

The RTA must know CRA security policies and must follow them when they receive, share, transport or transmit sensitive information. The Security Volume - Finance and Administration Manual discusses CRA security policy. The policies described there are the CRA standard and take precedence over any other instructions or requirements in the CRM. Additionally, the RTA must follow the security guidelines published by the Program Support and Integrity Division. As mentioned in Chapter 1, the summaries provided in this chapter are not the complete policy. The summaries do not eliminate the RTA's responsibility to know and follow all current CRA policy.

The following is a summary of the main points of the CRA policies:

2.12.0 Service standards and the complete claim date

The CRA is committed to certain service standards for the processing of SR&ED claims. The service standards were determined by calculating reasonable lengths of time to process SR&ED claims, based on the normal steps involved. The CRA has committed to achieving these standards 90% of the time.

The RTA must take into consideration the CRA service standards when planning and conducting a review. The four service standards are:

Service standards webpage has more information on service standards.

The CRA determines the number of days to process SR&ED claims from the date the TC considers the SR&ED claim complete until the date the claim is sent back to the TC for (re) assessment. Both of these dates are recorded in AIMS.

If the claimant's actions or requests result in a delay of the review of the claim, the number of days available to review the claim is lengthened by the duration of the delay. These delays are entered in AIMS.

The process to initiate and approve the use of a delay code is set by the individual CTSO and should be followed by the RTA. In all cases, the reasons for placing the delay must be indicated in the file. Directive 2003-03 Use of Delay Codes on AIMS contains complete information.

When planning the review, note that the time allotted is for the complete review, not just the technical review. The RTA should complete their work early enough to allow sufficient time for the FR to review the SR&ED review report, perform the financial review of expenditures claimed, prepare the proposal package, and for the TC to complete the (re)assessment.

If any RTA believes, for any reason, that he cannot review the file within the applicable service standard, the RTA should advise the responsible RTM.

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