The Complete Guide to SR&ED Tax Credits
Everything Canadian businesses need to know about the Scientific Research and Experimental Development program — eligibility, rates, filing process, and the latest 2025–2026 changes.
What Is SR&ED?
The Scientific Research and Experimental Development (SR&ED) program is Canada's largest federal tax incentive for research and development. Administered by the Canada Revenue Agency (CRA), it provides over $3 billion annually in tax credits to Canadian businesses conducting qualifying R&D.
Unlike grants that require applications and approvals, SR&ED is a tax credit — you claim it after performing eligible work. For Canadian-Controlled Private Corporations (CCPCs), the credit is refundable, meaning you receive cash back even if you owe no taxes.
The program covers all industries — software, manufacturing, life sciences, clean technology, agriculture, and more. Any company performing systematic R&D to resolve technological uncertainty may qualify.
$3B+
Awarded annually
20,000+
Claimants per year
All industries
Are eligible
What's New in 2025–2026
The federal government introduced significant enhancements to the SR&ED program in the 2024 Fall Economic Statement and 2025 budget. Here are the key changes.
Expenditure Limit Doubled to $6M
The enhanced 35% ITC rate now applies to the first $6 million of eligible expenditures (up from $3M). This means CCPCs can now receive up to $2.1M at the enhanced rate — double the previous maximum.
Effective: For tax years ending on or after the 2024 budget date
Public Companies Now Eligible for Enhanced Rate
Publicly traded Canadian corporations are now eligible for the enhanced 35% rate, previously restricted to CCPCs. This is a major expansion of the program.
Effective: Phased implementation beginning 2025
Elective Pre-Claim Approval Process
Companies can now submit SR&ED claims for CRA review before filing their tax return. This provides certainty on eligibility before committing to a claim, reducing audit risk.
Effective: April 1, 2026
90-Day Processing Commitment
The CRA has committed to processing SR&ED claims within 90 days of receiving a complete submission. This improves cash flow predictability for claimants.
Effective: 2025–2026
Who Qualifies for SR&ED?
Any Canadian business (or foreign business with R&D performed in Canada) can claim SR&ED if their work meets the CRA's three-part test:
Technological Uncertainty
Could the outcome be determined in advance using existing knowledge? If your team couldn't predict whether a particular approach would work — or how to achieve a desired result — technological uncertainty existed.
Systematic Investigation
Did your team follow a methodical approach to resolve the uncertainty? This includes forming hypotheses, designing experiments, testing, analyzing results, and iterating. Agile development with defined experiments counts.
Technological Advancement
Did the work generate new knowledge or capabilities beyond what was publicly available? The advancement doesn't need to be a breakthrough — incremental improvements and even failed experiments that reveal new insights qualify.
Software companies: If you're building software and wondering if your specific work qualifies, see our detailed guide on SR&ED for Software Companies with real-world examples of eligible and ineligible activities.
Credit Rates & Refundability
CCPC
Canadian-Controlled Private Corporation
Other Corporations
Public, foreign-owned, or large corporations
Provincial credits add an additional 3.5%–30% depending on your province. Use our calculator to see your combined federal + provincial estimate.
Eligible Expenses
Salaries & Wages
100% eligibleSalaries, wages, and benefits paid to employees directly engaged in SR&ED activities. Includes developers, engineers, data scientists, and their direct supervisors when directly supervising SR&ED work.
Time must be tracked and allocated between SR&ED and non-SR&ED work.
Contractor Costs
80% eligiblePayments to arm's-length contractors performing SR&ED on your behalf. Only 80% of the total cost is eligible.
Contracts must specify SR&ED work. Non-arm's-length contractors are treated differently.
Materials Consumed
100% eligibleCost of materials that are consumed or transformed during the SR&ED process. This includes raw materials, components, and supplies used in experiments.
Materials that result in a commercial product must be excluded from the claim.
Overhead (Proxy Method)
55% eligibleMost companies use the proxy method: 55% of SR&ED salary costs are added as an overhead allowance. This is simpler than tracking actual overhead expenses.
The traditional method (tracking actual overhead) is available but rarely used.
How to File Your SR&ED Claim (T661)
A step-by-step overview of the SR&ED filing process.
Identify Eligible Projects
Review your R&D activities from the fiscal year. Identify work involving technological uncertainty, systematic investigation, and technological advancement.
Document Technical Narratives
For each eligible project, write a technical narrative describing the uncertainty, the work performed, and the advancement achieved. This is the core of your T661 form.
Calculate Eligible Expenditures
Tally salaries (with time allocation), contractor costs (at 80%), materials consumed, and overhead (55% proxy or actual). Complete the financial sections of the T661.
Complete Form T661
Fill out all sections of the T661 (Claim for SR&ED carried out in Canada). This includes project descriptions, expenditure calculations, and the prescribed forms.
File With Corporate Tax Return
Submit the T661 with your T2 corporate income tax return (or within 18 months of fiscal year-end). The ITC is claimed on Schedule T2SCH31.
CRA Review & Refund
The CRA processes your claim (target: 90 days). Refundable credits are paid directly. Non-refundable credits reduce your tax payable or can be carried forward/back.
Filing Deadlines
18 months after fiscal year-end
This is a hard deadline — no extensions are granted.
Common deadlines:
Important: Missing the 18-month deadline means permanently forfeiting the credit for that fiscal year. There is no appeal process for late filings. File early to allow time for CRA review before the deadline.
CRA Reviews & Audits
What Triggers a Review?
- First-time SR&ED claims
- Claims significantly larger than previous years
- High contractor-to-salary cost ratios
- Vague or template-like technical narratives
- Random selection by the CRA
- Industry-specific review campaigns
How to Prepare
- Maintain contemporaneous documentation (records created during the work, not after)
- Link technical narratives to specific evidence (git commits, Jira tickets, test results)
- Track time allocation between SR&ED and non-SR&ED work
- Keep contracts and invoices organized for all claimed expenses
- Prepare technical staff to explain the uncertainty and investigation process
- Consider the new pre-claim approval process to get CRA confirmation before filing
Let AI Handle the Heavy Lifting
Glauq automates SR&ED identification, documentation, and filing — so you can focus on building your product. Our AI finds 40% more eligible activities than manual review.
Frequently Asked Questions
What is the SR&ED program?
The Scientific Research and Experimental Development (SR&ED) program is Canada's largest tax incentive for R&D. It provides tax credits (and in many cases, cash refunds) to businesses that conduct qualifying research and development in Canada. The program is administered by the CRA and is available to businesses of all sizes across all industries.
How much are SR&ED tax credits worth?
For CCPCs, the federal credit is 35% on the first $6M of eligible expenditures (refundable) and 15% above that. For other corporations, it's 15% (non-refundable). Provincial credits add an additional 3.5% to 30% depending on your province. Combined, credits can reach up to 64% of eligible R&D costs.
What is the SR&ED filing deadline?
You must file your SR&ED claim within 18 months after the end of the fiscal year in which the R&D was performed. For example, if your fiscal year ends December 31, 2025, your deadline is June 30, 2027. Missing this deadline means forfeiting the credit entirely — there are no extensions.
Can pre-revenue startups claim SR&ED?
Yes. Pre-revenue companies are among the strongest SR&ED claimants because, as CCPCs, they receive refundable credits (cash back) regardless of whether they owe taxes. Many startups use SR&ED refunds as a significant source of non-dilutive funding.
What is the T661 form?
Form T661 is the prescribed CRA form for claiming SR&ED tax credits. It includes project descriptions (technical narratives), expenditure calculations, and supporting information. It must be filed with your T2 corporate tax return. The ITC is then claimed on Schedule T2SCH31.
What triggers a CRA SR&ED audit?
Common triggers include: first-time claims, claims that are significantly larger than previous years, high ratios of contractor costs, vague technical narratives, and random selection. The best defense is thorough, contemporaneous documentation linking your work to technological uncertainty.
What's the difference between the proxy and traditional methods?
The proxy method adds 55% of SR&ED salaries as an overhead allowance — it's simpler and used by most claimants. The traditional method lets you claim actual overhead costs (rent, utilities, equipment depreciation) but requires detailed record-keeping. Once you choose the traditional method, you cannot switch back to proxy for that year.
Can I claim SR&ED for failed projects?
Absolutely. The CRA explicitly states that the success or failure of the R&D work is irrelevant. What matters is that technological uncertainty existed, you systematically investigated it, and the work generated new knowledge — even if that knowledge is 'this approach doesn't work.'
Continue Reading
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