Can retiring allowances be included in SR&ED claims?
A retiring allowance is an amount paid on or after the retirement of an employee in recognition of long service or in respect of the loss of an office or employment. This is often referred to as termination or severance pay.
Under some circumstances it may be difficult to determine whether a payment to an employee is a retiring allowance or salary or wages. The Courts have set out two questions to help determine whether a payment is a retiring allowance:
- But for the loss of employment, would the amount have been received?
- Was the purpose of the payment to compensate a loss of employment?
Only if the answer to the first question is 'no' and the answer to the second question is 'yes' will the amount received be considered a retiring allowance.
Under the Proxy Method of overhead allocation a retiring allowance is not an allowable SR&ED expenditure.
Under the Traditional Method of overhead allocation a retiring allowance may be allowed as "overhead or other expenditure". To be an allowable SR&ED expenditure, a retiring allowance would have to be either all or substantially all (ASA, >90%) attributable or directly attributable to the prosecution of SR&ED in Canada.
This is a somewhat complex issue and detailed consideration of these issues should be contemplated for any companies who plan to include retiring allowances in their SR&ED claims. More information is available from MEUK Newsletter 2004-2 and the CRA's Application Policy 2004-01: Retiring Allowance.