At SREDucation, we’re taking the time to document all of the changes that have occurred to the SR&ED program over the years. In our “From the Archives” series, you’ll be able to see how the program has evolved since its inception in 1986. For a timeline of these events, check out the SR&ED Tax Credit page on Facebook. Stay current with the program by understanding the historical context.
On July 9, 2004, the Government of Canada released a document concerning how SR&ED credits should be determined with respect to labour and wages. It pointed out that SR&ED claimants can have several types of systems that track a SR&ED project as it continues, but added that there are “appropriate labour allocation methodologies” when writing up the claim.
While the government outlined specific situations in the document, it added that “other approaches may be acceptable, as long as they are reasonable within the context of a claimant’s research and development environment, are documented, and are effectively and consistently applied.”
Cost Allocation and R&D for SR&ED
The government first defined “cost allocation” (intended to be a “systematic approach” in relation to a SR&ED project, which would vary in complexity according to the size of the business) and the “research and development environment.” The government only outlined four types of R&D environments in the document, but said there are other situations that would also be acceptable for SR&ED claims.
While SR&ED calculations vary depending on the type of labour that is used, in general the government said that the following would be good things to keep track of:
- A description of the allocation method used;
- Why the allocation method was used;
- Internal procedures to test the method; and
- How it is consistent with the Canada Revenue Agency’s procedures.
Supporting Information for SR&ED
The government suggested that a SR&ED claimant include at least some of the following methods of documentation of labour expenses in SR&ED:
- Names and employment dates of employees, as well as specifying they are not contractors;
- Development plans;
- Supervisor summaries;
- Timesheets; or
- “Naturally generated” documents such as planning documents and minutes of meetings.
This article is based upon a Government of Canada document issued at the time: Guidance Document: Allocation of Labour Expenditures For SR&ED.