Category Archives: SR&ED Policy

5 Easy Question SR&ED Eligibility Guide

The SR&ED program is a tax credit system designed to encourage Canadian businesses to make technological and process improvements and make Canada a world leader in advanced technology.

It’s an amazing financial opportunity for businesses to take advantage of across a wide variety of industries, but eligibility for the program can be confusing.

This article is intended to take some of the mystery out of the process of determining whether your R&D project is SR&ED eligible. So, if you’re wondering, “Is My Project Eligible for SR&ED funding?,” this 5 easy question SR&ED eligibility guide will help you decide whether or not to move forward with a claim.

What is the SR&ED Program?

The scientific research and experimental develop program (SR&ED) is an R&D tax credit incentive offered by the Federal Government of Canada which pays more than 20,000 eligible Canadian Controlled Private Corporations in excess of $3 Billion (CDN) each year.

Basic SR&ED Eligibility

Almost any Canadian company can be eligible to apply for Scientific Research and Experimental Development (SRED). Here are the basic eligibility criteria from a company perspective:

Your research & development took place within Canada
You have proof of expenditures related to the claimed projects, for example T4s, and/or invoices
You have ownership of the Intellectual Property resulting from the project
You are in good standing with government financial reporting
Your project expenses were incurred within 18 months of the fiscal year-end as of filing

The definition of technological advancements can be interpreted broadly and therefore is not limited to specific industries. A wide range of industries submit SR&ED claims each year, including:

Software
Information Technology, inclusive of hardware, software and electronics
Manufacturing
Agribusiness
Chemicals
Food and Beverage
Health Care and Medical
Machinery & Equipment
Plastics and Materials
Pharmaceuticals
Textiles
Real Estate and Construction

What many businesses don’t realize is that some of the routine business challenges they face each year could be eligible for the SR&ED tax credit. The following 10 SR&ED examples show different cases of its application.

5 Easy Question SR&ED Eligibility Guide

The Canada Revenue Agency (CRA) determines whether or not your project meets the Scientific Research & Experimental Development(SR&ED) specifications using the following three criteria:

Technological Advancement – furthered technical knowledge
Technological Uncertainty – faced technical challenges or uncertainties
Technical Content – went through an iterative process to try and overcome those challenges or uncertainties

This is great, if you understand what they mean by it! The following 5 easy question SR&ED eligibility guide should help you arrive at the right conclusions.

1. “Was there a scientific or a technological uncertainty that could not be removed by standard practice/engineering?”

This is often misunderstood. It is not that a product or process is “new” that makes it SRED. Developing a new product may not necessarily be a SR&ED eligible product unless some technological uncertainty was overcome in the process. If a new widget however, used a new manufacturing process or material that needed experimentation to develop, it’s a sign that technological uncertainty existed. Even if the experimentation ended in failure, this part of the project could still be claimed as a SRED.

2. “Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty?”

Further to the above point, if there is an unknown factor in developing a product or service, it stands to reason that there will be one or several approaches that will be tested in order to overcome it. Following the scientific method of hypothesis testing indicates a SR&ED project and should be documented to support the claim.

3. “Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypothesis?”

As in any iterative process, a hypothesis must be tested and modified based on the results. Again, it shows the CRA that a scientific model was followed and that a true technological uncertainty existed.

4. “Did the process result in a scientific or technological advancement?”

Whether successful or not, the testing of a hypothesis will lead to a conclusion – hopefully to a solution. The solution is considered a technological advancement if it means you are now able to complete a process, product or service that you previously were not able to. If the testing does not lead to a successful solution, the R&D work done is still SR&ED eligible.

5. “Was a record of the hypothesis tested and results kept as the work progressed?

Since the process involved in SR&ED work, i.e. the scientific method, is important in determining the eligibility of a claim, it’s important to document it completely. Time tracking of individuals on a project is especially critical to document accurately as wages associated with a SR&ED project are one of the main components of a claim.

Contact us today for a free, no-risk consultation.

Since claiming SR&ED is complex and you do not want to reviews or rejections of your claim it is wise to have the support of a SR&ED professional. Many of our new clients see a significant increase in their SRED refunds when using our end-to-end services.

We’ll help you catch non-intuitive expenses and activities that are routinely overlooked or unclaimed as well as help you implement a tracking tool to simplify the process of your future claims.

With zero upfront fees, there is absolutely no risk to your business to access our time proven support!

Scientific Research and Development tax credits Across Canada

Canada’s research and development tax credit system is a great financial opportunity for many businesses across all industries.

However, market research shows that many eligible organizations experience significant difficulty in determining which projects are eligible and as a result many go unclaimed.

Add to that complex legislation and time intensive report preparation and businesses which are otherwise eligible to take advantage of SR&ED, may not make the effort.

One of the benefits of working with a professional consulting firm is that you are informed of all possible R&D funding opportunities. Most Canadian provinces and territories offer additional R&D tax incentives at a provincial level, therefore it is essential to be informed of all opportunities and how they fit together.

Enhanced Capital Recovery’s services include application for both the Federal and Provincial SR&ED programs. As SR&ED experts, you can expect your claim to be thoroughly processed, and optimized to meet CRA’s strict expectations. In the case of a review, we will be there to assist and guide you throughout the process.

A big part of our SRED service is that contacting us for an assessment is risk free. In fact we’re so confident in our ability to accurately assess and deliver successful SRED claims, that all of our services are based on a percentage of tax credits granted.

The following is an overview of all Provincial and Territorial research and development tax credits across Canada as of December 31^st, 2015.

“Newfoundland and Labrador

Research and development tax credit

The Newfoundland and Labrador research and development tax credit is administered by the Canada Revenue Agency (CRA) and is fully refundable at the rate of 15% of eligible expenditures.

Eligible work and expenditures:
Those that qualify for federal SR&ED tax credits

Filing deadline for claiming the credit:
12 months after the filing due date

Provincial Web site:
Newfoundland and Labrador – Research and Development Tax Credit

Nova Scotia

Research and development tax credit

The Nova Scotia research and development tax credit is administered by the CRA and is fully refundable at the rate of 15% of eligible expenditures.

Eligible work and expenditures:
Those that qualify for federal SR&ED tax credits

Filing deadline for claiming the credit:
18 months after the corporation’s tax year-end

Provincial Web site:
Nova Scotia – Research and Development Tax Credit

New Brunswick

Research and development tax credit

The New Brunswick research and development tax credit is administered by the CRA and is 15% Refundable on eligible expenditures incurred after December 31, 2002, and 10% Non-refundable on eligible expenditures incurred before January 1, 2003.

Eligible work and expenditures:
Those that qualify for federal SR&ED tax credits

Filing deadline for claiming the credit:
Not applicable

Carryback / carryforward:
Non-refundable tax credits can be carried back 3 years and forward 7 years.

Provincial Web site:
New Brunswick – Research and Development Tax Credit

Quebec

For information with respect to Quebec’s R&D tax credits, please visit the provincial Web site at:
Scientific Research and Experimental Development – Quebec

Ontario

Ontario innovation tax credit (OITC)

The Ontario innovation tax credit is administered by the CRA after December 31, 2008, and is fully refundable at the rate of 10% of qualified expenditures.

The annual expenditure limit of $3,000,000 of qualified expenditures is phased out when the corporation’s taxable paid-up capital for its preceding tax year exceeds $25,000,000 and, it is eliminated when it reaches $50 million. The expenditure limit is also phased out when the corporation’s taxable income for its preceding tax year is over $500,000 but does not exceed $800,000.

Eligible work and expenditures:
Only expenditures for SR&ED carried on in Ontario, for which the taxpayer is eligible for the federal SR&ED investment tax credit (ITC), qualify for the OITC.

Ontario rules draw on the federal SR&ED rules relating to the definition of SR&ED, qualified expenditures, the expenditure limit, and its reduction based on prior-year taxable income.

Filing deadline for claiming the credit:
Not applicable

Ontario business-research institute tax credit (OBRITC)

The Ontario business-research institute tax credit is administered by the CRA after December 31, 2008, and is fully refundable at the rate of 20% of qualified expenditures.

There is a $20 million annual cap. The cap must be allocated within an associated group of corporations.

Eligible work and expenditures:
Ontario rules mirror federal SR&ED rules regarding the definition of SR&ED and qualified expenditures other than an expenditure that may reasonably be considered to fund the payment of salary or wages to an employee of the eligible research institute who is connected to the corporation making the expenditure or a prescribed type expenditure.

Filing deadline for claiming the credit:
Not applicable

Ontario research and development tax credit (ORDTC)

The Ontario research and development tax credit (ORDTC) is administered by the CRA after December 31, 2008 and is non-refundable at the rate of 4.5% of eligible expenditures.

Eligible work and expenditures:
Those that qualify for federal SR&ED tax credits Prescribed federal form T2SCH31 must be filed to claim the ORDTC.

Filing deadline for claiming the credit:
Not applicable

Carryback / carryforward:
Carry back 3 years to reduce Ontario corporate income tax payable, but not to a tax year that ends before January 1, 2009.
Carry forward 20 years

Ontario transitional tax debits and credits

The Ontario transitional tax debits and credits are administered by the CRA after December 31, 2008.

Corporations may be subject to an Ontario transitional tax debit or be eligible to claim an Ontario transitional tax credit due to the harmonization of the two legislative acts governing federal and Ontario income taxes.

Manitoba

Research and development tax credit

The Manitoba research and development tax credit is administered by the CRA and is non-refundable at the rate of 20% on eligible expenditures incurred after March 8, 2005, and 15% on eligible expenditures incurred before March 9, 2005.

Eligible work and expenditures:
Those that qualify for the federal SR&ED tax credit

Filing deadline for claiming the credit:
1 year after the filing due date

Carryback / carryforward:
Non-refundable tax credits can be carried back 3 years and forward 10 years for tax years ended after 2003 and carried back 3 years and forward 7 for tax years ended before 2004 and applied against the Manitoba income taxes payable.

The non-refundable tax credit carry forward period has been extended to 20 years for tax years ended after 2005.

Provincial Web site:
Manitoba – Research and Development Tax Credit

Saskatchewan

Research and development tax credit

The Saskatchewan research and development tax credit is administered by the CRA and is non-refundable at the rate of 10% for all eligible expenditures after March 31, 2015, 15% for all eligible expenditures occurring before March 19, 2009, and refundable at the rate of 15% for all eligible expenditures occurring after March 18, 2009 and before April 1, 2015.

Effective for qualifying R&D expenditures incurred on or after April 1, 2012, the refundable R&D Tax Credit for Canadian-controlled private corporations (CCPC) will be subject to a maximum annual limit of $3.0 million in qualifying expenditures. Qualifying expenditures in excess of this annual limit, as well as all qualifying expenditures by other corporations, will now be eligible for a 15% non-refundable R&D Tax Credit. The non-refundable credit can be carried back 3 years and forward 10 years to be applied against Saskatchewan Corporation Income Tax otherwise payable.

Provincial Web site:
Saskatchewan – Research and Development Tax Credit

Alberta

Scientific research and experimental development tax credit

The Alberta scientific research and experimental development tax credit is administered by the Alberta Ministry of Finance and Enterprise and is refundable at the rate of 10% on up to $4 million in eligible expenditures of a qualified corporation, for a maximum credit of $400,000.

Eligible work and expenditures:
Those that qualify for the federal SR&ED tax credit and were incurred in Alberta after December 31, 2008

Filing deadline for claiming the credit:
15 months after the corporation’s filing due date

Provincial Web site:
Alberta Corporate Tax Overview – Includes SR&ED tax credit links

British Columbia

Scientific research and experimental development tax credit

The British Columbia scientific research and experimental development tax credit is administered by the CRA and is refundable for CCPCs up to 10% of the expenditure limit (i.e., $3m x 10% = $300,000) and non-refundable otherwise at a rate of 10% of SR&ED qualified British Columbia expenditures.

Eligible work and expenditures:
British Columbia rules parallel the federal SR&ED rules relating to the definition of SR&ED, qualifying expenditures, and the expenditure limit.

The tax credit is refundable for CCPCs at the rate of 10% of the corporation’s SR&ED British Columbia qualified expenditures for the tax year.

The British Columbia SR&ED tax credit has been extended to allow corporations that are members of partnerships to claim their proportionate share of the partnership’s SR&ED carried on in British Columbia, for qualified expenditures after February 20, 2007.

Filing deadline for claiming the credit:
18 months after the corporation’s tax year-end

Provincial Web site:
British Columbia – Research and Development Tax Credit

Yukon

Research and development tax credit

The Yukon research and development tax credit is administered by the CRA and is refundable at the rate of 15% of eligible expenditures. An additional 5% is available on amounts paid or payable to the Yukon College.

Eligible work and expenditures:
Those that qualify for federal SR&ED tax credits

Filing deadline for claiming the credit:
12 months after the filing due date

Territorial Web site:
Yukon – Research and Development Tax Credit”

“Scientific Research And Experimental Development Tax Incentive Program”. Cra-arc.gc.ca. N.p., 2015. Web. 16 Apr. 2016.

Simple Guide to SR&ED Tax Credits in 2016

Claiming your R&D tax credits for your corporation or business can seem complex and overwhelming. In fact, it does take specialized knowledge and insight to maximize your return and to complete it in a way that meets the CRA’s requirements.

Enhanced Capital Recovery is here to take care of your R&D claim, ensuring that nothing is missed and that all the “I”s are dotted and “T”s are crossed on your claim. Even if you prefer to claim on your own, consider ECR to help review your current claim or even past claims. We offer free, no risk consultation – just fill out the contact form at the end of this post if you’d like to take advantage of the opportunity.

The following is the process for completing the claim, with a few tips to overcome some of the challenges in the process.

Forms Required

Whether you’re a corporation, or an individual who carries on a business, you have to complete and file Form T661 if you want to claim SR&ED expenditures. This form is used to provide technical information about your SR&ED projects, calculate your SR&ED expenditures, and calculate the SR&ED expenditures that qualify for an investment tax credit.

To claim your investment tax credit, you also have to file either Form T2038, Investment Tax Credit for Individuals, or Schedule T2SCH31, Investment Tax Credit for Corporations, along with form T661.

Tips:

Document R&D work while it’s in process; for example, keep track of any product trials, experiments to remedy unanticipated results, and documents explaining industry research; meet with key employees often to capture these improvements and make a habit of discussing and documenting your expanding industry knowledge; ECR can help you implement a streamlined tracking system to make end of year filing easier.
It’s good practice to file your SR&ED forms at the same time that you file your income tax return.

Completing Your T661 Form

Form T661 has 10 parts that can be grouped into five components:

general information,
project information
financial information
statistical information
certifications

Part 1: Simply fill out your general information, such as identification and contact information.

Part 2: Project information. In this section, you need to provide detailed information about the scientific or technological content of your work. A separate Part 2 must be completed for each project you’re claiming.

Part 3: Calculate your deductible expenditures for the purpose of calculating your net income.

Part 4 & 5: Calculate the expenditures that qualify for your investment tax credit. If you chose the proxy method to calculate your overhead and other expenditures, you’ll calculate your prescribed proxy amount in Part 5 of the form.

Part 6: Break down the costs for each project you’re claiming in the year.

Part 7: This section helps the Government develop valuable statistics about the type of R&D work done in Canada.

Part 8, 9 & 10: The checklist to make sure that your claim is complete before filing it, then provide information about your claim preparer in Part 9, and sign parts 9 and 10 to certify that all your information is true, correct, and complete.

Maximize your R&D incentives

ECR is a top tier R&D consulting firm. Contact us today for your free consultation!

My 2016 R&D Resolution: Plan My SR&ED Claim Early!

There are significant advantages to planning your Scientific Research and Experimental Development (SR&ED) claim in advance. Did you know that by submitting your claim within the first six months of your fiscal year end, your claim will processed and returned by the CRA within one hundred and twenty days?

Less waiting means improved cash flow for your business, so make it your New Year’s resolution to plan your SR&ED claim early!

Getting started

Start the planning process with your SR&ED consultant and let him know that you want to plan out your claim from start to finish. Be sure to review your current time tracking and documentation methods. Specific tools can be used to streamline this process and make gathering the necessary information at the end much easier.

Also, you want to ensure that your tracking methods meet the CRA’s strict documentation standards. The goal is to allow your team to focus on their business and giving you the peace of mind of knowing that your documentation will support your claim.

Why choose Enhanced Capital Recovery for your SR&ED planning?

Highly qualified and experienced SR&ED consultants can help you plan and then stay on track to ensure that your next claim is maximized and seamless. Since 1994 Enhanced Capital Recovery’s team has been providing leading-edge technical and financial services to companies seeking to maximize their R&D incentives and tax recovery. With offices in BC, Alberta and Ontario, we offer a professional, end-to-end, risk free approach which explores all possibilities to maximize your R&D tax credits, especially SR&ED.

Industry expertise

Our team of professional consultants have specific industry expertise in engineering, healthcare, manufacturing, software, construction and oil & gas industries and have advanced levels of education in business and engineering. Given our extensive experience and training in SR&ED claims, our team routinely recognizes non-intuitive and often unclaimed qualifying work which can substantially increase the amount of tax credits you receive.

Strategic partnerships

We recognize the value of strategic relationships in order to better serve our SR&ED clients. Therefore we’ve developed strong relationships with the CRA audit teams, alliances with key technology, agricultural and environmental stakeholders and we consult regularly with an advisory board of senior executives in industry leading companies.

Proven track record

Enhanced Capital Recovery’s reputation, knowledge and successful track record are widely recognized by our clients and the Canada Revenue Agency. As such, Enhanced Capital Recovery is quickly becoming one of Canada’s most trusted independent SR&ED consulting firms.

Risk free SR&ED services.

If you are creating new products, improving existing technology, advancing an industry process, or developing a technically challenging innovation, your company may be eligible to receive an SR&ED tax credit refund. Yet becoming familiar with the entire SR&ED claims process and filing the necessary paperwork can be a huge drain on resources. That is time and money wasted if the claim is rejected.

With our contingency based fees, we completely eliminate the risk of making a claim. We do the work up front and only get paid when your refund is secured.

Put the proven expertise of Enhanced Capital Recovery’s team to work to save you time and money to get the maximum refund you are entitled to. Contact us today for a no risk, free consultation!

Does Your New Product Have SR&ED Eligibility?

The Scientific Research and Experimental Development (SR&ED) tax credit is a great source of R&D funding for companies in Canada. However, what is considered “innovation” according to the Canada Revenue Agency is often misunderstood. This misunderstanding can be very costly for companies, as attempting to claim projects that are not eligible can cause them to give up on subsequent projects that are eligible.

The Canada Revenue Agency is clear in its SR&ED eligibility requirements that a new product is not necessarily considered SR&ED. In fact SR&ED is not fundamentally about new products. It is fundamentally about achieving technological advancement. To quote the CRA: “novelty, innovation, uniqueness, feature enhancement, or increased functionality alone does not represent or establish technological advancement.”

If technological advancement is key to claiming SR&ED, what does it look like?

New products which require technological advancement to create them would hit the mark and meet the CRA’s SR&ED requirements. This means that when a new or improved material, device, product, or process is created, it must demonstrate technological advancement.

To prove this, “the advances in technology that are being sought should be distinguishable from the benefits of the new or improved material, device, product, or process.” The CRA will look for, “technological advancement (that) moves the technology base or level of a company to a higher level through an increase in the understanding of technology”.

In other words, a SR&ED project is one that adds technological knowledge to the organization – in the form of principles, techniques or concepts which were previously unattainable.

So the factors that companies often mistake for “innovation” in regard to the SR&ED interpretation of it, are not guiding principles. Even the success or failure of the work is not relevant to its eligibility for SR&ED. For SR&ED innovation, technological advancement is the true litmus test.

A new product SR&ED example

In its draft document providing guiding examples of SR&ED, the CRA gave the following example, paraphrased here, of a how a new product may or may not be eligible for SR&ED.

The example takes the case of a company which makes a carrot peeler with a glow-in-the-dark handle, which is a new product, but doesn’t challenge any technological uncertainty. When the company redesigns the handle, however, to improve ease of use, it has to experiment with manufacturing processes using new plastics. The experimentation with new materials and manufacturing processes to create the desired outcome proves to qualify as technological advancement and hence qualifies as SR&ED.

About Enhanced Capital Recovery

Enhanced Capital Recovery is an industry leading SR&ED consulting firm. Our goal is to assist companies to truly understand what SR&ED is, what areas in your organization may be eligible under the program, and then assist you through the entire process.

Please contact us for a free, no obligation consultation today!

Budget 2015 Research and Development Impact

On Tuesday afternoon, Federal Finance Minister Jim Oliver introduced a budget that emphasizes applied research and scientific collaboration with industry and there were no cuts to the SR&ED program as were seen in 2012.

According to the new budget 2015 research and development, including the SR&ED program will continue to receive funding and support technological development in a variety of industries, with notable boosts to a couple areas.

Boost to Manufacturing

Manufacturing in particular received a boost in funding to support innovation:

In addition to SR&ED, automotive parts suppliers will be receiving up to $100 million over 5 years to foster innovation and development.
The “accelerated capital cost allowance” for manufacturers has been extended past its original 2015 lifespan. Companies will now be able to get tax breaks on equipment purchases until the end of 2025. This will help companies write-off machinery and equipment faster and boost the sector’s productivity.

Boost to University and Hospital research centres

University and Hospital research centres were also winners in the 2015 budget:

“The Canada Foundation for Innovation would receive Can$1.33 billion (US$1.09 billion) in new money for university and hospital research facilities, to be doled out over six years beginning in 2017. The budget also includes a modest 2% hike for the country’s research funding councils”

Advanced research initiatives

World-class advanced research was also supported:

The budget pledges to invest more than $200 million per year in new and expanded programs starting in 2016, including projects in physics, space technology and astronomy.

Canada’s R&D Competitiveness Worldwide

Seen in total, Canada has actually lost competitive rank in world-wide R&D competitiveness. According to the Organization for Economic Co-operation and Development (OECD), Canada is no longer a top ten research and development performer.

Of further concern, the OECD report shows a sharp decline in research and development intensity, which is defined as the percentage of gross domestic product spent on research.

How can Enhanced Capital Recovery help your company?

We can help you:

determine if you are eligible for all types of research and development benefits, both federal and provincial;
review your SR&ED claim or defend a claim audit

Contact Enhanced Capital Recovery today for a free consultation and find out if your company may be eligible for SR&ED or other tax credits in Canada.

Your Company Is Missing Out on Tax Credits

The scientific research and experimental develop program (SR&ED) is a generous R&D tax credit incentive offered by the Federal Government of Canada. The program pays more than 20,000 eligible Canadian Controlled Private Corporations in excess of $3 Billion (CDN) each year.

Recover up to 65% of eligible SR&ED expenses

The SR&ED program is a tax credit system designed to encourage Canadian Controlled Private Corporations (CCPCs) to make technological and process improvements and make Canada a world leader in advanced technology. As a result, all CCPCs benefit from a high tax recovery rate of up to 65% for eligible expenses. Start-up CCPCs benefit additionally since the tax credit is also refundable, meaning that a refund is provided whether or not the company has any taxes payable in that fiscal year.

Breakdown the barriers of complex legislation and report writing

Although the SR&ED tax credit is an amazing financial opportunity for many businesses across all industries, complex legislation and time intensive report preparation have created barriers for businesses which are otherwise eligible to take advantage of it.

Contact Enhanced Capital Recovery today for a free consultation and find out if your company may be eligible for SR&ED or other tax credits in Canada!

Explaining SR&ED Expenditures

The SR&ED program defines, “overhead and other expenditures” as expenditures that may be directly attributable to the prosecution of SR&ED in Canada.

Overhead expenditures in SR&ED, importantly are not to be confused with the definition commonly used under the generally accepted accounting principles in Canada. GAAP accounting rules refer to overhead as an indirect cost. This does not hold true for SR&ED, however, as overhead and expenditures must be directly attributable to the SR&ED activity to be eligible.

The test to determine what expenses are directly attributable

The CRA has developed two tests to show what expenses are directly attributable to the prosecution of SR&ED: “The expenditure must be directly related to the prosecution of SR&ED in Canada; and the expenditure would not have been incurred had such prosecution not occurred.”

A portion of directly attributable expenses may be allowable

If a portion of an expenditure is directly attributable to the prosecution of SR&ED the portion of the expenditure can be allocated to SR&ED work on a “reasonable basis.”

The importance of direct link to SR&ED work

In order for an expenditure to be eligible for SR&ED, the expenditure must be directly related to the following – with no intervening steps:

“the SR&ED work;
the SR&ED staff;
the equipment used by staff to perform SR&ED.”

The CRA views the question of an expenditure being directly related to the prosecution of SR&ED as a question of fact – and as such, the fact must be verifiable and documented to show it.

Enhanced Capital Recovery’s team of technical consultants are experts in helping you determine if expenditures meet these guidelines.

Example of directly related SR&ED expenditures

Here are some examples of expenditures that may be considered to be directly related to the prosecution of SR&ED sourced from the CRA website:

“Salary or wages of clerical and administrative staff providing a service to SR&ED employees if the functions performed are non‑technological and aid the ongoing SR&ED claimed in the year;
Contract costs – other than a SR&ED contract Employer’s share of related benefits;
Moving expenses related to the relocation of SR&ED employees to another facility;
Lease costs of equipment used less than 90% of the time in SR&ED;
Other expenditures, such as: long-distance telephone charges, expenses for travel and lodging, cost of training in Canada, cost of utilities; and others”

Directly related expenditures not eligible for investment tax credits

Also, some expenditures may be directly related to the prosecution of SR&ED, but they are considered prescribed expenditures and do not earn investment tax credits. These expenditures could be included in the pool of deductible SR&ED expenditures but would not be qualified expenditures for the purposes of calculating the ITC amount. These include the following, sourced from the CRA website:

“Fees for preparing SR&ED claims
Cost to attend conventions or conferences
Interest expenses
Certain expenditures, including salary or wages, that relate to the general administration or management of a business are generally not allowable for SR&ED purposes. These costs are not directly related to the prosecution of SR&ED; they are related to the carrying on of a business.”

Examples of indirect expenditures

Expenditures incurred by the business which are generally not directly related to the prosecution of SR&ED are not eligible. A few examples include:

“taxation;
legal services;
sales, marketing, and advertising;
shipping and distribution (other than shipping and distribution costs of experimental products for internal or customer testing);
production (other than materials or equipment used in SR&ED).”

For detailed policy instructions, please see the CRA’s website; also read more about SR&ED Salary and Wages Policy in our blog.

Contact Enhanced Capital Recovery today for a free consultation to determine if your project is eligible for SR&ED or to review a current or past SR&ED claim.

Defining SR&ED Salary and Wages

According to SR&ED policy, eligible salary and wages for the purposes of SR&ED are defined by the CRA much as it is defined in the Income Tax Act – namely that salary or wages must be taxable benefits.

Payments that would be taxable to the employee can include vacation pay, statutory holiday pay, sick leave pay, pay in lieu of termination notice, bonuses, tips and gratuities, honorariums, director’s fees, management fees and commissions.

Incurred expenditures

For the purposes of a SR&ED claim, a second requirement that must be met to be approved as “salary or wages” is that the expenditure must be incurred. In other words, payment of salary and wages must be paid within 180 days of the tax year the employee completed the SR&ED work. Stock option benefits, for example, are not considered incurred and therefore would not be included.

Work must be directly related to SR&ED or in direct support

Obviously, amounts included in SR&ED salary or wages must be for work done on a SR&ED project. However, SR&ED work can extend to salary or wages for employees directly supervising or supporting SR&ED and can include the portion of the supervisor’s work allotted to SR&ED activities.

Administrative salary or wages for employees “directly attributable” may also be included as SR&ED overhead and other expenditures. Directly attributable costs include salary or wages of clerical and administrative staff providing a service to SR&ED employees.

In these cases, the duties of the administrative staff assist indirectly in the SR&ED work. For example a portion of the work of a payroll clerk could be considered directly attributable if the employee processed payroll for SR&ED staff.

Other eligible SR&ED “salary and wages” expenditures

There are a few scenarios that one might not presume to be included in SR&ED salary and wages. For example, work that is done outside of Canada may in fact be relevant. However, SR&ED work that is done outside Canada cannot exceed 10% of the total amount of salary or wages for the SR&ED work completed inside Canada.

Bonuses can qualify under “salary and wages”. A “Bonus” is a gifted amount, or gratuity, to which the employer was under no obligation to make.

Remuneration based on profits may also be counted as “salary and wages” in SR&ED policy. “Remuneration based on profit” refers to remuneration that is conditional on the profit of the business.

Inducements and non-competition payments, such as signing bonuses, can be considered remuneration during employment.

Amounts excluded from SR&ED Salary or Wages

In general, situations which remove an employee from direct engagement in SR&ED activities are not allowable under salary and wages. Extended vacation or sick leave are examples of this, as the employee would not be performing any SR&ED related duties during the leave period.

Stock option benefits are not considered under “salary and wages” for SR&ED since no expenditure will be considered to have been made by a taxpayer on shares issued on the exercise of options.

Note: always check the complete CRA rules or refer to an expert there are specified employees that may not fit these guidelines.

Enhanced Capital Recovery offers professional SR&ED consulting services in Vancouver, Edmonton and Toronto and are here to support you fully in your SR&ED claims.

Put our expertise on your side by contacting us for a free consultation today.