Software Development and SR&ED Time Tracking

Companies can claim up to 68% of R&D costs from the Canada Revenue Agency to support your software research and development projects. However, without proper records, it will be difficult to receive a refund from the CRA.

This exceptional SR&ED tax credit greatly offsets the costs associated with R&D, yet many companies fail to reap the benefits of this credit due to a lack of proper documentation.

For software development projects, generally most of the work is based on payroll expenses of your own team, or for R&D work outsourced to a software development company. In both cases an essential part of the documentation is based on tracking the time spent on the R&D activities. It’s important to have an effective SR&ED time tracking system for projects eligible for this tax credit.

Here’s how to leverage SR&ED time tracking to ensure your projects eligible for the tax credit qualify.

Software Development Project Plan

To support your claim, a project plan is a great source of information. This helps to support your claim as it provides important details including:

• Functional specifications
• Technical specifications
• Resource planning and other planning documents

Your software development project plan provides complete visibility of the hours required on the project, how much is required under functional or technical work, and where resources will be allotted to assist with time tracking efforts.

Contemporaneous Documentation

The CRA recommends software development companies provide “contemporaneous documentation” that is dated, or signed, and created while the specific work is performed for your SR&ED application. These documents show who worked on the SRED project, what work they carried out, and how much time they spent. Because this information is so specific, your development team needs to gather information as and when the research is carried out, which is what is meant by “contemporaneous documentation”.

This includes time tracking based on individual time reporting via timesheets, a time clock system, or other methods. Since different employees are involved, developing a process followed across the board to capture time effectively should be introduced at the very start of the project.

It may be helpful to capture “negative time reporting” to track non-eligible labour expenditures that can be subtracted from the total labour expenditures.

We recommend that you track the time of your project teams using the following:

• Daily reports: Keep detailed accounts of time allotments for all daily activities including:
• • Engineering or Development
• • Architecture
  • Testing
  • Project Management
  • Technical Analysis
  • Technical Requirements
  • Admin
• Weekly meetings: Take notes during weekly meetings and include them in the documentation to support hours worked with proof of work and findings associated with the work.
• Periodical summaries (e.g. monthly or quarterly).

These tactics ensure your entire development team is tracking hours effectively, so you will have no problem providing the CRA with the documentation required.

SR&ED Time Tracking

Since your tax credit is calculated as a percentage of the salary/money spent R&D, what you provide to the CRA should outline how much time was spent, what was done during that time, and findings of each day’s work. Every day is important with documentation that clearly indicates what time is spent on SR&ED and non-SR&ED work. By doing so, you improve efficiencies and can reconcile total hours spent with a breakdown of both eligible and non-eligible hours. All software developers, therefore, must understand what activities qualify for SR&ED and what activities don’t.

They should also share the same time tracking process, so all hours are being tracked in the same manner. For example, each developer should use the same categories such as “development”, “testing”, and “project management” so all hours are collected consistently and can be calculated collectively from each team member.

It’s okay to use your existing project management platform to track your time. In fact, this makes it easier for team members as they are already in the habit of using the system. Introducing new processes can lead to errors and inconsistencies. If you don’t use a project management solution, then you can choose one of the following time tracking solutions:

• Manually on a daily log
• Using a spreadsheet
• Using a time tracking software such as Harvest or Clockify

The bottom line is that consistent timesheets with all hours accounted for make it possible for time tracking to be accurately calculated as a percentage of eligible hours spent for the tax credit.

Get Help With Time Tracking For Your SR&ED Tax Credit Claims

Finding the best solution for time tracking is just one step in a successful application for SR&ED tax credits. If you want optimal results, it’s best to get professional advice from a SR&ED Consultant before your project even begins. Contact the Conceptinero group for help to maximize your SR&ED tax credits.