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What employee benefits can be included in eligible "salary or wages" for SR&ED claims?

According to the Income Tax Act, "Salary or wages" is income from office or employment, and includes:

  • vacation
  • statutory holiday
  • sick leave pay
  • taxable benefits

but does not include:

  • the employer's portion of CPP or QPP, EI, WCB, employee pension plans, employee medical plans and insurance plans. (Note: if you choose the 'traditional' method of overhead calculation, you will be able to include these as "eligible R&D overhead").

Basically, eligible salary or wages can be summarized as those amounts that would appear as "taxable income" in box 14 of the employee's T-4 slip.

If all or substantially all (>90%) of an employee's time is spent in the prosecution of SR&ED then all the salary or wage is eligible (per ITA Regulation 2900(5)).

More commonly some smaller fraction of an employee's time is spent on SR&ED. Rather than use the nominal hourly wage in the SR&ED cost calculation, a reasonable allocation of vacation and holiday pay should be included as well.

More information on this topic can be found in MEUK Newsletter 2001-1.