In certain cases, it’s possible that other expenditures as those associated with scientific research projects or experimental development projects are eligible for the SR&ED tax incentive. The Canadian Revenue Agency (CRA) has issued the Overhead and Other Expenditures Policy in which rules concerning salary or wages of administrative staff in an SR&ED work context are explained.

Globally, administrative expenditures must be 1) “directly related” to be attributable to the prosecution of SR&ED, 2) the expenditure would not have been incurred had such prosecution not occurred. The Directly related expression is important here; the work done by an employee or a particular division must have a link with and must be done directly between the employee/division and:

• The SR&ED work; or
• The SR&ED personnel; or
• The material/equipment used by staff to perform SR&ED.

In many cases, to determine well if an expenditure is directly related, an analysis of the tasks done is requires to ensure a direct link, without intermediate is present in the SR&ED work. Pulled up from the Overhead and Other SR&ED Expenditures Policy, here are two lists of examples of tasks considered to be directly related or not the SR&ED work:

DIRECTLY RELATED TO SR&ED WORK

• SR&ED financing (is “directly related” if the funds are used to perform SR&ED).
• Expenses related to the selection and hiring of SR&ED personnel.
• Implementing of the technical part and the control of scientific projects, the definition of future SR&ED projects, SR&ED group supervision, SR&ED project supervision/evaluation. These tasks normally are performed by a Technological VP.
• SR&ED pending projects technological planning (technological personnel appointment, work priority, technological strategies elaboration, quality of to be used material).
• Salary or wages of clerical and administrative staff providing a service to SR&ED employees (for example, services rendered by staff in human resources, accounting, and purchasing)

INDIRECTLY RELATED TO SR&ED WORK

• Costs relative to biddings;
• Purchases (other than the direct purchases of SR&ED material);
• Taxation and legal services;
• Sales, marketing, and advertising;
• Employee relations;
• Development of benefits program for SR&ED personnel;
• Corporate secretary and reporting to shareholders;
• Initiation and closing of licensing agreements;
• Feasibility studies (non-technological) leading to potential SR&ED collaborations and assessing the commercial feasibility of a given technology;
• Commercialization of existing intellectual property;
• Review and approval of SR&ED budgets and cost control;
• The patent application (including legal work).

At the federal level, these expenditures are often included in the replacement method. However, in Quebec, it’s possible to claim a credit on the expenditures directly related to SR&ED work.

The CRA is doing public consultations in order to update its policy on treatments or SR&ED salaries. We’ll see in the next months if these will have an impact on expenditures directly related to SR&ED work.