SR&ED overhead gross-up is the next step once you’ve determined all Eligible SR&ED Expenditures. Before you begin this step, it’s worth your time to ensure you have all the expenditures as one of the methods depends on your salary base. You can also check guidance from the CRA for a CRA Salary & Wages Guidance SR&ED.
Each category of eligible expenditures, including salaries/wages, contractor expenses and material expenses, must be understood completely so that you can get the most out of investment CRA tax credits. Taking these expenditures seriously will also help better prepare you for beginning the process of calculating the overhead gross-up.
Once you are ready to proceed, it’s important to note that there are two different methods to choose from when determining the gross-up. The goal during this stage is to compensate for expenses such as office supplies, heat, electricity, admin staff and other maintenance costs. Here are the two main methods that you can choose from and what each of them entails.
1. Traditional Method
When calculating the SR&ED overhead gross-up, your first option is the traditional method. This method refers to the process of identifying and claiming all overhead and other expenditures. It’s important to ensure that these expenditures are directly attributable to the SRED tax credits that were incurred during the year. Once you’ve identified all of these expenses, you will then have the tools you need to accurately determine the gross-up.
2. Proxy Method
If you’re looking for a reliable alternative to the traditional method, the proxy method may be the right choice for you. Unlike the first method, the proxy method requires that you calculate the overhead gross-up in an approximation of the overhead based on the salary base.
Many people believe this method to be the more straightforward out of the two. However, it’s important to take vital precautions if you choose to adopt the proxy method. Specifically, be sure to confirm that the claimed proxy does not exceed the actual overhead expenses. Taking this key guideline into account will allow you to get the most out of the proxy method.
Choosing the Right Method
When it’s time to begin calculating the overhead gross-up, it’s crucial to choose the method that’s best for your specific needs. Once you choose the right method, you can navigate the entire process of calculating the overhead with much more ease and less stress. That said, it’s vital to consider the advantages and disadvantages of each of the two methods.
The main benefit of the traditional method is that it tends to yield a greater rate of return. This can be a highly rewarding advantage for those who opt to use the traditional method to determine the gross-up. However, there are important drawbacks to consider as well. For example, it’s worth noting that the traditional method involves strict cost accounting and is normally reserved for industrial claims. This is because the overhead is generally easier to calculate with industrial claims.
Keep these points in mind when choosing the right method. This will allow you to have an easier time calculating the SR&ED overhead gross-up.