How to Prepare for a CRA SR&ED Audit or Review

Reviews are part of the SR&ED landscape

Receiving a letter from CRA's SR&ED Directorate can feel alarming, but a review is not an accusation of fraud. CRA routinely validates claims through desk reviews (paper-based) and field audits (interviews and deep evidence examination). In 2024–2025, roughly 20–30% of claims faced some level of review, with higher rates for large claims and certain sectors.

Preparation dramatically affects outcomes. Well-documented claims with responsive teams often resolve with minor adjustments. Poorly documented claims face disallowances, penalties in egregious cases, and years of appeals.

Desk review vs. field audit

Desk review — CRA requests additional documentation by mail or through their portal. Common requests include project evidence, time records, and technical clarifications. You typically have 30 days to respond, with one extension often granted.

Field audit — A CRA scientific research consultant and/or financial reviewer visits your premises or conducts video interviews. They interview technical staff, inspect evidence, and may review lab or development environments. Field audits are more common for claims over $500,000 or repeat claimants with prior adjustments.

Concurrent review — CRA may review your claim before issuing a refund, delaying payment until the review concludes. This is increasingly common for first-time large claimants.

What triggers a review?

CRA does not publish exhaustive trigger lists, but common factors include:

• Claim size relative to revenue and headcount
• High SR&ED-to-payroll ratios (e.g., >70% of engineering time)
• Prior adjustments or denied projects
• Industry risk profiles (software, fintech, AI/ML claims with weak uncertainty)
• Random selection as part of CRA's compliance sampling
• Inconsistencies between years (sudden spikes without business explanation)
• Related-party contractor arrangements

Being selected does not mean your claim is invalid. It means CRA wants verification.

The review timeline

A typical review unfolds over 3–12 months:

1. Initial contact letter — Specifies taxation years under review and initial document requests

2. Document submission — You provide technical and financial evidence

3. Follow-up questions — CRA issues technical and financial position papers with detailed questions

4. Meetings or interviews — Technical staff answer questions about projects and experiments

5. Proposed adjustments — CRA shares draft adjustments; you can respond with counter-arguments

6. Final determination — Notice of assessment issued with accepted or adjusted amounts

7. Appeals — If you disagree, objections within 90 days to CRA Appeals, then potentially Tax Court

Respond to every letter by the deadline. Missed deadlines weaken your position and limit appeal rights.

Evidence CRA commonly requests

Technical evidence

• Project planning documents and design specs
• Source code samples for algorithms under review (not necessarily entire codebase)
• Test results, benchmark logs, and experiment outputs
• Architecture diagrams and ADRs
• Email or chat threads discussing technical challenges (use judiciously—relevance matters)
• Failed prototype documentation

Financial evidence

• Timesheets or allocation spreadsheets by employee and project
• T4 slips and payroll registers
• Contractor contracts, invoices, and proof of payment
• General ledger detail for SR&ED accounts
• Organizational charts showing reporting relationships
• Job descriptions for employees with high SR&ED allocation

Organizational evidence

• Corporate structure changes during the claim period
• R&D organizational chart
• List of products and their relationship to claimed projects

Organize evidence by project and taxation year in clearly labeled folders before CRA asks. Response quality and speed influence reviewer perception.

Preparing your technical team for interviews

CRA scientific research consultants often interview engineers and technical leads. Prepare your team to:

• Describe technological uncertainty in their own words, consistent with the T661
• Walk through specific experiments, including failures
• Avoid overstating eligibility ("everything we build is R&D")
• Answer honestly—"I don't recall" is better than fabricated memory
• Reference evidence locations ("The benchmark results are in our shared drive under Project Falcon")

Hold a pre-interview briefing with key staff. Align on project boundaries and uncertainty statements without scripting answers.

Financial reviewer interactions

Financial reviewers focus on reconciliation:

• Do claimed salaries match T4 and payroll filings?
• Are contractor payments supported by contracts and proof of Canadian work?
• Does the proxy calculation use the correct base and rate?
• Are project allocations consistent across employees?

Have your controller or external accountant available for financial questions. Engineering and finance answers must be consistent on project names, timelines, and headcount.

Responding to position papers

CRA position papers outline areas of concern—projects they may disallow, hours they may reduce, or expenditures they question. Effective responses:

• Address each point directly with numbered replies
• Provide additional evidence where gaps exist
• Cite CRA policy documents (e.g., Eligibility of Work for SR&ED Investment Tax Credits Policy) where applicable
• Acknowledge legitimate adjustments rather than defending indefensible positions
• Engage SR&ED counsel or experienced consultants for complex disputes

Argumentative or evasive responses rarely help. Professional, evidence-based engagement does.

Partial disallowances and negotiation

Most reviews end with partial acceptance. CRA may disallow specific projects, reduce hours, or adjust contractor amounts. You can:

• Accept the adjustment and receive the reduced refund
• Provide counter-evidence and negotiate
• File a Notice of Objection within 90 days

Cost-benefit analysis matters: fighting a $15,000 adjustment may not justify $40,000 in consultant and legal fees.

ELEMONT audit support

Our audit support service helps teams from initial CRA letter through final determination:

• Evidence organization and gap analysis
• Technical position paper drafting
• Interview preparation workshops
• Financial reconciliation support
• Coordination with your tax counsel

Premium plan members can access our 12.5% audit guarantee program—a contingent fee arrangement where audit defense costs are shared based on outcomes. Terms apply; see pricing for details.

Preventive measures for future years

After a review—regardless of outcome—implement improvements:

• Quarterly SR&ED documentation reviews
• Contemporaneous time tracking with project codes
• Technical narrative drafts updated during the year
• Annual mock audits with external reviewers
• Cross-training between finance and engineering on SR&ED requirements

Teams that treat a review as a learning event rarely face escalating adjustments in subsequent years.

Emotional reality for founders

A CRA review is stressful. It pulls engineers from product work and founders into weeks of document hunts. Normalize this as part of claiming a significant public incentive. With organized records and expert support, the process is navigable.

Do not ignore CRA letters. Do not submit incomplete responses. Do not assume your accountant alone can defend technical positions they did not help write.

Key takeaways

1. Reviews are common and not inherently adversarial

2. Evidence organization is your highest-leverage preparation

3. Technical and financial responses must align

4. Interview preparation prevents costly inconsistencies

5. Professional support pays off for medium and large claims

6. Prevention through year-round documentation is cheaper than defense

This article is general information only and does not constitute tax, legal, or accounting advice. CRA procedures and review rates change; consult qualified professionals for advice specific to your situation.