SR&ED Policy Document: Stock Options Benefits (2005)
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At SR&ED Education and Resources, we’re taking the time to document all the changes that have occurred to the Scientific Research & Experimental Development (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. Stay current with the program by understanding the historical context.
In 2005, the Canada Revenue Agency (CRA) announced changes to how stock options benefits are handled with regards to the SR&ED tax credit program. They announced that these benefits would be SR&ED-eligible as salary or wages, but only under certain conditions.
SR&ED and Stock Options Benefits
After the landmark SR&ED Tax Court of Canada ruling in Alcatel Canada Inc. vs. Her Majesty the Queen, the CRA adjusted SR&ED policy so that stock options benefits were SR&ED eligible under the following circumstances:
- The stock options have been issued to the employee in a fiscal year during which the employee, as an employee of the claimant, was involved in the SR&ED activities of the claimant;
- The claimant files, within the 18-month reporting deadline, prescribed forms containing prescribed information for the year during which the stock option benefits were earned;
- The stock options were received by reason of the employee’s employment (if the employee is also a shareholder, it is a question of fact whether he or she received the shares as a shareholder or as an employee);
- All or portion of the employee’s salary was an allowable SR&ED expenditure of the claimant in the year the options were issued; and
- The employee has exercised the option or disposed of it.
Impact on SR&ED
This was an important change to SR&ED policy, as stock options benefits could now be claimed as salary or wages “in the same proportion (%) the employee’s salary was claimed as SR&ED by the employer in the year in which the options were issued”.
“However,” the CRA said, “the value of stock option benefits will not be an allowable SR&ED expenditure for purpose of subsection 37(1). The benefits will only be considered a qualified SR&ED expenditure in calculating the SR&ED ITC.”
This article is based on a CRA policy document at the time: What’s New – Stock Options Benefits (2005)