How to Prepare for a CRA SR&ED Audit

Receiving a Notice of Audit from the Canada Revenue Agency (CRA) regarding your SR&ED claim can be stressful. However, if you have prepared correctly throughout the year, an audit is simply a review procedure, not a crisis.

Here is how you can ensure your startup is always audit-ready.

1. Contemporaneous Documentation is King

The single most important factor in surviving an SR&ED audit is contemporaneous documentation. This means documentation generated during the course of the work, not written six months later when you are preparing the claim.

The CRA looks for evidence that the scientific method was followed. They want to see:

• The initial hypothesis.
• The experimental design.
• The results of the tests (including failures).
• The conclusions drawn and next steps.

Good examples of contemporaneous documentation:

• Jira/Linear tickets tagged with SR&ED labels showing the evolution of a problem.
• Git commit messages detailing specific algorithmic changes and why they were made.
• Whiteboard photos, architecture diagrams, and meeting minutes from technical planning sessions.
• Slack/Teams logs discussing technological roadblocks and potential solutions.

2. Track Time Accurately

If you are claiming salaries, the CRA will want to see exactly how much time employees spent on eligible activities versus routine work.

While the CRA does not mandate a specific time-tracking software, they do require a reasonable and verifiable method. Weekly timesheets where engineers categorize their hours against specific SR&ED projects are the gold standard. Do not rely on estimates made at the end of the fiscal year; these are almost always rejected or heavily discounted during an audit.

3. Understand Your Project Boundaries

An audit will dissect your projects. Be prepared to clearly define the start and end points of the SR&ED work.

SR&ED begins when the technological uncertainty is identified and ends when that uncertainty is resolved (or the project is abandoned). Work done before the uncertainty is identified (routine planning, business requirements gathering) and work done after it is resolved (routine commercialization, marketing, bug fixing) is not eligible.

4. Designate an SR&ED Champion

Have one person in your organization—typically a CTO, VP of Engineering, or a dedicated finance lead—responsible for maintaining the SR&ED narrative. This person should be able to clearly articulate the technological uncertainties and advancements to the CRA reviewers.

Conclusion

An audit doesn't have to be a nightmare. By integrating SR&ED tracking into your daily engineering workflows (like tagging Jira tickets and committing detailed code logs), your documentation will write itself.