Specified Employees – By Dawn Loeffler

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Dawn Loeffler, BA (Hons), CPA, CA Staff Accountant, Gilmour Knotts

 

Dawn Loeffler, BA (Hons), CPA, CA Staff Accountant, Gilmour Knotts
Dawn Loeffler, BA (Hons), CPA, CA
Staff Accountant, Gilmour Knotts

Tax Question:

What are specified employees and their Scientific Research and Experimental Development (SR&ED) salary limits?

Facts:

Specified employees are employees who do not deal at arm’s length with the corporation or who own 10% or more of the issued shares. There are different salary limits for the proxy calculation and the deductible SR&ED expenses on specified employees.

Discussion:

For the proxy calculation, the specified employee’s salary paid excluding taxable benefits and bonuses is prorated by the percentage of time spent on SR&ED to a maximum of 75% and is limited to 2.5 times the year’s maximum pensionable earnings (YMPE) (2.5 * $54,900 or $137,250 for 2016).

For the deductible SR&ED expense, the salary of a specified employee is the directly engaged salaries paid including taxable benefits and excluding bonuses, and is limited to 5 times the YMPE (5* $54,900 or $274,500 for 2016).

E.g. A specified employee spends 90% of his time directly engaged in SR&ED and receives compensation of $250,000 including a bonus of $30,000 and taxable benefit of $10,000.

Salary for Proxy Calculation Lesser of 75%*(250,000-$30,000-$10,000) or $157,500 and $137,25 $137,250
Salary for Deductible SR&ED Expense Lesser of ($250,000-$30,000)*90% or $189,000 and $274,500 $189,000

Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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