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Indirect Costs (Overhead) Recoveries: Accounting, Distribution, and Reporting

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Direct Versus Indirect

The University of Toronto is committed to the full recovery of research costs, and each research project should include the full recovery of the associated Direct and Indirect Costs of the proposed activities.  This principle is outlined in UofT’s Research Administration Policy and the accompanying Guideline on Full Cost Recovery in Research. Some common examples of Direct and Indirect Research Costs are outlined in sections 1.2 and 1.3 of the Research Administration Policy.

It is important to note that it is not the nature of the cost but its traceability that determines whether the cost is direct or indirect.

Direct Costs routinely include, but are not limited to:

  • Salaries and benefits of research personnel;
  • Materials and supplies;
  • Travel;
  • Capital equipment

Indirect Costs of Research are those necessary expenditures incurred during the conduct of research at the University, though not directly attributable to an individual project. Indirect costs include, but are not limited to:

  • Infrastructure – building upkeep, power, communications network;
  • Common equipment depreciation, life cycle costs;
  • Environmental and safety monitoring security, hazardous waste disposal;
  • Ongoing regulatory and certification requirements (i.e. ethical review, biohazard or radiation safety, environmental assessments, provincial and/or municipal regulations and by-laws);
  • Financial and agreement management;
  • Insurance

The University’s Planning and Budget Office calculates annually the estimated indirect costs of research at UofT. The most recent estimate is 56.7%. In terms of recovery of indirect costs, the University has a standard Indirect Research Cost rate of no less than 40% of total Direct Costs, or the maximum allowable rate as published by the sponsor. The Principal Investigator is responsible for ensuring that Direct and Indirect Costs are clearly set out in the proposed project budget, which is included in the information collected via UofT’s online My Research Application (MRA) system. Any exceptions to UofT’s standard Indirect Costs rate (or the published rate for the sponsor program) require Decanal approval of the administering Division.

Indirect Cost Recoveries: Accounting, Distribution and Reporting

Accounting for Indirect Costs

Where a research award has a provision for indirect costs, as indicated on the Funded Research Digest, a separate budget (commitment) item within the award is established to charge the indirect costs (overhead) to the award. The accounting for indirect costs is done in two ways: (1) through monthly automated posting and (2) quarterly manual postings made by the VPRI Research Accountant (for more complex agreements). Indirect cost amounts to be charged to the award is based on the Overhead rule as defined on the FReD. Overhead charged from the award is (credited to or) recorded as General University income.

Distribution of Indirect Costs – How

As indicated above, indirect costs of research are incurred at three levels of the organization – the Institutional, Faculty and Departmental levels.

It is the University’s practice that the distribution of indirect costs which have been recovered from research awards be appropriately applied to indirect costs incurred. Accordingly, the indirect costs recovery is distributed to the academic division that is the administrative home to the funded research initiative. The Division will determine the internal distribution of indirect costs revenue at its own discretion.

Collaborating Departments and the Departmental Share

Occasionally a funded research initiative is shared by two or more departments who, as a result, are incurring indirect costs in respect to the research. In these cases, following distribution of the indirect cost revenue to the administering division, the division may share a portion of that revenue by reallocating the overhead budget using a Budget Transfer Revision.  Refer to the GTFM section:  Changing the original budget: Authorization and Procedures for more information on how this is accomplished.

Distribution of Indirect Costs – When

The timing of the distribution of the indirect cost recovery is done on a calendar year basis. The indirect cost recoveries from a research award in a calendar year are made available as a one-time-only budget entry in the following University fiscal year. This allows divisions to operate with a level of certainty as to the amount of the distribution for the fiscal year.


An annual report on the distribution of the indirect cost recoveries for the upcoming fiscal year is produced by Research Accounting within the Division of the Vice-President Research and Innovation each year following completion in January of the recording of all recoveries applicable to the research expenditures in the immediately preceding calendar year.

The report details the total indirect costs by award, the distribution of that indirect cost and the total indirect cost for the recipient unit, i.e. department, faculty or Accommodation and Facilities Directorate.

The report is distributed to faculty financial officers in late February or early March by the Planning and Budget Office.

Guidelines for Use of Departmental Indirect Costs


  • Central, Faculty and Departmental administration
  • Utilities
  • Library collections and services; central services provided by the Division of the Vice-President, Research and Innovation, and divisions and departments such as Personnel, Purchasing, Physical Plant and Accounting, Biohazard Disposal, Radio Isotope Disposal and Waste


  • Equipment acquisition, installation, maintenance, replacement
  • Laboratory climate control
  • Technical and secretarial support not included as a direct cost
  • Telephone charges
  • Hiring and employment costs
  • Research employee skill enhancement/professional development courses
  • Bridging research group salaries and benefits between contracts
  • Space and facilities renovation

Current Awareness

  • Attendance at conferences, symposia
  • Publication
  • Publicity
  • Memberships in professional and learned societies
  • Purchase of journals, proceedings and books specific to research area


  • Identification and cultivation of potential sponsors
  • Identification, preparation and submission of new research proposals (both successful and unsuccessful)
  • Negotiation of research programs, and terms and conditions with sponsors

Project/program feasibility

  • “Idea development” funds so that promising concepts can be explored to the point that they are sufficiently well-defined for new research proposals to be formulated.


Last revision November 2015