Guidance on Salary Expenditures for SR&ED (2004)

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SR&ED and Wages Clarified

In July 2004, the Canada Revenue Agency (CRA) published a guidance document to assist claimants with labour allocation calculations for Scientific Research & Experimental Development (SR&ED) projects.  The CRA took into consideration that the “business environment in which SR&ED is carried out will influence the nature and sources of evidence that are available to support the labour allocation methodology” and addressed various scenarios within its guide.

Rules for SR&ED Labour Calculations

The CRA established five rules for labour calculations:

  1. Directly engaged salaries and wages (traditional or proxy method).
  2. Directly attributable (traditional method only).
  3. All or substantially all (traditional or proxy method).
  4. Proxy method.
  5. Traditional method.

In addition to providing supporting documentation such as names, hire and termination dates, and other employee identification information, claimants must prove that:

  • “the allocation method is appropriate in the company’s environment;”
  • “the allocation method is consistent with the legislation and the administrative practices of the CRA;” and
  • “the allocation system is functional throughout the year.”

Regardless of the approach taken by the claimant, the main item to keep in mind is that detailed documents can be provided to support the claim and that it is appropriate to the SR&ED environment.

This article is based upon a Government of Canada news release issued at the time.

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