Canada SR&ED Tax Credit — Federal R&D Incentive Explained

The SR&ED program is Canada’s largest federal R&D incentive, returning up to 35% of qualifying expenditures to Canadian businesses. Learn who qualifies, what expenses are eligible, and how to file.

What is the SR&ED tax credit?

Scientific Research and Experimental Development (SR&ED) is a federal tax credit program administered by the Canada Revenue Agency (CRA). It reimburses eligible R&D expenditures through an Investment Tax Credit (ITC) applied against federal tax — or paid as a cash refund for Canadian-controlled private corporations (CCPCs). The program is available to any Canadian corporation, trust, or individual conducting eligible R&D in Canada.

SR&ED is not a grant. It is a tax credit calculated as a percentage of qualified expenditures — wages, contractor costs, and materials directly consumed in eligible work. The credit is calculated when you file your T2 corporate tax return, with a separate T661 form detailing the technical projects.

Who qualifies for SR&ED in Canada?

Any Canadian company doing work that meets CRA’s three-part eligibility test may qualify: the work must involve genuine technological uncertainty, follow a systematic investigation, and seek technological advancement. The industry doesn’t matter — biotech, software, manufacturing, cleantech, and medtech all qualify if the work passes the test.

• Canadian-controlled private corporations (CCPCs) — best rate, fully refundable
• Other Canadian-controlled corporations — 15% non-refundable ITC
• Unincorporated individuals and partnerships — eligible at lower rates
• Pre-revenue companies — refundable credit still paid as cash

Federal ITC rates: what you can claim

The phase-out begins when taxable income or taxable capital exceeds CRA thresholds. Larger CCPCs and non-CCPCs receive a 15% non-refundable ITC. Combined with provincial credits, total benefits often exceed 40–50% of eligible payroll.

Eligible SR&ED expenses

• Salaries and wages of employees directly performing SR&ED work (the largest category for most companies)
• Contractor and subcontractor costs, subject to the 80% limit rule (or full amount with Form T1263)
• Materials consumed or transformed during experimental work
• Lease costs for equipment used all or substantially all for SR&ED
• Third-party SR&ED payments to Canadian universities, colleges, or non-profit research organizations

How to file an SR&ED claim

Filing SR&ED involves your accountant submitting Form T661 (Scientific Research and Experimental Development Expenditures Claim) and Schedule 31 alongside your T2 corporation tax return. The T661 requires project descriptions — written in CRA’s technical language — that document the uncertainty, the systematic investigation, and the advancement sought.

Most founders find the technical writing the hardest part. SREDY.IO generates T661-ready narratives, financial schedules, and an evidence index for a flat fee, giving your accountant a complete, structured package to review and file.