What is the impact of Government programs such as CEBA and CEWS on SRED Claims?
As a general rule with SR&ED claims, tax credits cannot be claimed on expenditures that have been funded by grants or assistance from governments or other sources.
For years SR&ED claimants have been deducting IRAP, ACOA and other funding sources from their SR&ED claims to comply with filing requirements. In 2020, 2021 and potentially future years depending on the continuation of COVID funding, claimants now need to be concerned with additional funding sources that may reduce their SR&ED claim. Both the CEWS (Canadian Emergency Wage Subsidy) and CEBA (Canada Emergency Business Account) may affect the SR&ED claim of certain claimants
The CRA has confirmed that CEWS is considered government assistance and must be deducted from any SR&ED claims. A seemingly simple formula can be used to calculate how CEWS will impact your tax relief: CEWS deducted from SR&ED expenditures = % of time spent on SRED x CEWS received. While this formula may appear to be straight forward, it can be difficult to apply in practice. It is important to review your filings with a consultant to ensure compliance.
The CEBA is handled in a different manner. The interest free loan of up to $40,000 is not considered assistance in itself however, 25% of the loan can be written off if the loan is repaid by December 31, 2022. This associated write off would be considered "assistance" and would therefore reduce the organization’s SR&ED claim accordingly if the loan was used to pay for qualifying SR&ED expenditures.