According to Ian Bell, in recent months, a growing number of startups have reported abnormally aggressive audits by SR&ED reviewers that have resulted in substantial reductions in SR&ED claims. There seems to be an overall strategy to reduce the claims paid out by the CRA, which has been confirmed by the reductions to SR&ED in the 2012 federal budget, and the flood of new auditors being hired by the CRA on LinkedIn.
Canadian entrepreneurs, when compared to US entrepreneurs, face the added challenge of highly limited sources of early-stage financing. Many entrepreneurs are relying on IRAP grants to bootstrap the company for the first fiscal year, and then on the SR&ED return to finance fiscal year two. With a reduction in the SR&ED program, and more aggressive audits from the CRA, Bell opines that SR&ED is turning into a game of Russian Roulette for startup companies. If a startup is depending on the cashflow from its SR&ED return, the chances have increased that its head will be blown off.
