How the SR&ED Claim Value is Calculated

The Scientific Research and Experimental Development (SR&ED) tax credit program in Canada provides financial support to businesses conducting research and development. The SR&ED claim value is calculated based on eligible expenditures incurred during the R&D activities. Here’s a breakdown of how the SR&ED claim value is calculated:

Identify Eligible Expenditures

To get the most out of your SR&ED tax credit claim, make sure you accurately list the expenses that qualify.

1. Salaries and Wages

  • Direct Labor: Salaries of employees directly involved in R&D.
  • Support Staff: Salaries of staff supporting SR&ED activities.
  • Employer Contributions: CPP, EI, and other benefits for SR&ED employees.

2. Materials

  • Raw Materials: Items used directly in SR&ED projects.
  • Supplies: Consumables used during research.
  • Partial Use: Proportional cost of partially used materials.

3. Contract Expenditures

  • SR&ED Contracts: Payments to third parties performing SR&ED.
  • Consultant Fees: Fees for specialized SR&ED expertise.

4. Overhead and Other Expenditures

  • Proxy Method: Fixed percentage (65%) of direct salaries for overhead.
  • Traditional Method: Itemized indirect costs like utilities, rent, and equipment leases.

5. Capital Expenditures

  • Limited Eligibility: Certain equipment used predominantly (90%+) for SR&ED.

Documentation

Maintain thorough records such as timesheets, invoices, project notes, and allocation methods to substantiate your claim.

For personalized assistance and to ensure all eligible costs are captured, contact G6 Consulting Inc. Our experts are here to help you navigate the SR&ED program effectively.

Calculate the Total SR&ED Expenditures

Calculating the total SR&ED expenditures involves aggregating all the costs associated with eligible activities. Make sure you cover all aspects of your research and development work.

Here are the key steps:

1. Aggregate Salaries and Wages

Add up the salaries and wages of all employees directly engaged in SR&ED activities. This includes:

  • Direct Labor Costs: Total salaries for researchers, engineers, technicians, and other staff involved in R&D.
  • Support Staff Costs: Total salaries for support staff whose work directly supports SR&ED activities.
  • Employer Contributions: Include the employer’s share of CPP, EI, and other statutory benefits for SR&ED employees.

2. Sum Up Material Costs

Calculate the total cost of materials used or consumed in the SR&ED process:

  • Raw Materials: The total cost of materials directly used in experiments or prototypes.
  • Supplies: The total cost of consumables used during research.
  • Partial Use: Calculate the proportional cost for partially used materials, ensuring only the portion used in SR&ED is included.

3. Add Contract Expenditures

Include all payments made to third-party contractors for SR&ED work:

  • SR&ED Contracts: Total payments to external organizations or individuals performing SR&ED.
  • Consultant Fees: Total fees paid to consultants providing specialized SR&ED expertise.

4. Calculate Overhead and Other Expenditures

Choose either the proxy method or the traditional method to calculate overhead costs:

  • Proxy Method:
    • Find 65% of the total money paid as salaries to employees who work directly on SR&ED projects. This percentage represents the overhead costs and is a simplified approach to capturing indirect expenditures.
  • Traditional Method:
    • Itemize and calculate actual overhead costs, including:
      • Utilities: Proportional costs of electricity, water, and gas used in SR&ED.
      • Rent: The portion of rent for facilities used in SR&ED.
      • Equipment Lease: Costs of leasing equipment used for SR&ED.
      • Administrative Support: Costs associated with administrative support directly related to SR&ED projects.

5. Include Eligible Capital Expenditures

Please find any big spending that qualifies.

  • Limited Eligibility: Include the cost of certain equipment used predominantly (90%+) for SR&ED purposes.

Example Calculation

Let’s go through an example calculation for a CCPC in Ontario:

1. Salaries and Wages:

      • Direct Labor: $200,000
      • Support Staff: $50,000
      • Employer Contributions: $25,000
      • Total Salaries and Wages: $275,000

2. Materials:

      • Raw Materials: $50,000
      • Supplies: $10,000
      • Partial Use Materials: $5,000
      • Total Materials: $65,000

3. Contract Expenditures:

      • SR&ED Contracts: $30,000
      • Consultant Fees: $20,000
      • Total Contract Expenditures: $50,000

4. Overhead and Other Expenditures (Proxy Method):

      • 65% of Total Salaries and Wages: $275,000 * 0.65 = $178,750
      • Total Overhead (Proxy Method): $178,750

5. Eligible Capital Expenditures:

      • Equipment: $10,000
      • Total Capital Expenditures: $10,000

6. Total SR&ED Expenditures:

    • Salaries and Wages: $275,000
    • Materials: $65,000
    • Contract Expenditures: $50,000
    • Overhead (Proxy Method): $178,750
    • Capital Expenditures: $10,000
    • Total SR&ED Expenditures: $578,750

This comprehensive approach ensures all eligible costs are included, maximizing your SR&ED tax credit claim.

For more detailed results you can use the SRED Calculator

Determine the SR&ED Tax Credit Rate

The amount you can get from the SR&ED tax credit changes based on the type of company you have and where you spend the money. Here’s how to determine the appropriate rates for your claim:

1. Federal Tax Credit Rates

  • CCPCs:
    • you get a 35% discount on the first $3 million you spend on certain things.
    • 15% on expenditures above $3 million.
  • Other Corporations:
    • 15% on all eligible expenditures.

2. Provincial Tax Credit Rates

  • Ontario:
    • OITC: 8% refundable for CCPCs.
    • ORDTC: 3.5% non-refundable for all corporations.
  • Quebec:
    • Up to 30% for salaries and wages, with variations.
  • British Columbia:
    • 10% refundable for CCPCs, 10% non-refundable for others.

3. Applying the Rates

  • Federal Credit for CCPCs:
    • 35% on first $3 million, 15% beyond $3 million.
  • Provincial Credit Example (Ontario):
    • $500,000 * 8% (OITC) = $40,000
    • $500,000 * 3.5% (ORDTC) = $17,500

Example Calculation

  • Total Eligible Expenditures: $500,000
  • Federal Credit (35%): $175,000
  • Provincial Credit (Ontario): $57,500
  • Total SR&ED Credit: $232,500

Refundability

  • Refundable Credits: Available for CCPCs.
  • Non-Refundable Credits: Can be carried forward for other corporations.

For assistance with your SR&ED claims, contact G6 Consulting Inc. Our experts can help you maximize your tax credits.

Calculate the SR&ED Tax Credit Amount

Once you have identified all eligible expenditures and determined the applicable federal and provincial tax credit rates, you can calculate the total SR&ED tax credit amount. Here’s how to do it:

1. Federal Tax Credit

      • CCPCs:
        • 35% on the first $3 million of eligible expenditures.
        • 15% on expenditures above $3 million.
      • Other Corporations:
        • 15% on all eligible expenditures.

2. Provincial Tax Credit

      • Ontario:
        • OITC (8% refundable): $500,000 * 8% = $40,000
        • ORDTC (3.5% non-refundable): $500,000 * 3.5% = $17,500
      • Quebec: Up to 30% for salaries and wages.
      • British Columbia: 10% refundable for CCPCs, 10% non-refundable for others.

3. Total SR&ED Tax Credit

      • Example (CCPC in Ontario with $500,000 expenditures):
        • Federal: $500,000 * 35% = $175,000
        • Provincial: $40,000 (OITC) + $17,500 (ORDTC) = $57,500
        • Total Credit: $175,000 + $57,500 = $232,500

4. Refundability

    • Refundable Credits: Available for CCPCs.
    • Non-Refundable Credits: Can be carried forward for other corporations.

Example Calculation

  • Total Eligible Expenditures: $500,000
  • Federal Credit (CCPC, first $3M): $500,000 * 35% = $175,000
  • Provincial Credit (Ontario, 3.5%): $500,000 * 3.5% = $17,500
  • Total SR&ED Credit: $175,000 (federal) + $17,500 (provincial) = $192,500

This example demonstrates the calculation for a CCPC in Ontario with eligible expenditures of $500,000. The final credit amount may vary based on specific circumstances and provincial rates.

A Final Say

For personalized assistance and detailed guidance on maximizing your SR&ED tax credit claim, contact G6 Consulting Inc. today. Our experts are committed to helping you understand the SR&ED program and get the most benefits for your research and development work.

Get your SR&ED done right with G6 Consulting Inc – Canada’s R&D Tax Credit Experts!

G6 Consulting can work with you to build your claim, co-ordinate with your accountant, submit your claim and get you your cheque. No cost until you get paid

Check out our SR&ED overview page to learn more about SR&ED and how to qualify

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Check out our SR&ED calculator to get an idea of how big your SR&ED cheque could be

How the SR&ED Claim Value is Calculated
How the SR&ED Claim Value is Calculated