There are two ways to measure overhead related to SR&ED expenditures:

1. Traditional Method

The traditional method requires you to list all overhead and expenditures related to SR&ED work. This sounds easy enough, but often times SR&ED work is conducted in the same facility as non-SR&ED eligible work so it can become quite complicated to calculate. Each expenditure must be explained and the calculations must be presented to demonstrate how your claim was calculated.

2. Proxy Method

The proxy method is much more straightforward than the traditional method. Instead of tracking expenditures, you can increase your eligible salary pool by 55% (it was 60% for 2013 fiscal year claims). Sound confusing? If you have $100,000 of SR&ED eligible salaries then you get $55,000 to cover your overhead expenses.

The proxy method saves a lot of time internally; you don't have to document each expense and produce the necessary paperwork to support your calculations. We like to think of the proxy method as an assumed 'lift' to cover all associated overhead.