Reviewed by Logan Hanson, BSc, CPA. Last verified against CRA guidance on July 29, 2026.
The claim survives if you can rebuild the link between hours and technical work. When the CRA flags time tracking on review, it is not saying your R&D did not happen. It is saying the hours you claimed are not clearly tied to the specific eligible projects. That is a documentation gap, and a defensible allocation built from the records you already have will usually carry the claim.
A lack of time tracking is a common audit failure point, and it catches good companies with real R&D. The work being legitimate is simply not the same thing as the hours being provable.
Contemporaneous time tracking is the strongest evidence, but it is not the only acceptable evidence. The CRA wants a reasonable, supportable basis for the hours, and several kinds of records can provide that. You can see the CRA’s expectations on the SR&ED program pages.
You reconstruct the timeline. The goal is to show the reviewer when the uncertainty was first encountered, when the iterations occurred, and how the claimed hours map onto that arc. Combining several record types is what makes the allocation credible rather than a guess.
Done well, this turns a vague percentage into a defensible, evidence-backed allocation the reviewer can follow. It is the same discipline that keeps future claims out of trouble.
A 15-person industrial and mechanical engineering manufacturer had a prior year’s claim flagged during a CRA review for weak time-tracking records. The technical work was legitimate, but the hours could not be clearly tied to specific eligible projects. The engineering team had strong design records and prototype logs, but none of it connected time spent to the technical problems being solved.
We rebuilt a defensible link between the documentation already on hand and the hours claimed, showing the CRA when the uncertainty was encountered, when iterations happened, and when the team was out of the office. The CRA accepted our time allocation with a 5% reduction, so the $220,000 claim was allowed at 95%, about three months after the issue was raised. We then set up a lightweight ongoing process so the gap would not recur. This is one of eleven engagements in our full SR&ED case studies document.
Take a Canadian-controlled private corporation (CCPC) with $560,000 in eligible salaries and $86,000 paid to an arm’s-length Canadian contractor. The contractor counts at 80%, adding about $69,000, for a qualifying base near $629,000. At the enhanced 35% refundable rate, that is roughly $220,000 in federal credit, before the prescribed-proxy overhead amount and provincial credits, which usually push the total higher.
Accepted at 95%, the company keeps about $209,000 of that credit. The 5% reduction is roughly $11,000, the price of a time-tracking gap that better records would have closed entirely. For a CCPC, the credit is refundable, paid as cash even with no tax owing, up to the enhanced ceiling on the first $6 million of expenditures, for up to $2.1 million per year. That ceiling phases out as taxable capital grows and is shared among associated corporations.
Use this to keep your hours defensible before a reviewer ever asks.
Defending a flagged claim is exactly where a technical-first process earns its keep, because the whole question is whether the hours can be tied back to real technical work. SRED.ca charges a flat fee billed monthly, published openly and roughly half the lifetime cost of percentage-based firms, with review and audit defence included. We are the only SR&ED provider we are aware of that publishes its pricing.
We back the work with a 75% approval guarantee: if the CRA approves less than 75% of the filed claim, we waive our fees. Then we set up year-round tracking so next year’s claim is audit-ready from day one. For more, see our guides on why companies miss SR&ED refunds and how to prevent missed refunds.
If the CRA has questioned your SR&ED hours, the claim is not lost. With the right records reassembled into a defensible allocation, most of these claims are accepted, often with only a small reduction. A free consultation usually tells you within an hour how strong your position is. For the bigger picture, see our State of SR&ED hub.
Your claim can still succeed. If you can rebuild a defensible link between the hours claimed and the eligible technical work using records you already have, reviewers will usually accept a reasonable allocation.
Contemporaneous time tracking is the strongest evidence, but it is not the only acceptable evidence. Design records, prototype logs, version histories, and project milestones can support a reasonable time allocation after the fact.
Yes. Weak time records are one of the most common reasons for a partial reduction on review, even when the R&D itself is clearly eligible. The work being real is not the same as the hours being documented.
You reconstruct the timeline from design documentation, version histories, and test logs, and tie the hours to when the uncertainty was first encountered, when iterations happened, and when staff were away.
It varies. Reductions can be small or substantial. In one engagement, a $220,000 claim flagged for weak time records was accepted at 95% after the link between hours and technical work was rebuilt.
Yes. After defending a claim, we put a lightweight ongoing process in place so hours are captured cleanly from day one and the same gap does not recur.
This article is general information, not tax advice. Tax figures depend on your corporation type, province, and taxation year.
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