Navigating SR&ED Claims Impacted by Federal Assistance

On top of the typical government funding available to your business through programs such as IRAP, IAP, and other wage subsidies such as DS4Y, there have been several recent incentive programs built around COVID-19 recovery. This includes the Canada Emergency Wage Subsidy (CEWS).

As it’s around the time of year that you may be processing your SR&ED claims, here is your reminder: all of these programs will impact your claim process.

The aforementioned funding sources are considered government assistance as defined by the Canadian Income Tax Act. Because of this, any successfully obtained funding under these programs will need to be deducted from eligible expenses before claiming federal tax credits. This is where SR&ED claims are impacted.

We definitely can. We’ll actually leave it to Erik Kaas, an Industrial Technology Advisor for the IRAP program at the NRC, who provided us with an excellent walkthrough earlier this week.

To layout the example scenario, you employ a developer for $125,000 annually and 80% of their time is dedicated to SR&ED eligible activated. Your firm has received a total of $50,000 in government funding over the year, in the form of any number of support programs.

To calculate your SR&ED eligible expenses, it would look like the following:

  1. Calculate gross salaries that are SR&ED eligible for the year – in our example, if the developer is making $125,000 and is spending 80% of their time on applicable activities, this would work out to be $100,000
  2. Next, add the allowed overhead on those salaries (55%) which is equivalent to $55,000 — at this stage, total SR&ED eligible expenses are $155,000
  3. Then, deduct ALL government assistance (IRAP, CEWS, Temporary Wage Subsidy, Supercluster funding, etc.) — in our case, that’s $50,000 — resulting in eligible expenses of $105,000
  4. Now you can calculate SR&ED credits on the eligible $105,000!!

Note that salaries and funding amounts will change case to case, so only use the above as a reference for the process.

The process isn’t overly complicated as long as you’ve been tracking your expenses and have a clear understanding of the steps above. Oh, and remember, Pocketed will soon be able to help with your tracking and reporting 😉

To gain priority access the Pocketed platform, create an account today and you’ll guarantee a spot in our Beta Launch on March 31

Thanks again to Erik Kaas for his contributions to this article! If you have any further questions, don’t hesitate to contact the team here at Pocketed.

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