Timesheets are always a contentious subject especially when it comes to smaller businesses who do not have the same documentation resources of larger enterprises. Companies often ask if having timesheets will significantly bolster their chances of passing a SRED audit.
First of all, you do not need to submit timesheets with your T661 form. If you are not audited, no one will look at your record keeping. However, there is a new checklist (currently lines 270 – lines 282) that asks you to check off all the evidence you have to support your claim. Many unwary companies check all of the boxes in an effort to make their claim look better. This immediately sets off a red flag to reviewers and may result in an audit. If there is an audit and you are unable to produce the evidence, eg timesheets, you will have a problem.
The bottom line is: don’t check off items unless you are prepared to back it up.
With respect to timesheets, where they can help is proving that the employees you are claiming for R&D tax credits actually worked on the projects you claimed. This is especially important when the employees were not 100% dedicated to R&D. You need to show that you had a method of tracking their R&D and non-R&D time.
There are many commercial, Open Source and Web-based timesheet systems out there. Whichever one you choose, make sure that the time of each employee is properly categorized and labelled so it’s easy to tell which R&D project they worked on. The more detail you have the better, so breakdowns of work within a project are even better, eg analysis, architecture design, testing. There is no particular timesheet format that is SRED eligible so use your judgement. Auditors understand that smaller companies will not have the same level of documentation as larger companies (though don’t use this as an excuse to present shoddy documentation).