SR&ED for Manufacturers
Does Your Machine, Tooling or Controls Work Qualify for SR&ED?
If your engineers had to build and test to find out whether something would work, that work can qualify. This page shows where the CRA draws the line for manufacturers, and which cost rules apply.
By Harminder Singh · Updated October 12, 2026
SR&ED for manufacturing: the short answer
Manufacturing work qualifies for SR&ED when you could not tell from known engineering whether something would work, and you ran tests to find out. The CRA calls this a systematic investigation: define the problem, form a hypothesis, test it, and draw conclusions from the results.
The project does not have to succeed. The CRA says that learning an idea does not work for your situation can count as new knowledge.
A Canadian-controlled private corporation can earn a 35% enhanced credit on up to $6 million of qualifying spending a year, for tax years starting after December 15, 2024.
What the CRA excludes by name
These are listed as excluded work on the CRA's eligibility page. The first three catch the most manufacturing claims.
Quality control or routine testing of materials, devices, products, or processes
The commercial production of a new or improved material, device, or product, or the commercial use of a new or improved process
Style changes
Routine data collection
Market research or sales promotion
The commercial production exclusion is the big one. A new product is not SR&ED once you are making it for sale. The work that got you there can be.
Where the line falls, by type of work
This is our read of how the CRA's test applies to each kind of work. Every claim still turns on the facts of the project.
Machine builders and special-purpose machines
You build one-off or low-volume machines to a customer's spec. The SR&ED is usually in the part of the machine nobody has made work before.
Can qualify
- A new mechanism or process step where known engineering could not tell you if it would hit the speed, tolerance or cycle time, so you built and tested to find out
- Several prototype versions, where each one is built on what the last test showed
- Test copies of a new part, built only to run the tests the project needs
Usually does not
- Building a machine to a design you have already proven, for a new customer
- Copies of a working prototype built to fill orders or stock
- Layout, finish and cosmetic changes
Cost rule to watch: Only the parts changed by the SR&ED count as materials. The standard frame, guarding and wiring around them do not. If the machine ships to a customer, the credit on those materials can be taken back.
Automation and robotics integration
You put robots, vision, conveyors and controls together into a working cell. Most integration is known work. Some is not.
Can qualify
- Getting a robot, gripper or vision system to handle a task where no known setup worked, for example parts with more variation than standard tools can cope with
- A new way to sequence or synchronise equipment where you could not predict the result and had to test options
Usually does not
- Programming and commissioning a cell with the vendor's standard tools and known methods
- Routine tuning, debugging and acceptance testing during install
Cost rule to watch: If testing happens on the customer's live line, only the extra cost caused by the experiment counts. If the customer is paying you for the development, the contract payment rules decide who can claim it.
Tooling: jigs, fixtures, moulds and dies
Most tooling is designed with known methods and works as planned. The SR&ED cases are the ones where you could not predict how the tool or the part would behave.
Can qualify
- A mould, die or fixture where you could not predict fill, warpage, springback or holding accuracy, and had to run trials to find out
- A new tooling concept that is itself the point of the project
Usually does not
- Tooling designed with standard methods that works as expected on the first tries
- Routine tryout and quality checks on a new tool
Cost rule to watch: A fixture that holds parts during testing and stays in your shop is equipment, not a material. A tool you develop and then sell is a custom product, and the credit on its materials can be taken back when it is sold.
Industrial equipment
Pumps, presses, ovens, handling and process equipment. SR&ED shows up when equipment has to work outside the range anyone knows it can handle.
Can qualify
- Equipment that has to run outside its known limits for pressure, heat, wear or throughput, where you had to test to find where it fails
- A new process step in a plant where you could not predict the result and ran trials to find out
Usually does not
- Scaling a proven design up or down using standard engineering rules
- Field service, repairs and routine upgrades
Cost rule to watch: The CRA treats a pilot plant (built for SR&ED) and a commercial plant (built to produce) very differently. On a commercial plant, you must split SR&ED work from normal work and costs.
Electrical: controls, motors, power and panels
Control systems, drives, power electronics and panel work. The SR&ED is in the cases where you could not predict how the design would behave.
Can qualify
- Control logic, motor drive or power design where you could not predict stability, heat, noise or response, and had to test to find out
- Getting new equipment to work with old controls where no known method worked
Usually does not
- Building panels to a standard design and to code
- Standard PLC programming and I/O setup
Cost rule to watch: Components destroyed in testing are consumed materials, which are the safe claim. Components in a panel or drive that ships to a customer are transformed, and the credit can be taken back on sale.
The SR&ED cost rules that matter most in manufacturing
Software claims are mostly salaries. Manufacturing claims also have parts, prototypes, production runs and equipment, and each has its own CRA rule.
Materials: consumed or transformed
Parts and stock used up by testing are consumed. That is the safe claim. Parts built into something that still has value are transformed. Those count too, but the credit can come back to the CRA when the item is sold. Scrap sold for under 10% of cost still counts as consumed.
Source: CRA Materials for SR&ED PolicyFull guide: SR&ED materialsPrototype or custom product
The CRA calls a trial model built to test an idea a prototype. Something built to sell or to use in your business is a custom product or commercial asset. For a custom product, only the SR&ED part of the work and materials counts, not the whole build.
Source: CRA SR&ED while Developing an Asset PolicyTesting on a production line
If the run exists to test a change and carries real technical risk, its costs can count. If you are making product for sale and testing a change at the same time, only the extra cost the test caused counts.
Source: CRA SR&ED During Production Runs PolicyCapital equipment is back
Eligible SR&ED capital expenditures made after December 15, 2024 can be claimed again. That matters for test rigs and equipment bought for R&D. It is a separate rule from materials.
Source: CRA SR&ED program updatesThe credit can come back
When a product holding transformed materials is sold or put to commercial use, the CRA can take back the credit on those materials. It does not take back the credit on labour or overhead.
Source: CRA Recapture of SR&ED ITC PolicyThe CRA's own example: a machine built for a customer
When SR&ED and normal build work are mixed and cannot be split, the CRA can agree to an alternative approach. Its asset policy gives this example. A client ordered a machine with an improved engine. The builder could not separate the SR&ED work from the rest.
- Total cost to develop the machine$150,000
- Minus: cost to build it now that the unknowns are solved−$125,000
- Extra cost caused by the SR&ED$25,000
- Plus: materials transformed in the improved engine+$30,000
- Allowed SR&ED spending$55,000
Two things to note. The $30,000 of engine materials can have its credit taken back when the machine is sold. And this approach needs the CRA's agreement plus a signed waiver of your right to object, because it is an administrative option, not law. Splitting the work yourself, with good records, is the stronger position.
“It has given us the courage over the years to tackle projects that we would otherwise have considered as being outside of our comfort zone.”
Rho-Can Machine and Tool Company, a builder of special-purpose machines, quoted in the CRA's SR&ED success stories. Rho-Can is not a Glauq client.
You already keep most of the records
A manufacturing claim holds up when each dollar can be traced from the invoice or timesheet to the test it went into. Most shops already have the records. The work is linking them to the SR&ED project while it runs.
- Drawings and their revision history
- Test plans, test logs and results
- Job costing in your ERP, with SR&ED work on its own job number
- Travellers and work orders
- Non-conformance and QC reports
- Scrap tickets and weigh slips
- Timesheets booked to jobs
How Glauq works with a manufacturer
Point us at your project folders and email. Our AI finds the R&D hiding in your work, the failed trials, redesigns and prototypes, and an engineer confirms it. You get a claim backed by your own files, without pulling your engineers off the floor.
Point us at your files
Share your project folders and email. Drawings, test notes, quotes and the back-and-forth with your team and suppliers are already there.
AI finds the R&D
Our AI reads through the files and pulls out the failed trials, redesigns and prototypes: the work that shows something did not work the first time.
An engineer confirms it
An engineer checks every project against the CRA's test before anything is filed. The claim points back to your own files, so your team stays on the floor.
Go deeper on manufacturing SR&ED
SR&ED materials: prototypes, test parts and scrap
Consumed vs transformed, the 10% scrap line, and when the credit comes back.
Read moreSR&ED for hardware: what qualifies
Where the line falls for physical products, prototypes and capital equipment.
Read moreSR&ED eligible activities: the CRA's test
The two-part test, the support-work categories, and what is excluded.
Read moreContract SR&ED: who gets to claim
What happens when a customer pays for the development work.
Read moreThe SR&ED grind rule
Why provincial credits shrink the federal claim, with the real math.
Read moreThe T661 form, part by part
How to write up the technical side of a claim.
Read moreFrequently Asked Questions
Does manufacturing qualify for SR&ED?
Manufacturing work qualifies when it is a systematic investigation to resolve a technological uncertainty: you could not tell from known engineering whether something would work, so you built and tested to find out. Making product for sale is excluded by name, even if the product is new. The test is the same one the CRA applies to any field.
Can a machine builder claim SR&ED on a machine built for a customer?
Yes, for the SR&ED part of the work. The CRA treats a machine built to sell as a custom product. Labour and materials spent resolving the technical unknowns can be claimed. The standard parts of the build cannot. When the machine is sold, the credit on materials transformed into it can be taken back. If the customer paid you for the development, the contract payment rules also apply.
Is building a prototype SR&ED?
Building a prototype is not SR&ED on its own. It counts when the prototype is built to test something you could not predict. Copies of a working prototype built to fill orders are commercial production and do not count. Copies built only for testing the project needs can be claimed as materials.
Does testing on our production line count?
It can. If the run exists to test a change and carries real technical risk to the process or product, its costs can count. If you are making product for sale and trying a change at the same time, only the extra cost caused by the test counts. The CRA's production runs policy sets out how to tell the two apart.
Can we claim equipment we bought for R&D?
Eligible SR&ED capital expenditures made after December 15, 2024 can be claimed again, per the CRA. Equipment is a capital rule, not a materials rule, so it is claimed differently and has different refund terms. Equipment bought before that date is not eligible.
How much can a manufacturer get back?
A Canadian-controlled private corporation can earn a 35% enhanced credit on up to $6 million of qualifying expenditures a year, for tax years starting after December 15, 2024. Provincial credits can add to that, but they also reduce the federal base, so the rates do not simply add up. Use the calculator for an estimate based on your own numbers.