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:
- 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.