What are specified employees and their Scientific Research and Experimental Development (SR&ED) salary limits?
Specified employees are employees who do not deal at arm’s length with the corporation or who own 10% or more of the issued shares. There are different salary limits for the proxy calculation and the deductible SR&ED expenses on specified employees.
For the proxy calculation, the specified employee’s salary paid excluding taxable benefits and bonuses is prorated by the percentage of time spent on SR&ED to a maximum of 75% and is limited to 2.5 times the year’s maximum pensionable earnings (YMPE) (2.5 * $54,900 or $137,250 for 2016).
For the deductible SR&ED expense, the salary of a specified employee is the directly engaged salaries paid including taxable benefits and excluding bonuses, and is limited to 5 times the YMPE (5* $54,900 or $274,500 for 2016).
E.g. A specified employee spends 90% of his time directly engaged in SR&ED and receives compensation of $250,000 including a bonus of $30,000 and taxable benefit of $10,000.
|Salary for Proxy Calculation||Lesser of 75%*(250,000-$30,000-$10,000) or $157,500 and $137,25||$137,250|
|Salary for Deductible SR&ED Expense||Lesser of ($250,000-$30,000)*90% or $189,000 and $274,500||$189,000|
Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
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