To help businesses during the current extenuating circumstances due to COVID-19, the Canadian government has offered wage subsidies to businesses to help offset the negative impacts they are experiencing. Starting in March 2020, businesses have been able to receive up to 75% of employee wages to a maximum of $847/week per eligible employee.
As a result of this, however, we at EVAMAX have been receiving several questions regarding the impacts of CEWS on claiming SR&ED for that period.
“Can we still claim SR&ED if we have received CEWS?”
“Is it worth claiming SR&ED, when CEWS covers 75% of wages?”
So long as there are eligible projects for that period, the short answer to these questions is “Yes!”.
Eligible Costs and Contributions
SR&ED reimburses up to 65% of eligible expenses for Canadian Controlled Private Corporations (CCPCs). Eligible expenses include labour, overhead, scrapped materials, and contractors directly attributed to SR&ED projects. At its peak, CEWS provides up to 75% of employee wages, to a maximum of $847/week per eligible employee. Please note that the amount and rate of subsidy is reducing gradually leading up to March 2021 and potentially further.
SR&ED and CEWS Stacking
As CEWS can provide up to 75% of employee wages, we have many clients wondering if claiming SR&ED is worth it as only 25% of wages seem to remain unfunded. However, this is not completely the case!
At its peak, CEWS funding is capped at $847/week ($3388/month) per eligible employee. From our experience, we find that more clients reach this cap before they reach 75% of wages. This leaves greater than 25% of wages remaining for SR&ED funding.
For SR&ED eligible salaries, businesses can claim SR&ED Overhead Expenditures which can be about 55% of the total labour costs before CEWS deductions.
Furthermore, CEWS contributions are adjusted only for the Overlapping Time Frame: i.e. CEWS contribution will be prorated and then deducted from labour hours that overlap with the CEWS timeframe.
e.g. If a project started in January 2020 and ended in June 2020, CEWS funding would only be considered for the months of March 2020-June 2020, if applicable.
Furthermore, eligible Transformed or Consumed Materials and Contractor costs are not impacted by the CEWS contribution.
Due to these above considerations, EVAMAX has found that the effective impact of CEWS on SR&ED is very rarely a direct reduction of 75%.
E.g. Below is an example of a recent case we have encountered.
In this example, CEWS funding was received for 5 funding periods, whereas the SR&ED project spanned all 12 months of the fiscal year.
For these 5 periods, the amount of CEWS funding did not exceed $3388/month, with variations in funding being a result of changes in funding eligibility.
In this way, the amount of CEWS actually deducted was only actually about 10% of the total SR&ED expenditures. The impacts are outlined below:
CEWS Not Received
SR&ED Overhead Added
CEWS Funding Received
Total Qualifying Expenditures
**numbers have been rounded for simplicity. Please note that any Contractor expenses would further increase the amount of potential benefits
In conclusion, we have found that CEWS very rarely covers up to 75% of total SR&ED labour. From the cases, EVAMAX has seen so far, the impacts of CEWS have stayed within the range of 10-20%. We do understand that this will vary on a case-by-case basis. Furthermore, although SR&ED is consistently available to help subsidize R&D costs, the CEWS qualification criteria has been changing regularly and gradually decreasing leading up to March 2021 and potentially further.