CRA releases an example showing how the CEWS affects the SR&ED proxy method

CRA has published a webpage which confirms that the CEWS (wage subsidy) received by a corporation regarding the salaries of its employees engaged in SR&ED is government assistance that reduces both the pool of deductible SR&ED expenditures, and its qualified SR&ED expenditures for investment tax credit purposes. It also provides an example of how the government assistance provisions in ss. 127(18) and (19) interact in this context with computing the qualified expenditures under either the “traditional” or the proxy method (i.e., claiming a permitted arbitrary proxy for the amount of certain SR&ED overheads, rather than claiming their actual amount.)

In the example, the corporation’s lead engineer (Sarah) spends all of her time for a 12-week period directly engaged in an SR&ED project and does non-SR&ED work for the rest of the year. The only relevant overhead expense is the salary of her administrative assistant (Jamaal), who spends 30% of his time during the same period tracking the SR&ED project costs and its progress.

Under the proxy method, the corporation’s qualified expenditures include only Sarah’s (not Jamaal’s) salary for the period, but are grossed-up by the 55% prescribed proxy amount, and that total is reduced by all and 30%, respectively, of the CEWS received by the corporation in relation to their respective salaries for that period. Thus, the CEWS for Jamaal that relates to his 30% SR&ED overhead time is in effect deducted from the notional proxy amount.

Neal Armstrong. Summary of “Guidance: How the Canada emergency wage subsidy affects SR&ED claims” 19 February 2021 CRA Webpage under s. 37(8)(a) and s. 127(19).