SR&ED Proxy vs Traditional – 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 is the difference between filing a Scientific Research & Experimental Development (SR&ED) claim under traditional or proxy method?

Facts:
When preparing a SR&ED claim, you have the option of filing using the traditional or proxy method to claim overhead or other expenses and support staff.

Discussion:
Overhead and other expenses for purposes of SR&ED are defined as expenses of a current nature that are either directly attributable to the prosecution of SR&ED in Canada or directly attributable to the provision of premises, facilities or equipment for the prosecution of SR&ED in Canada. To be directly attributable, the expense must be directly related to the SR&ED work and would not have occurred without the SR&ED work. Example: materials that are not normally considered research materials, even regular office supplies incorporated in your SR&ED or used by the staff undertaking the research; or power used to run your prototype; or support staff that is not doing research but is supporting researchers.

Traditional Method: Overhead and other expenses are specifically identified and claimed on the SR&ED return. For example, including staff who support or supervise the SR&ED work but aren’t directly engaged in SR&ED. E.g.: data entry supports and shop floor supervisors. This requires detailed record keeping and justification and also proration of many expenses that are shared.
Proxy method: The salaries of those directly engaged in SR&ED work are grossed up by 55% (the proxy) in lieu of claiming overhead and other expenses and staff who aren’t directly engaged (support staff). This is a simpler way of filing.

Recommendation:
If your company is involved in SR&ED, please contact us to discuss filing your SR&ED return.

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