Béton Mobile – Tax Court of Canada includes managerial payroll in what qualified for purposes of the proxy method election

A taxpayer who has made a valid proxy election under s. 37(8)(a)(ii)(B) can calculate its SR&ED expense by totaling up a restricted base of direct qualifying expenses, and then grossing up that total by a percentage amount (the prescribed proxy amount).

Such a taxpayer (BMQ) was successful in including some of the payroll costs of supervisory and managerial personnel in the base payroll expenditures referenced in s. 37(8)(a)(ii)(B)(IV). Lafleur J stated:

[T]he manager or supervisor who manages the conduct of the SR&ED and the employee who analyzes the results will be considered to be directly engaged in SR&ED. The same will be true for such a manager or supervisor with respect to the time he or she devotes to various tasks that have a direct impact on the SR&ED activities, such as planning the experiment, as well as researching the information required for the proper conduct of the SR&ED project. However, more general supervisory or management activities, as well as second or third level management or supervision, will generally not be considered in this regard.

She also went through the numerous projects identified by BMQ (who used mobile concrete mixers to provide concrete at the site of construction or major repair projects) as representing SR&ED, and agreed for some but not others. For example, she found that a successful project arising from a customer request for a rapidly-setting cement-based mortar mix to be used to seal underwater rock used in a bridge pier so qualified, stating that “although BMQ used current technological knowledge or current practices in this project to create the new product, BMQ could not predict whether the objectives could be achieved, or at least, BMQ could be fairly confident that they could be achieved, but without knowing with certainty which solution would be applicable.”

Neal Armstrong. Summaries of Béton Mobile du Québec Inc. v. The Queen, 2019 CCI 278 under s. 37(8)(a)(ii)(B)(IV) and s. 248(1) - SR&ED.