Previous SR&ED Claims and CRA Audit Letters
Navigating the landscape of commercial financing, especially when it involves specialized funding options like forward financing secured by Scientific Research and Experimental Development (SR&ED) credits, can introduce small and medium-sized business (SMB) owners to a unique set of document requests. Among these, lenders may ask for documentation related to previous SR&ED claims and any Canada Revenue Agency (CRA) audit letters associated with those claims. This requirement might seem daunting at first, but understanding why these documents are important to lenders and knowing where to find them can streamline the application process. This article aims to demystify these requests, focusing on the importance of these documents and guiding you on how to access them.
Understanding the Importance of Previous SR&ED Claims and CRA Audit Letters
Verification of SR&ED Credits: Lenders specializing in forward financing secured by SR&ED credits are primarily interested in verifying the existence and size of these credits. Your previous SR&ED claim submissions serve as proof that your business engages in eligible research and development activities and that these activities have been recognized and quantified by the CRA.
Assessment of Compliance and Risk: CRA audit letters related to your SR&ED claims can be equally important. These letters provide insight into the CRA's assessment of your claims, including any adjustments made by the CRA and the reasons behind those adjustments. For lenders, these letters help assess the level of compliance with SR&ED claim requirements and the associated risk of future claims being adjusted or denied.
Historical Performance and Reliability: Both your SR&ED claim documents and any related audit letters offer lenders a historical view of your company's performance in securing and justifying SR&ED credits. This history can be indicative of your business's ability to continue generating eligible R&D activities and successfully claiming SR&ED credits, which, in turn, affects the security of the financing they provide.
Where to Find Your SR&ED Documentation
If a lender has requested your previous SR&ED claims and any associated CRA audit letters, here are several ways to locate these documents:
Your Business Records: Ideally, your business should maintain comprehensive records of all SR&ED claim submissions and correspondence with the CRA, including audit letters. These documents should be part of your financial or tax records, organized by year for easy access.
CRA My Business Account: Through the CRA's My Business Account portal, businesses can access detailed tax information, including previously submitted SR&ED claims and any correspondence or documents related to those claims. If you've engaged in communication with the CRA about your SR&ED claims, this information should be available in your account.
Your SR&ED Consultant or Tax Preparer: If you work with an SR&ED consultant or a tax professional who helps prepare your SR&ED claims, they should have copies of all submissions and any CRA correspondence, including audit letters. These professionals can also provide insights into the documents and assist with any explanations required by the lender.
Request Copies from the CRA: If you're unable to locate these documents through the above means, you can request copies of your SR&ED claim submissions and any related audit letters directly from the CRA. Requests can be made via your My Business Account, by phone, or in writing. Be prepared for this process to take some time, as retrieving historical documents can involve several steps on the CRA's part.
Final Thoughts
Understanding the significance of your SR&ED claim documents and CRA audit letters in the context of securing forward financing secured by SR&ED credits is crucial for SMB owners. These documents not only prove your eligibility and compliance but also help lenders assess the viability and reliability of using your SR&ED credits as collateral. Being proactive in maintaining and organizing these documents can greatly facilitate the financing application process, ensuring you're prepared to meet lenders' requirements efficiently. Moreover, this preparation signals to potential lenders your business's thoroughness and reliability, potentially enhancing your attractiveness as a borrowing candidate.