How SR&ED Claims Work in Canada

SR&ED is not a grant application. It's a tax credit claimed as part of your annual corporate tax return. Understanding the process helps you prepare a stronger claim and avoid common mistakes.

Step 1: Assess eligibility

Determine whether your technical work qualifies. CRA uses three criteria: technological uncertainty, systematic investigation, and technological advancement.

Step 2: Identify qualifying projects

Each qualifying project needs to be described separately in your T661 filing. A project is a discrete body of work directed at resolving a specific technical uncertainty.

Step 3: Write project narratives

The project narrative is the core of your T661 claim. For each project, you must clearly explain: what technical uncertainty you faced, how you systematically investigated it, and what technological advancement resulted.

Step 4: Calculate eligible expenditures

Eligible expenditures include employee salaries, arm's-length contractor fees, and materials consumed during experiments. Most companies use the proxy method for overhead — 55% of direct labour costs.

Step 5: Gather supporting documentation

CRA expects contemporaneous evidence — documentation created during the work, not reconstructed afterward. Key evidence types include time-tracking records, Git commit history, sprint logs, test results, experiment records, and design documents.

Step 6: File Form T661 and Schedule 31

Your accountant or CPA files your SR&ED claim by attaching Form T661 and Schedule 31 to your T2 corporate income tax return. The filing deadline is strict: Form T661 must be filed within 12 months after the filing due date of the T2 return.

Step 7: CRA review

CRA reviews a portion of SR&ED claims annually — some by desk review and some by field review. Strong narratives, clear documentation, and consistent financial records are the most effective defense.