SR&ED Tax Credit Canada: The Complete Guide

Canada's most valuable business tax incentive — up to 35% refundable credit on qualifying R&D expenditures for Canadian-controlled private corporations.

What is SR&ED?

Scientific Research and Experimental Development (SR&ED) is a federal tax incentive program administered by the Canada Revenue Agency. It is the single largest source of government R&D support for Canadian businesses, distributing over $3 billion annually. SR&ED allows businesses to claim Investment Tax Credits (ITCs) on eligible R&D expenditures — and for Canadian-controlled private corporations (CCPCs), a significant portion of the credit is refundable, meaning CRA will write you a cheque even if you owe no tax.

SR&ED Credit Rates

Business Type	Credit Rate	Refundable?	Annual Limit
CCPC (small business)	35%	Yes (fully refundable up to $3M expenditure limit)	$3M qualified expenditures
CCPC (above $3M or high income)	15%	Partially	Above $3M threshold
Other corporations	15%	No (non-refundable, carry forward 20 years)	No limit
Individuals / partnerships	15%	No	No limit

What Qualifies as SR&ED?

SR&ED work must involve systematic investigation or search to advance scientific knowledge or achieve technological advancement. The key test is technological uncertainty — you must be trying to overcome a problem that cannot be solved with existing knowledge. Types of qualifying work include:

• Basic research (advancing scientific knowledge without specific commercial application)
• Applied research (advancing scientific knowledge with a specific practical application)
• Experimental development (developing new or improved materials, devices, products, or processes)

Routine software development, market research, quality control, and style changes do not qualify. However, developing novel algorithms, solving technical software challenges with genuine uncertainty, and iterative product development with technological obstacles often does.

Eligible SR&ED Expenditures

• Salaries and wages: Employees directly engaged in SR&ED work (most significant expense category)
• Materials: Materials consumed or transformed in SR&ED
• Contract payments: Third-party SR&ED performed in Canada (80% of amount paid is eligible)
• Overhead: Using the traditional method; or use the proxy method (55% of direct labour)
• Lease costs: Equipment used primarily for SR&ED

How to Claim SR&ED

• Step 1 — Document contemporaneously: Keep lab notebooks, Git commits, meeting notes, failed experiment records. Documentation during the work (not reconstructed later) is critical.
• Step 2 — Identify qualifying projects: For each project, document the scientific/technological uncertainty, the hypothesis, the work performed, and results (even failures count).
• Step 3 — Calculate expenditures: Allocate employee time to SR&ED using timesheets. Identify materials consumed. Total eligible expenditures.
• Step 4 — File with T2 return: Complete Form T661 (SR&ED Expenditures Claim) and Form T2SCH31 (Investment Tax Credit — Corporations). Filed with your T2 within 18 months of fiscal year end.
• Step 5 — CRA review: CRA may conduct a technical or financial review. Having strong documentation is essential to defend your claim.

Should You Use an SR&ED Consultant?

SR&ED consultants typically work on contingency (10–20% of the credit received). For first-time claimants, a consultant is often worth it — they help identify qualifying work you may have overlooked and ensure proper documentation. For experienced claimants with strong internal processes, self-filing is viable. Ensure any consultant you use has engineering or scientific credentials alongside tax expertise.