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SR&ED – What Are Specified Employees

May 17, 2016

Tax Question:

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 per 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).

  • For example, 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 CalculationLesser of 75%*(250,000-$30,000-$10,000) or $157,500 and $137,25$137,250
Salary for Deductible SR&ED ExpenseLesser of ($250,000-$30,000-$10,000)*90% or $189,000 and $274,500$189,000

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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