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What is SR&ED?

SR&ED (pronounced shred) stands for Scientific Research & Experimental Development and is a federal tax incentive program to encourage Canadian businesses of all sizes and in all sectors to conduct research and development ("R&D") in in the country. It does so by by providing fully refundable and non-refundable income tax credits on eligible expenditures. As the largest source of funding for R&D in Canada,  it provided over $4 billion dollars of input tax credits to over 20,000 SR&ED claimants in the last year. The following sections will be somewhat technical in nature, but will explain the program in more detail for those curious.

Types of Eligible Work

SR&ED is defined in subsection 248(1) of the Income Tax Act, Canada as "systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is:"

  • Basic Research - "work undertaken for the advancement of scientific knowledge 
    without a specific practical application in view"

  • Applied Research - "work undertaken for the advancement of scientific knowledge 
    with a specific practical application in view"

  • Experimental Development - "work undertaken for the purpose of achieving 
    technological advancement for the purpose of creating new, or improving existing, 
    materials, devices, products, or processes, including incremental improvements."  

    • Chances are if you are reading this, you will fall into this category as despite the name of the program, a great majority of eligible corporate SR&ED claimants fall under the experimental development ("ED") portion. ​

  • Support Work - cannot be claimed on its own, but it can be part of a greater SR&ED claim if it falls into either experimental development, basic or applied research. Support activities include 

    • Engineering​

    • Design

    • Operations Research

    • Mathematical Analysis

    • Computer Programming

    • Data Collection

    • Testing

    • Psychological Research

Excluded Work

Subsection 248(1) also defines what is specifically excluded:

  • market research or sales promotion,

  • quality control or routine testing of materials, devices, products or processes,

  • research in the social sciences or the humanities,

  • prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,

  • the commercial production of a new or improved material, device or product or the commercial use of a new or improved process,

  • style changes, or

  • routine data collection​​​

What Can Be Claimed?

The SR&ED tax credit (and provincial credits) are calculated based on the following eligible expenditures: 

  • Salaries or Wages - Note that specified salaries (in general, owners of the corporation) and Canadian residents doing SR&ED work outside the country have additional restrictions. 

  • Materials Consumed or Transformed - Materials must be physical and tangible (solid, liquid, or gas). Consumed means that the material is destroyed or rendered virtually valueless and transformed means that it has been changed or incorporated into another material

  • Arm's Length Contracts - This refers to contractors that are not related to the corporation. The word "related" is per the definition in the Income Tax Act but in general means you cannot claim an owner doing SR&ED work through a separate corporation.

  • Third-Party Payments - In general, payments to approved associations, universities, or other similar organisations. This differs from contracts since there are typically multiple funders, and the rights are non-exclusive.​

  • Capital Assets (Effective December 16, 2024) - Per the draft legislation released on August 15, 2025, the federal government is proposing to reintroduce SR&ED tax credits for capital assets and lease costs. Note that this has not yet received royal assent.

The SR&ED Process

The SR&ED claim is one that encompasses the corporation's full fiscal year. The steps and roles are as follows:

  • Identify eligible projects and expenditures - We will conduct some interviews and send a questionnaire to determine what you are doing falls within the definitions of SR&ED

  • Maintain detailed documentation - This is your role, but we will provide support on what to keep, and how to defend yourself in case of a SR&ED audit

  • Prepare the technical narratives - We will conduct some more interviews, and to ensure that the write-ups reduce the risk of a SR&ED audit as much as possible

  • Fill out the federal prescribed forms - This is primarily the T661, but other schedules such as Sch 1, 31, 60 will also be required. We will fill this out and send it over to your accountant

  • Fill out the provincial prescribed forms - This depends on the province, and interacts with the federal forms. Alberta in particular, operates differenly from other provinces and runs its own program, the Innovation Employment Grant ("IEG")

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Ready for your tax credits?

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