Conducting research and development in Canada without taking advantage of this program means leaving as much as 35% of your SR&ED expenses on the table.
Through SR&ED tax incentives you can receive deductibles against your income, or investment tax credits that can be used in the current year for refunds and even years down the line if you have excess credit.
Typically, salary and wages make up the largest portion of SR&ED claims, so understanding what costs count and which don’t, is crucial.
What Can Be Claimed
When it comes to SR&ED expenses of salary and wages, there are several expenses that qualify.
Base Salary or wages
The regular income given to an employee. For the salary or wages to be eligible, it must be incurred in respect to SR&ED. This includes undertaking, supervising, or supporting the project.
Any “unenforceable bonus” which is a payment not earned or is gifted or gratuity.
This is an “enforceable bonus”, meaning is is based on profit, paid in recognition of achievements with the terms of employment.
A bonus given for signing with a company.
Cash or non-cash benefits an employee may receive. Cash benefits might include housing, meals, gifts, awards, and more. Non-cash benefits are anything received that are not strictly calculated. This might include use of a company car, so things like gas, insurance, and maintenance may be claimed.
Check Out Another Blog: SR&ED Outside Canada: Expenditures and Support Work
What Can Not Be Claimed
While there are plenty of things that can be claimed through SR&ED, it’s important to not get blindsided by understanding what you can’t claim. This includes:
- Related benefits
- Extended vacation or sick leave
- Stock options
- Retiring allowance
Something to note: there are two ways to conduct a SR&ED claim, tradition or proxy method. If you choose to use the tradition method, related benefits and retiring allowance may be an exception.
Here’s a quick overview of the difference between the two methods:
More time consuming and focused, the tradition method requires diligent record keeping as SR&ED work is date and time stamped to track all expenditures claimed.
This is the default method, if you do not manually choose the proxy method.
The Proxy Method is the easier approach to making a SR&ED claim and is far simpler. This approach calculates a percentage for expenses using a previously-determined amount. It is based on all human resource costs directly associated with a SR&ED project.