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Are salary & wages incurred outside of Canada eligible for SR&ED credits?

The typical engineer or scientist may travel out of Canada an average of two or three weeks per year on SR&ED related functions. Are salary & wages incurred during this time eligible for SR&ED credits?

For work carried on outside Canada after February 25, 2008, the answer is YES - for up to a maximum of 10 percent of the Canadian SR&ED labour expenditures. Further details are available from the Budget 2008 website: Budget 2008 - SR&ED Changes.

For work performed before February 25, 2008, only work performed while physically within Canada is eligible.

Until the 2008 Budget proposal, this was an area of contention. The Income Tax Act (ITA 37(1)(a)) states that costs for "scientific research and experimental development carried on in Canada" are eligible. This seems clear - the work must physically take place in Canada.

On the other hand, the Canadian employee remains fully taxable on his or her Canadian salary during the period traveled abroad yet this amount is ineligible for SR&ED tax credits. Furthermore, a 1997 study performed by the Department of Finance confirmed that the result of these activities is a net influx of infrastructure to the Canadian economy. As a result the former tax policy (prohibiting any wages accrued while outside the country from being eligible) appeared to inhibit achievement of our Science Policy goal to "ensure that new knowledge can be acquired and disseminated widely, from Canadian sources and from around the world."

We feel the proposed change more closely reflects the global business and research environment of many Canadian businesses.