Claim Review Manual for Research and Technology Advisors

SR&ED Program

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Chapter 4.0 Planning the review

Table of contents

• 4.1.0 Summary of chapter
• 4.2.0 Requirements of the chapter
• 4.3.0 Risk management
  • 4.3.1 Risk considerations and determining the scope of review
    • 4.3.1.1 Factors that influence the scope of review
  • 4.3.2 Materiality
• 4.4.0 Other planning considerations
• 4.5.0 Claims involving a large number of projects
• 4.6.0 Analysis of information and identification of review issues
  • 4.6.1 Review issues
  • 4.6.2 Reviewing the SR&ED project and project activities
• 4.7.0 Methodology for resolving issues
  • 4.7.1 Desk review with or without claimant contact
  • 4.7.2 Review with an on-site visit
  • 4.7.3 Referrals and consultations
    • 4.7.3.1 Types of referrals or consultation
• 4.8.0 Written review plan preparation
  • 4.8.1 Situations where a written review plan may not be required
  • 4.8.2 Situations where a written review plan is required
    • 4.8.2.1 Working with claimants during review planning
• 4.9.0 Review plan approval

4.1.0 Summary of chapter

This chapter discusses how to plan for the review, and some special situations that might affect the review. This chapter covers the following activities:

1. identifying the important claim issues or concerns;
2. managing risks;
3. preparing a written review plan;
4. developing a strategy to deal with claims that include a large number of projects;
5. dealing with special situations or circumstances that could affect the review;
6. identifying and gathering missing or additional information;
7. studying and analyzing materials provided by the claimant and from other sources;
8. developing suitable methods to resolve review issues.

4.2.0 Requirements of the chapter

The following requirements apply to this chapter. The research and technology advisor (RTA):

• plans the technical review, and coordinates the planning with the financial reviewer (FR).
• makes a written review plan (the only exceptions are described in Chapter 4.8.0) with the following key elements:
  • identification of issues and / or applicable projects to be reviewed;
  • scope of the review, based on the risk assessment and other factors; and
  • proposed review strategy and methods for review.
• consults the research and technology manager (RTM):
  • to determine if a review plan is not needed;
  • for approval of the review plan;
  • if referrals or formal consultation are needed; and
  • if there are any concerns about the results of referrals.
• documents:
  • all relevant communications with respect to the review;
  • revisions to the review plan; and
  • referrals, their results, and what was done with the advice or guidance received.
  • the review and  provides a rationale for the determination(s)/ conclusion(s)/ decision(s)
• follows general Canada Revenue Agency (CRA) requirements for:
  • communications and information security; and
  • handling claimant information (do not write on or alter original documents from the claimant).

4.3.0 Risk management

The course HQ 1182-000 Risk-Based Review Process is available to RTAs. It describes the risk-based review process and how to use it in conducting reviews. This section summarizes the key points of this course.

Risk management is an important aspect in all of the CRA’s operations. In the Scientific Research and Experimental Development (SR&ED) Program, using risk assessment techniques is crucial to selecting claims for review and to determining the scope of review. Properly conducted risk assessments identify files with the greatest potential of non-compliance and thus allow for efficient use of resources. It helps prevent doing unnecessary reviews of compliant claimants, thereby increasing the overall efficiency and effectiveness of the SR&ED Program.

The risk management policy of the SR&ED Program follows from the CRA Enterprise Risk Management Policy and covers all aspects of the CRA employee’s work. 

The SR&ED risk management policy explains that reviews are conducted only to the extent necessary to obtain a reasonable level of confidence that there is a minimal risk of material error in the claim. The review ends when there is a minimal risk of a material error remaining in the claim. SR&ED staff uses risk management to select files and to determine the scope of reviews. This, in conjunction with claimant-centered services, provides a balance between fiscal integrity, delivering timely incentives to claimants, and minimizing the cost of compliance to the claimant and cost of administering the SR&ED Program. A detailed description of the SR&ED Risk Management policy is in Directive 2003-01R SR&ED Claim Processing Risk Management Policy. It is important to note that there is no exact way to determine the risk in a claim.    

The risk management process for SR&ED claims begins as soon as the CRA’s Tax Centre (TC) receives a claim and it continues throughout the entire review process. When a claim is received in the TC, it is reviewed for completeness.  Complete claims are processed through the risk management tool, and are either downscreened or referred to the Control Function (CF) in the coordinating tax services office (CTSO). The CF performs a risk assessment as well, and either accepts the claim as filed, or identifies possible areas of concern and refers the file to an RTA and/or an FR. According to the enterprise risk management policy (ERM), management and employees have different roles in the risk management (RM) process. The managers’ role is implementing risk management. The employees’ role is practicing risk management, specifically stated in the policy as:

• "Considering risk as part of every business decision.
• Taking prompt action to manage risk within risk tolerance levels and in accordance with the ERM Policy and the CRA RM Process.
• Communicating risk-related information to the appropriate Agency levels as required.
• Seeking learning and training opportunities to increase awareness and understanding of RM."

4.3.1 Risk considerations and determining the scope of review

After receipt of the file, it is the RTA’s responsibility to determine the scope of the review, based on a risk assessment.  The following diagram illustrates the process.

This flow chart illustrates how risk is continuously assessed throughout all stages of the review process. Initially, the RTA gathers information and identifies issues by reviewing the submitted project information, and other information gathered by a request for information (RFI) letter, phone calls, and any preliminary research work. Then the RTA assesses risk and materiality to identify factors that have potential for significant compliance issues and prioritizes the issues. This process is iterative. The RTA then comes to a decision point for each of the identified issues: Is there a significant risk? If not, the RTA drops the issue because it is not worth pursuing, and moves on to the next issue. If "yes", the RTA reviews the issue with the claimant, gathers more relevant supporting evidence, and makes a decision, that is, resolves the issue in the claimant’s favour or not. It is the additional information and supporting evidence that will help the RTA decide whether to keep, drop, or modify the issue or even to add new issues, as called for. The cycle goes on while the review is in progress. The point of this chart is that risk is continuously assessed throughout all stages of the review process. As new information comes in, risk must be re-assessed.

To determine the scope of the review means that, for all the compliance issues, the RTA assesses the associated risk of non-compliance and determines a course of action to resolve them that is appropriate to the circumstances. 

Compliance issues are specific concerns or questions that relate to some aspect of the compliance of a claim; the RTA needs the answer to determine if the claim is compliant in some respect. The scope of the review determines which issues are reviewed, to what extent, and what course of action is needed to either determine that there is compliance or not, or that there is minimal risk of material error. Chapter 4.7 also discusses the scope of the review. 

To assess the risk, the RTA considers many of the same risk factors as the CF and the TC, but reviews them with greater depth and with the perspective of their specialized knowledge. Risk assessment is ongoing throughout the entire review process. As the review progresses, the RTA learns more about the compliance issues for the specific claim and is in a better position to assess the risk of non-compliance.

Risk assessment works most effectively when a standardized approach is used. Even so, risk assessment of the claimed work depends on the professional judgement and experience of the RTA and the research and technology manager (RTM). A standardized approach is particularly important for assessing risk of the claims in the industry/ technology sectors that the RTA reviews. This will help increase consistency and ensure that the RTA uses their time efficiently. A number of considerations are provided in the pages that follow. Chapter 4.6.0 indicates that the RTA does a preliminary identification of potential issues. For each issue and associated project, the RTA assesses the material risk of non-compliance and decides whether to review the file further or to accept the file without conducting further review. The RTA considers both the risk of non-compliance and the materiality of such non-compliance to efficiently plan and complete a review, and to determine the amount of effort and time to spend on any given issue.

The analysis of potential risk, carried out in consultation with the FR and other CRA staff if necessary, will form the basis for the review plan. In simple cases, the RTA can usually identify the issues of potential non-compliance and determine the scope of the review at the same time. For some claims, the RTA may need to review in detail all of the potential issues. However, for most claims, not all the potential issues will be of equal significance or importance in terms of non-compliance with the Act and policies of the CRA. In such cases, the RTA assesses the potential for significant non-compliance and the materiality associated with those issues of non-compliance.

The RTA uses this risk assessment to decide upon the scope of review when preparing the review plan. In making these decisions, the RTA should take into consideration their workload and the fact that not all files, projects or issues can be reviewed to the same extent.

4.3.1.1 Factors that influence the scope of review

Factors that can influence the scope of review for the RTA include the:

• filing and compliance history of the claimant;
• existence of a preclaim project review (PCPR) for the claimed year;
• existence of ongoing account executive (AE) or process review;
• recommendations from a previous first-time claimant advisory service (FTCAS);
• work described in the project information;
• sector-specific issues;
• nature and extent of the non-compliance issue;
• amount of investment tax credit (ITC) at risk;
• opportunity to educate claimant on the requirements of the SR&ED Program and to inform the claimant about available services and literature;
• opportunity to promote self-compliance and proper self-assessment by the claimant;
• opportunity to obtain a better understanding of the claimant’s work; and
• effect of either carrying out a review or not carrying out a review on future compliance.

The depth and scope of the review plan should be sufficient to deal with all significant non-compliance matters. Nevertheless, once the RTA starts to conduct the review, they still should continually re-evaluate the potential for non-compliance and adjust the review as needed. An estimate of the level of non-compliance will determine whether additional review is warranted or whether the review can be terminated earlier than initially planned. If the RTA discovers systemic non-compliance, the RTA should consider expanding the review of the file to include additional projects or issues. On the other hand, the RTA can terminate a review once the RTA has a reasonable level of confidence that there is minimal risk of material non-compliance in the claim.

Directive 2003-01R, SR&ED Claim Processing Risk Management Policy implies that it is not necessary to review all individual projects in a claim, nor must each project be reviewed to the same depth. If the risk of material error is higher, the depth of review is greater. Chapter 4.7.0 contains more details.

Assessing the risk of each issue of concern, and thereby determining the scope of the review, depends on numerous factors and considerations. This is to be carried out on a case-by-case basis and within the context of the RTA’s workload. This list (some of it from page 11 of Directive 2003-01R) provides a partial list of factors or considerations that indicate a potential for higher risk:

• large projects/claims in relation to the industry sector or the claimant’s norm or resources;
• projects that seem unusual for the claimant’s business line;
• project information that strongly suggest that work is not SR&ED or where the descriptions make it difficult to determine what was done;
• indications of lack of separation of SR&ED and commercial activities, particularly where the claim may involve questions of experimental production with experimental development (EP+ED) or commercial production with experimental development (CP+ED);
• projects that are ongoing for many years with no clear end in sight;
• historically significant problems with the issue, with the claimant or with other claimants that had similar issues;
• issue could affect other issues or other companies with the same issue;
• the materiality of the issue. (Chapter 4.3.2 discusses factors to determine materiality.);
• work may have resulted in the creation of a significant commercial asset;
• known R&D centres outside Canada;
• the issue is material, typically the amount of ITC at risk relative to the total claim.

Decisions concerning the scope of the review are a matter of judgement and will need to be coordinated with the FR. The RTA can consult the RTM, if guidance is needed. Important changes to the review plan (scope of the review) once it has been approved by the RTM, requires RTM approval.

4.3.2 Materiality

Materiality is a major consideration in assessing risk. The CRA uses a concept of materiality similar to the one used in public accounting, in that it recognizes that some issues have a greater impact in a given situation and therefore warrant greater scrutiny. Materiality is normally related in terms of amount, either as a specific amount, as a range or as a percent of the total claim.

Like risk, there is no exact way to determine materiality. There is no fixed formula that the RTA can apply. Materiality should be determined on a case-by-case basis; it is a matter of professional judgement, and it may need to be discussed with the FR and / or the RTM.

The RTA should always be alert to circumstances that can change an apparently otherwise immaterial issue into a material one and vice versa. As the RTA discovers new information concerning the file, the RTA should be prepared to revise the scope and extent of the review at any point during the review process, and not just at the planning stage.

The following are some factors for consideration when determining materiality:

• Size of claim – When all other factors are equal, larger claims have higher materiality. Materiality is often determined by relating the amount of ITC at risk to the size of the total claim. An amount considered material for one claimant may not be considered material for another. For example, a $20,000 project may be material where the total claim is $100,000 while the same amount is not likely considered material when the claim is $10,000,000 unless the issues are recurring, or could recur in later years for even larger amounts;
• Cost versus benefit of carrying out the review – Due to the cost involved in carrying out a review, it might not be economical to review issues and projects in cases where the ITC amount at issue is relatively small;
• Consistency – For claimants whose research and development work is similar, materiality should be approached in a consistent manner;
• Replication or escalation – An issue may be material if there is a potential for the issue to be replicated in current or future claims, or if there is a potential for the issue to be escalated in future claims. Such is the case when an RTA receives the first year’s claim for a large project that will continue for years. Also, an issue may become material if there are large numbers of projects involving the same issue, even though, individually, each one is relatively small or immaterial;
• Nature of the non-compliance – A claim or an issue may be considered material if there is obvious or significant non-compliance. This would include claims where it appears likely that all of the claimed work is excluded in paragraphs (e) to (k) of the definition of SR&ED in subsection 248(1) of the Act, and claims where similar work has been previously reviewed and found to be ineligible.
• Other non-monetary factors – The effect of carrying out a review or not may affect the compliance of other claimants. If a number of claimants have similar or identical issues caused by a common or shared reason, an otherwise immaterial claim or issue may become material if there are large numbers of claims involving the same issue, even though, individually, each one is relatively small. Such might be the case when a claimant representative has a significantly different interpretation of the Act than the CRA, or when there is a systemic or recurring issue specific to an industry sector.

4.4.0 Other planning considerations

Planning for some claim reviews can involve additional procedural considerations or requirements. Some of these include:

• Files that are so large and complex that they have a CRA large file case manager (LCFM) assigned to them as a special CRA contact or coordinator for tax issues. Compliance Programs Branch (CPB) Communiqué AD-98-20 has the specific definitions and rankings of these files.
• The claimant's company is large or rapidly growing, and it is expected that future SR&ED claims of the claimant will tend to be large and/or complex in nature.
• The claimed ITC is high (for example, the largest claims in the CTSO).
• The claim includes numerous individual projects (Chapter 4.5.0 has specific suggestions).
• There are many obvious non-compliance issues in the claim received.
• The work presented as SR&ED in the claim or claims occurred in a number of different cities or provinces.
• The claimant has more than one facility that should be visited.
• The RTA should speak to many individuals at different working and/or management levels, in order to review the claimed projects.
• More than one field of science or technology is involved in individual projects.
• The claimant has had an FTCAS service in a previous year and the CRA has made recommendations to the claimant. Consult the complete guide to the FTCAS .

4.5.0 Claims involving a large number of projects

When a claim contains a large number of projects, it may not be possible for the RTA to review each of them to the same degree because of several constraints including cost and time.

In addressing situations like this, generally the first step is to determine whether the claimant has a clear understanding of the definition of an SR&ED project. As a starting point, it is preferable for the RTA to ask the claimant to explain their own way of structuring their claims. If it is determined that the claimant misunderstood the concept of an SR&ED project, the RTA can work with the claimant to better define the projects and then proceed with the review. For example, it is possible that a high number of projects, each comprised of standard practice, might have been claimed as individual SR&ED projects although they are all related to the same attempt to achieve technological advancement at a higher/different level. In this case, the RTA should work with the claimant to better define the project(s) and then proceed with the review.

If this first step is ineffective, then the next step is to apply the grouping strategy as described below.

The CRA does not support direct extrapolation of the results of determinations from a random sampling of projects to the rest of the claimed projects. However, grouping projects based on common attributes (such as a common technological problem, common technology platform, common issue, etc.) and extrapolating the determination from a limited sample of projects to the rest of projects within the group, is an acceptable approach.

The common attributes should be based on common facts from each project in the group and must relate to the issues initially identified by the RTA.

This review strategy allows the RTA to make determinations on a large number of projects without an in-depth review of each one of them. This concept is illustrated below. 

Assume that the RTA is reviewing a claim that has one hundred (100) projects. The RTA randomly selects twenty (20) claimed projects for a detailed review, and concludes that there is no SR&ED in sixty percent (60%) (twelve (12) out of twenty (20)) of those projects. The RTA then extrapolates the results of the random sample and concludes that, on the same basis, there is no SR&ED in 60 out of the 100 projects. This conclusion would not be supportable except for the eligibility determinations on the12 projects that were reviewed since the rationale for finding the remaining forty eight (48) projects ineligible is neither valid nor supportable. There is no linkage between the ineligibility of one of the reviewed projects and the ineligibility of one of the non-reviewed projects.

Now in this same situation, assume that the claimed 100 projects are logically divided into five (5) groups based on common attributes, and four (4) projects within each group are reviewed. If the RTA then concludes that there is no SR&ED in all the sampled projects within the three (3) out of the 5 groups, but there is SR&ED within the remaining two (2) groups, then there is a logical and supportable rationale for concluding that there is no SR&ED in all the projects within the 3 groups for which the determination is that there is no SR&ED in the sampled projects. Similarly, there is a logical and supportable rationale for concluding that there is SR&ED in all the projects within the 2 groups for which the determination is that there is SR&ED in the sampled projects.

Based on a risk assessment (discussed in Chapter 4.3), all projects that belong to a group could be accepted as filed (AAF) based on a limited review of a sample projects within the group provided the limited review of the sampled projects does not identify any issues of concern. For other groups, the RTA can review a sample of projects within each group and extrapolate the results of determinations to the entire population in the same group.

If a common issue spans several projects, it may be possible to ask the claimant a common set of questions or require a common type of documentation for each of the projects in a group. The supportability of the review results will depend on whether the information for each project in the group obtained and reviewed by the RTA is sufficient to support any determinations. See Chapter 5.11.0 if the claimant does not provide sufficient information about projects for the RTA to make determinations.

The RTA should explain the review methodology to the claimant and provide the rationale used for grouping, preferably at the start of the review process. 

It is a best practice for the RTA to work with the claimant when proposing the grouping strategy.   

If the claimant disagrees with the RTA’s approach, they should provide an explanation of why the RTA’s approach for grouping projects is not valid.

The claimant may object to any attempt at grouping of projects. If so, the RTA should explain to the claimant that the other alternative, which is the review of all projects, would be time- and resource-consuming for everybody concerned. The RTA should explain that grouping is a method to expedite the review process – a common goal for both parties.

If the claimant does not wish to co-operate, the RTA should seek their RTM’s approval before proceeding further with their planned grouping strategy. The RTA must document the strategy, the rationale, and decision, and communicate it to the claimant in a timely manner.

4.6.0 Analysis of information and identification of review issues

This step is the heart of the review planning process. Generally, it involves an iterative process of gathering and analyzing technical information, identifying and requesting needed technical information, and identifying issues to be reviewed.  Issues are questions relating to some aspects of compliance in the claim. Ultimately, issues must be resolved before a review is concluded. To "resolve" an issue in the context of the CRM means that the RTA has to make a decision on the outcome of the issue. It does not mean that the RTA and the claimant must agree.

Typically, the process starts with a review and analysis of current and past TF98 files and the information received from the Control Function. Where there has been a previous review, a review of this past information should be conducted when preparing and planning the review. This also includes information from the AE and any PCPRs. The RTA would then typically identify any relevant information missing or needed and obtain it, which may include information requests to the claimant. The analysis of this new information may result in a modification of the review issues. 

At the planning stage, prior to the completion of the review plan, the RTA contacts the FR to begin coordinating the review. Consultations with the RTM and/or co-workers who may be familiar with the claimed work may also occur in the planning stage. In some situations (such as large claims, partnerships or companies with multiple departments or divisions), the review may involve a team of people including one or more FRs, other RTAs, national technology sector specialists (NTSS), Outside Consultants, the RTM, the FRM, the large file case manager (LFCM) and other CTSOs. All their activities will need to be planned and coordinated.

In identifying issues, the RTA should consider any prior difficulties encountered in dealing with the claimant, and in particular, any outstanding issues from prior reviews or recommendations made to the claimant as part of the FTCAS, as these need to be reviewed in the current year. Other factors to consider include whether the claim has other years associated with it, outstanding notices of objection or court cases, or partnerships.

The RTA may find out about non-technical issues that could affect the review process, such as a claimant bankruptcy. If so, the RTA should consult the RTM and/or the FR. "Special Situations" in Appendix A.6 discusses how to address these situations.

Many issues may pertain to one project, or there may be one issue that applies broadly to many projects. Identifying common issues that clearly apply to many projects is important when establishing the scope of the review, since it may be possible to resolve the issue while limiting the review to a carefully selected group of the projects sharing that common issue (discussed in Chapter 4.5.0).

Some review issues may extend generally over the entire claim. Therefore, it is not necessary that they be identified on a project-by-project basis. For example, the project information may indicate that a claimant lacks a clear understanding of the difference between SR&ED and routine work. Therefore, the review effort, at least initially, may involve identifying the claimant’s rationale for putting the claim together. It may not be possible to identify other issues until this underlying one is resolved.

4.6.1 Review issues

As noted in Chapter 2.5.3, eligibility refers to work which meets the definition of SR&ED in subsection 248(1) of the Act. The eligibility policy uses five (5) questions to determine if any work is SR&ED. 

Where an issue directly concerns a question of basic eligibility, the review should first focus on those specific eligibility issues. For example, the substantive issue might be to establish the knowledge base of the claimant prior to their claimed work. Another example might be to determine whether the claimed work was for the purpose of seeking a scientific or technological advancement (STA). Since the resolution of these issues directly affects the basic eligibility of a project, resolving these issues is usually the highest review priority.

The RTA should conduct the technical review in such a way as to reduce or eliminate doubt as to whether or not the selected projects are SR&ED (step 1 of the eligibility policy). 

Once the RTA has determined that there is SR&ED (step 1 of the eligibility policy), there may be additional issues to address related to the extent of eligible work (step 2). These issues include, but are not limited to, questions regarding the start and end of the SR&ED project, support and excluded work, assets and production runs. The RTA, in coordination with the FR, will then resolve the most significant issues from a risk assessment perspective. However, it is important to note that issues related to step 2 of the eligibility policy (extent of eligible work) must never be addressed without having first determined that there is some SR&ED. In other words, the RTA must always establish the presence of SR&ED (step 1 of the eligibility policy) before addressing issues related to the extent of SR&ED (step 2).

Note that not all issues may be evident or relevant at the planning stage. Some of them may only become apparent later in the review. Also, note that while the observations and comments of the CF are a helpful first step in planning the review, they are only considered the starting point. More issues may exist than those identified by the CF. 

The following flowchart illustrates the process that should be used to resolve issues.

This schematic illustrates the 2-step methodology that RTAs should use to determine if work meets the definition of SR&ED.

First it has to be determined if there is SR&ED; this is step 1 and this step involves determining whether the answer to each of the 5 questions is "yes" or "no". It is important for the RTA to understand how and why the SR&ED is performed by working with claimants to fully understand the work. Remember that the 5 questions are inter-related and need to be considered as a whole. Do the answers make sense when compared to the other answers? The RTA should also remember that all answers must be "yes" for there to be SR&ED before continuing to step 2 and that, if all answers are "yes", they can identify the specific scientific or technological uncertainty (STU) and STA before considering step 2.

The second component of the schematic illustrates the various components of step 2: where the extent of eligible work is determined. Step 2 involves including support work, which is defined in 248(1)(d), as well as excluding any work defined in 248(1)(e-k). The key factor used to distinguish between support work and excluded work is purpose; why was the element done and how much is needed? Part of step 2 also involves identifying types of assets. This information assists the FR in determining how the costs are handled. Likewise, with respect to claimed production runs, in step 2 the RTA must determine if they are required, the portion of facility in which the runs are conducted, their duration, and personnel and materials involved. Furthermore, the RTA must determine the context of the production runs. Are the claimed production runs ED+EP? If not, then they are ED+CP? The context of production runs also communicates to the FR how costs are handled. Context is based on technical risk, established by technical consideration and evidence.

4.6.2 Reviewing the SR&ED project and project activities

As noted in the eligibility policy, claimants are required to claim their work as SR&ED projects, and a project consists of one or more inter-related activities. It is also important to note that where an SR&ED project has been correctly identified, that project should not be divided into smaller and possibly ineligible activities. Therefore, the starting point for reviewing issues in projects is to consider that "projects" exist as submitted by the claimant on Form T661. In resolving the identified issues, the RTA should review claimed SR&ED projects in their entirety, rather than breaking them down into their constituent activities. If a project is broken down into isolated and disconnected activities, it may be difficult or impossible to identify any SR&ED.

However, it is quite possible that the claimant has not correctly identified the SR&ED project or all the activities in it.  Some likely possibilities include:

1. The claimant is claiming the entire "company project", that is, the work needed to do a business activity such as developing a new product, not an SR&ED project. There is, however, some SR&ED. Some activities would not be SR&ED.
2. The projects as claimed are not SR&ED projects, but it appears that the company may have broken down an SR&ED project into activities which by themselves are ineligible. The entire claim may be a single SR&ED project.

Therefore, if all the work in the claimed SR&ED projects is not directly in support and commensurate with the work required to meet the SR&ED definition, the RTA can, for these examples:

1. identify parts of a claimed project that are not SR&ED, since although there is an SR&ED project, the claimant has not correctly identified all the components;
2. work with the claimant to identify the SR&ED project and determine what work is SR&ED, since the project as a whole is not; or
3. work with the claimant to identify an SR&ED project and try to determine, if possible, whether the claimed projects are part of this project or reflect work that is commensurate with the needs, and directly in support, of the SR&ED.

From a financial perspective, doing this successfully would also require that the claimant’s internal controls and accounting methods are sufficient and appropriate in order to support the project cost allocations. The RTA would need to coordinate this work with the FR.

If the claimant is unwilling to work with the RTA, or cannot support their claims, the RTA will have to apportion only the work that can be substantiated based on the facts, the documentation that is available, and their professional experience and expertise.

4.7.0 Methodology for resolving issues

The next step in the planning process is to identify the proposed method for resolving the issue(s). Note that the RTA is likely to have a good idea of how to resolve the issues even during the analysis stage of the planning. In the simplest situation, the RTA could propose the same methodology for each of the review issues, but each issue may need a different procedure. There are three basic review methods for resolving issues:

• review without an on-site visit, with or without claimant contact;
• review with an on-site visit; or
• referrals or consultations.

The method to resolve the issues relates to the risk assessment, as noted in Chapter 4.3.1.1. A simple way to relate the risk assessment to the method is noted in this list:

1. low risk – desk review without claimant contact;
2. medium risk – desk review with claimant contact;
3. high risk – review with an on-site visit; or
4. unable to determine risk based on lack of knowledge/ information-review with an on-site visit.

4.7.1 Desk review with or without claimant contact

In some cases, the issues identified by the CF, in the view of the RTA, are not considered issues requiring further on-site review and can be resolved by the RTA without contacting the claimant.

In other cases, some issues may be resolved by contacting the claimant (by phone or by letter). Telephone contact is recommended for relatively simple issues, for straightforward questions of fact or clarity, or for simple information requests. Letters are recommended if the requests are larger or more complicated, or if there is a need to establish a written record of the request. Chapter 5.5.0 contains more information.

If the information received in response to the telephone call or letter is sufficient to resolve the issues, the review can be concluded, and the RTA then documents the decisions and the rationale. Chapter 6 contains details on documenting decisions.

4.7.2 Review with an on-site visit

An on-site visit gives the claimant a greater opportunity to explain their work, and is especially important when it appears on initial examination that some of the issues of concern may not favour the claimant. There are a number of specific reasons for an on-site visit:

• The RTA can better understand the business context of the claimant and their claim and give them information or advice.
• The issues cannot be resolved using the information submitted with the claim, nor by way of a telephone interview or written correspondence.
• Work is not well-described and fails to adequately explain how it meets the requirements of SR&ED.
• There is supporting evidence to inspect, and equipment or processes that can be shown to the RTA, which relate to the claimed SR&ED.
• It is easier to resolve issues on-site since supporting evidence is on-site. The RTA may need to discuss certain issues with a group of key individuals involved in the project and the people who did the work are available on-site to explain their involvement in the claimed work.
• It is easier for claimants to present information in a face-to-face meeting.
• It is easier to explain concerns or decisions.

4.7.3 Referrals and consultations

In some cases, a formal referral or consultation with program specialists (for example, the national technology sector specialists (NTSS) or other Headquarters (HQ) staff) or the involvement of other RTAs may be required. A referral or consultation may be needed to resolve an issue, to clarify how the policy applies to the facts of the case, or because of the size or complexity of a claim. Aside from informal consultation with co-workers, if a referral or formal consultation is necessary, the RTA should first discuss the situation with their RTM. The RTA must have authorization from the Coordinating Tax Services Office's (CTSO) management before undertaking a formal referral or consultation of the types described below. The RTA follows local procedures for any consultations outside their immediate team. Since referrals and consultations can take some time, the RTA should try to identify the need for consultation as early in the process as possible, preferably as part of the review plan.

The appropriate communication tool (such as form, memorandum or letter) should be used to provide the necessary details about the referral or the consultation. Typical reasons for a referral or consultation include:

• The claim meets one of the criteria outlined previously in Chapter 4.4.0.
• The claim is multidisciplinary, involving more than one area of science and / or technology.
• Special expertise is needed to resolve issues.
• The on-site review process reaches an impasse due to differences in opinion between the claimant and the RTA and advice is needed.
• Certain specific issues may require similar treatment in order to ensure consistency, such as when these issues persist in many claims from the same or similar sectors (for example, experimental feed consumed in a commercial context over a wide range of animal science and aquaculture claims).

4.7.3.1 Types of referrals or consultation

There are three types of referrals:

• Headquarters – HQ provides assistance to the field regarding financial, science and sector specific issues. This includes, but is not limited to, providing assistance and direction in identifying and resolving issues related to the eligibility of the projects and / or expenditures; and providing guidance to field staff on the application of the legislation, policies and procedures. RTAs would refer their issues to the Science and Technology Division (S&TD). To do so, refer to the InfoZone websites Financial & Scientific (F&S) – Referral Procedure and the National Technology Sector Specialists (NTSS) – Referral Procedure.
• Outside Consultants – OCs are experts, usually from outside the government who are contracted for their specific technical expertise. Procedures to engage an OC are described in Directive 2003-02 Managing Outside Consultants. The use of an OC incurs a cost and requires management approval.
• Referrals to or a request to involve other CTSOs – In some cases, it may be possible to transfer files to other regions. Refer to Directive 2008-01 for situations when claimants request a file transfer. In other cases, it may be possible to involve RTAs from other CTSOs. The RTA specialization tool can help to locate particular expertise among RTAs. If the RTA is aware of another RTA in another office who can help, or if the RTA wishes to request help from another CTSO, the RTA should consult their RTM.

All referrals and consultations form an integral part of the review and, therefore their results are documented and kept in the TF98 file. If there is any divergence from the advice or opinion received, it should be explained or justified on a T2020 form and the RTM should be consulted.

4.8.0 Written review plan preparation

Most situations require that a written review plan be prepared to describe the review issues and the considered methodology to resolve them.  However, a few circumstances do not require a written review plan, as described below.

4.8.1 Situations where a written review plan may not be required

There are a limited number of circumstances when a written review plan may not be required, as follows:

• At the initial stages of a review, the claim is so lacking in basic information that an information request is needed as the first step. When this information is obtained, a written review plan would then be made. However, if the information is not obtained, and the claim is considered unsubstantiated, a review plan would not be required.
• There was a PCPR for the year(s) under review, and the claimant was given a written PCPR report. If the work on the PCPR was extensive enough, the RTA would only need to verify that the work claimed was performed as discussed during the PCPR, and document their work. This is discussed in Chapter 5.5.1. If this verification indicates that the claimed work was not the same as what was discussed during the PCPR, the procedures of a regular review may be necessary.
• All the issues identified by the CF and any others identified by the RTA can be readily resolved without claimant contact.
• The RTA accepts the claim as filed without any claimant contact.

The RTA may still make a review plan, and local management may still require a review plan when one of these situations exists. Even in cases when a written review plan is not required, the RTA still must document why the review plan was not made, all the work done, what the issues were (if applicable), how the issues were resolved (if that is possible), the determinations and other decisions, and the rationale.

4.8.2 Situations where a written review plan is required

A written review plan must be made for each review in all other circumstances. While the RTA is developing the review plan, they might contact the claimant for clarification, in which case the RTA would document these conversations on a T2020 or equivalent note to file. As in the rest of the review, coordination with the FR is needed.

The details required in the review plan will vary depending on such factors as the size of the claimant, the complexity of the issues and the nature of the review. A review plan does not need to be long or complex. It can be as simple as a short list of issues, or even a single issue, a simple listing of the initial questions the RTA plans to ask, and a simple description of the planned review methodology. A more complex file might need a detailed procedure, a listing of meeting dates, topics the RTA plans to discuss, the names of CRA and claimant personnel, site locations to visit, items to inspect, and so forth.  A review plan is a tool to guide the RTA, but it does not bind them. It indicates the RTA’s intentions based on an examination of the available information from the claim and other possible sources including preliminary discussions with the claimant, if any occur. 

As indicated in Chapter 5, it may happen that the actual work performed during the review will differ from the planned work, because new information obtained during the review may raise new issues, particularly those which cannot be easily identified in a desk review. Information obtained during the review can also make issues previously identified in the review plan irrelevant or immaterial, as the risk level goes up or down. Therefore the scope of the review would be adjusted accordingly during the review. Deviations from the original review plan, as they occur over the course of the review, are documented in the TF98 file by way of a T2020 or if done later, via the SR&ED review report. Where deviations from the original review plan are material, consultation with and approval by the RTM would be needed. Normally there is only one review plan, and it is usually sufficient to document changes to it in the file or report, rather than re-writing the review plan after every revision. The RTA keeps the review plan and any revisions to it, if made, in the TF98 file.

There is no required template for the plan. The RTA may use the sample in Appendix A.4. Some offices have developed templates to be used by the RTA. However, the only requirement is that the written review plan is a separate document that must:

1. identify the claimant (name, year, business number);
2. identify the RTA’s name and date prepared;
3. identify the technical and joint technical-financial issues with the associated project(s), which includes issues previously identified by the Control Function;
4. outline the suggested scope of the review; this is applicable only if not all of the issues/projects will be reviewed in detail; explain the basis for the scoping (some details of the risk analysis); and
5. outline the proposed methodology to resolve the issues; this could be some basic questions to ask, information to request and review during an on-site visit, or the need for consultation.

The review plan is an internal document that should not be given to the claimant. Among other things, it often contains information about risk assessment. In most cases, though, the review plan would be available under Access to Information and Privacy (ATIP) once the proposal package is sent. It should be noted, however, that the elements of the review plan that are important for the claimant must be communicated to the claimant at an early stage of the review. 

4.8.2.1 Working with claimants during review planning

4.9.0 Review plan approval

The review plan must be approved by the RTM before the start of the review. The RTM may suggest additional review issues, want other elements in the review plan, or suggest that some issues do not need to be reviewed in detail. The intent of the approval is not to review all the details of the plan but to ensure the overall scope of the review is appropriate. The RTM may delegate this approval.

It is also recommended that the RTA inform and consult the RTM in certain atypical circumstances which may affect the review process or the CTSO’s resources. Examples of such circumstances may include, but are not limited to review plans that involve:

1. unusually large, complex or contentious claims;
2. significant human or financial resources, or travel expenditures; or
3. consultation and coordination with other areas of the CRA.

In addition, it is recommended that RTM consultation be required for new RTAs. The intent of this is to allow RTMs to provide training and support to new RTAs.

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