Scientific Research and Experimental Development (SR&ED)

Insider Tip

Document as you go — CRA's single biggest audit trigger is reconstructed-after-the-fact documentation. Keep weekly or biweekly technical logs during the project, not at year-end. Second: most denied claims fail on the technical narrative in Form T661, not the financials. Use CRA's five-question framework explicitly in your project descriptions. Third: consider the new voluntary pre-claim approval process (launching April 2026) for large or novel projects — 90-day turnaround gives certainty before you invest in full claim preparation. Finally: hire a consultant for your first 1-2 claims but learn the process — many companies switch to in-house preparation after building internal expertise, saving 15-20% in consultant fees.

Rejection Pitfalls 8

• Work described as routine engineering or standard practice rather than addressing a genuine technological uncertainty
• Vague, generic, or boilerplate technical descriptions in Form T661 — failing to articulate specific hypotheses and experiments
• Lack of contemporaneous documentation — records created retroactively or insufficient to support claimed hours/activities

Success Profile

Software companies and tech startups benefit most — software development accounts for 40.8% of all ITCs allowed. Ideal claimant is a CCPC with under $500K taxable income and under $15M taxable capital (qualifies for full enhanced rate), employing 3-20 developers/engineers who spend at least 30-50% of their time on eligible R&D. Companies in manufacturing, medical devices, biotech, and clean technology are also strong fits. First-time claimants with good documentation often succeed — 90% acceptance rate.

Evaluation Criteria

SR&ED is an entitlement program — not scored competitively. CRA evaluates claims against the five-question eligibility framework: (1) Was there a technological uncertainty? (2) Did the work involve a systematic investigation? (3) Was there a technological advancement? (4) What was the technological content? (5) Was the work related to the business? Claims are either accepted or denied based on meeting these criteria. 90% are accepted as filed.

Application Steps

Required Documents 9

Eligible Expenses 6

• Salaries and wages of employees directly performing SR&ED work, including employer contributions (CPP, EI, health taxes)
• Materials consumed or transformed during R&D experimentation (prototypes not sold commercially)
• Subcontractor payments at 80% of arm's-length costs for SR&ED performed in Canada
• Overhead via proxy method — 55% of eligible salaries automatically covers rent, utilities, and shared equipment
• Capital expenditures for equipment acquired after December 16, 2024, used 90% or more for SR&ED activities (new for Budget 2025)
• Third-party payments to universities, colleges, and approved research institutes

Ineligible Expenses 7

• Materials used in commercial production or sold commercially
• Subcontractor payments to non-arm's-length parties without proper documentation
• Equipment used for both R&D and production (unless 90%+ R&D use)
• General office equipment, furniture, and vehicles (except specialized R&D vehicles)
• Building and leasehold improvement costs
• Market research, sales, and marketing activities
• Quality control and routine testing not connected to resolving technological uncertainty

Intake Periods

Continuous — claims can be filed at any time within the 18-month deadline after fiscal year-end. No intake windows or competition rounds. Filing with the T2 return (6 months after year-end) is recommended for fastest processing.

Deadline Notes

This is an absolute deadline with no extensions. Strategic tip: file as early as possible — claims filed with the T2 return (6 months after year-end) are processed fastest. Late claims (close to the 18-month deadline) still qualify but face longer queues. The new 45-day processing target (effective April 2026) applies only to timely, non-reviewed refundable claims.

Open Application Portal →

Ineligible Organizations

• Tax-exempt entities (registered charities, most non-profit organizations) — though taxable subsidiaries may claim
• Organizations not conducting business in Canada
• Businesses performing R&D work entirely outside Canada

Compatible Programs

Clawback Risk

Low Risk