Hours, founder compensation, and defensible records

Why total hours and SR&ED hours both matter

Labour allocation is not supported by an SR&ED-hours number in isolation. CRA guidance generally relates the eligible portion of salary or wages to the time spent on the relevant SR&ED work compared with total time worked, subject to the calculation method and the claimant's facts. Non-SR&ED duties can therefore affect the allocation even when the technical work itself is well documented.

Record both values for the same person and period, and explain the allocation method. Do not silently omit founder administration, sales, financing, customer support, commercial product work, leave, or other non-SR&ED time when it is part of the relevant denominator.

“Directly engaged” is a work question, not a job-title shortcut

Under CRA's proxy-method guidance, directly engaged time concerns work involved in the SR&ED project in a direct manner. The traditional method uses its own rules for work that directly undertakes, supervises, or supports the prosecution of SR&ED. Titles such as founder, developer, scientist, or CTO do not settle the analysis by themselves.

Describe what the person actually did: the uncertainty investigated, hypothesis or test, measurements, observations, analysis, technical supervision, and learning. Keep excluded or ordinary commercial activities visible so the preparer can assess the boundary rather than inferring it from a percentage alone.

Keep source-level time records

The People & Effort roster is a preparation summary, not a replacement for the records used to support it. For a daily or weekly source log, capture at least:

• date or week, person, role, and project;
• total hours worked and SR&ED hours for the same period;
• the activity, uncertainty, experiment, analysis, or technical learning;
• links to commits, tests, issues, notebooks, designs, meeting notes, or other source evidence;
• whether the entry was contemporaneous or later reconstructed; and
• the allocation method and any assumptions or exceptions.

Contemporaneous records are preferable because they were created while the work happened. When reconstruction is necessary, label it honestly, record when and by whom it was prepared, and identify the contemporaneous sources used. Do not backdate a later explanation or present an AI-generated summary as though it were the underlying evidence.

CRA's T661 guide lists time sheets, labour-allocation methods, cost breakdowns, contracts, reconciliations, and other supporting schedules among the records that may support or be requested for a claim.

Reconcile the hours to payroll

A preparer should be able to trace the annual wage amount back to the employee or founder, payroll period, amount incurred, amount and date paid, total hours, SR&ED allocation, and source records. Keep payroll registers, T4 information, payment evidence, and the explanation of the allocation method available. The hours fields organize the allocation; they do not calculate or approve a wage claim by themselves.

Founder and specified-employee considerations

Ownership, relationships, associated corporations, the form of compensation, and the mix of SR&ED and non-SR&ED work can change the analysis. CRA guidance contains specific limits and allocation rules for specified employees. A product should flag missing facts, but it should not declare that a founder's compensation structure qualifies.

Organize these facts for professional review:

• ownership, relationships, associated entities, and the possible specified-employee indicator;
• salary or wages incurred, payroll period, amount actually paid, and payment date;
• total and SR&ED hours, plus treatment of non-SR&ED work;
• the hourly-rate or other allocation methodology and available comparable rates;
• T4s, payroll registers, bank or payment evidence, and compensation resolutions; and
• the named accountant or legal reviewer, their notes, open questions, and sign-off.

A court decision turns on its own evidence and facts. Do not copy a conclusion from another claimant to a different ownership, salary, work, or payment arrangement without professional advice.

The 180-day unpaid-remuneration issue

Current CRA salary-or-wages guidance states that remuneration remaining unpaid 180 days after the end of the tax year is generally deemed not to have been incurred in that year, but in the year it is paid. The guidance also describes specific exceptions and reporting treatment. Record the actual payment date and have the preparer apply the rule to the precise compensation and tax year; do not treat an accrued founder salary as equivalent to a timely paid amount.

When to involve an accountant or tax lawyer

Seek professional review before year-end when any of these applies:

• a founder, shareholder, related person, or possible specified employee is being paid;
• multiple associated entities share the person's work or compensation;
• salary, wages, bonuses, deferred amounts, equity, or profit-based remuneration may not be paid promptly;
• substantial non-SR&ED work makes the allocation method uncertain;
• records are being reconstructed or do not reconcile to payroll; or
• the proposed treatment depends on applying a court decision or legal interpretation.