SR&ED Filing Paired With IRAP Funding. Can It Be Done?
By admin
Published On January 12, 2022
There is a myth that if a company receives an IRAP grant they cannot make a claim for the SR&ED Tax Credit, OR that it’s not worth it. However, that myth is busted. SR&ED claims are NOT a waste of time.
Even if your company received an IRAP grant or any other form of government assistance, such as pandemic relief (e.g., CEWS), or even summer student or intern subsidies, filing an SR&ED claim can be worth it and potentially easier with the work done for a grant or government assistance. Take a minute and look at these examples.
Example 1 | Project Eureka
Project “Eureka” for Company “A” (100% of the project labour activities qualifies for SR&ED)
| The total labour cost of the project | $100,000.00 |
| IRAP Grant | $60,000.00 |
| Company funded portion | $40,000.00 |
| SR&ED eligible expenditures | |
| Project labour costs | $100,000.00 |
| + overhead (55% using proxy) | $55,000.00 |
| Total calculated SR&ED eligible expenditure | $155,000.00 |
| Total calculated SR&ED eligible expenditure | $155,000.00 |
| – IRAP Grant | $60,000.00 |
| Total SR&ED qualified expenditures | $95,000.00 |
The Federal SR&ED Tax Credit is 35% of the qualified expenditures (35% of $95,000 = $33,250) for a Canadian controlled private corporation (CCPC). Add provincial SR&ED Tax Credits and the company can get back nearly $40,000. Federal (@ 35% for CCPC) + Provincial Tax Credits = $40,000.
Example 2 | IRAP Maximization
What if they received the IRAP maximum of 80% of the project?
- Overhead proxy remains $55,000
- Total expenditures remain $155,000
- Subtract $80,000 for the grant
| The total labour cost of the project | $100,000.00 |
| IRAP Grant | $80,000.00 |
| Company funded portion | $40,000.00 |
| SR&ED eligible expenditures | |
| Project labour costs | $100,000.00 |
| + overhead (55% using proxy) | $55,000.00 |
| Total calculated SR&ED eligible expenditure | $155,000.00 |
| Total calculated SR&ED eligible expenditure | $155,000.00 |
| – IRAP Grant | $80,000.00 |
| Total SR&ED qualified expenditures | $75,000.00 |
The Federal SR&ED Tax Credit is 35% of the qualified expenditures, $26,250. Add provincial SR&ED tax credits and the company can get back nearly $30,000. Federal (@ 35% for CCPC) + Provincial Tax Credits = $30,000.
Even with the receiving maximum level of the IRAP Grant, it was still worth filing a SR&ED Tax Credit Claim.
For more information on how to pair the SR&ED Tax Credit with IRAP Funding, please contact Braithwaite Canada Today.
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