As there has been some confusion with recent COVID-19 programs affecting SR&ED claims, we wanted to reassure you that Braithwaite is taking all the necessary steps to maximize your SR&ED claim. In doing so, we have outlined below some of the programs that will reduce your SR&ED claim if taken. CRA is making it a priority to assist companies in these trying times but in doing so without company’s double-dipping.
Emergency Wage Subsidy (CEWS) & 10 percent Temporary Wage Subsidy for Employers
CRA classifies both programs under the Income Tax Act as assistance from a government, municipality, or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance, or any other form of assistance other than the federal investment tax credit (ITC). In terms of its impact on SR&ED benefits, the assistance under either wage subsidy will only reduce SR&ED claims to the extent that a specific employee’s salary or wages are claimed as SR&ED expenditures. The reduction to the qualified SR&ED expenditures is based on the relative percentage of time spent on SR&ED-related activities versus non-SR&ED-related activities. Let’s look at how this works in practice: For CEWS the SR&ED claim will be reduced by approximately 8 percent and for the temporary wage subsidy 3 percent. This assumes the employee works for the full year, qualifies for the full three months for the CEWS or wage subsidy and their SR&ED eligible activities are the same month over month.
Example deductions on SR&ED:
An employee with 100 percent SR&ED-eligible has a salary of $1,000 a week during the subsidy period. Using the proxy method of 55 percent, the total would be $1,550 less 75% of CEWS government assistance ($750,). The company can only claim $800 towards their SR&ED compared to the normal $1,550. The cap on CEWS is $847 per employee per week,
The 10% Temporary Wage Subsidy for employers is at max $1,375 per employee and up to $25,000 per employer.
Please note that this is for a period from March 15th, 2020 to June 5th, 2020.
IRAP has always and will continue to reduce your SR&ED claim. We want to point this out due to the recent $250 million in funding announced by the government.
For further assistance on COVID-19 programs affecting the SR&ED program, do not hesitate to contact Braithwaite.
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