A Perspective on CRA’s Changes to SR&ED Form T661

The Canada Revenue Agency (CRA) announced yesterday that Form T661 and T4088, the Guide to Form T661, have been revised after consultations with SR&ED claimants and stakeholders across the country.  This is a continuation of the CRA’s commitment to engage SR&ED program participants in the collaborative process outlined in TSI’s article titled “Improving SR&ED in Partnership with the CRA”.

Other than several comparatively minor form content and layout changes outlined below, the most significant change is the statement that “the information requested and documents supporting the expenditures claimed are prescribed information”.  Although a seemingly innocuous comment, this statement implies that where a claimant indicates certain elements of supporting documentation (such as records of time spent) are available, those documents are necessary, or prescribed, for the claim to be eligible.  While there may be several interpretations of this statement, it is the author’s opinion that this statement reinforces CRA’s direction of becoming more explicit in its requirements for supporting documentation and the claimant having authentic and contemporaneous records of such documentation.  With some recent publicity of claimants taking advantage of the program, CRA appears to be setting the stage for the ability to justify rejection of claims outright where this information is stated to be but found to not be available.   Although this has always informally been the case, it is clear that CRA is taking a much tougher stance on non-compliance.

Other changes to Form T661 include:

• Section E of Part 2 has been removed
• Part 6 has been introduced (replacing Section E in Part 2), which contains a table for claimants to provide a list of all projects and associated costs claimed in the tax year
• Questions on lines 242 to 252 have been revised for clarity, although the information requested is the same
• The lead-in for lines 235 to 238 and 632-638 have been revised for clarity

Until July 31, 2011, applicants can submit Form T661(08) or later versions of the form.  Starting August 1, 2011, only Form T661(11) will be accepted for all tax years.

The information gathered on the revised Form T661 is unchanged from the information gathered previously.  However, projects claimed in Part 2 are now separate from the project expenditures in Part 6.  Claimants can continue to include only their 20 largest projects in Part 2 for their SR&ED submission, but Part 6 must include a project list and expenditures for all projects claimed.  Claimants should note that a Part 2 must have been completed for all projects and available to the CRA upon request¸ and a failure to provide this information may result in a disallowance of the associated expenditures.

If you would like more information on how TSI can assist you in understanding and preparing your SR&ED application, please contact Jason Schwandt, VP Business Development, at 905-738-6770 x2010.