What is SR&ED? Canada's R&D Tax Credit Explained
SR&ED (Scientific Research & Experimental Development) is the Canadian federal government's primary tax incentive for companies that conduct research and development work. It's one of the most generous R&D programs in the industrialized world.
What SR&ED means
SR&ED is a federal program administered by the Canada Revenue Agency (CRA) that provides investment tax credits (ITCs) and deductions to Canadian businesses for eligible R&D work. For Canadian-controlled private corporations (CCPCs), the credits can be refundable — meaning you receive cash even if your company has no tax owing.
How much can your company claim?
CCPCs receive an enhanced 35% Investment Tax Credit on the first $3 million of qualified SR&ED expenditures, and 15% on amounts above that threshold. The enhanced 35% rate is fully refundable. Other Canadian corporations generally receive a 15% ITC, which is non-refundable but can be carried forward.
Who can claim SR&ED?
Canadian corporations, individuals, trusts, and partnerships can all claim SR&ED — but the most common and most advantageous claimants are CCPCs. You do not need a dedicated R&D lab. You do not need to succeed at the research.
- Software and SaaS companies building novel features or architectures
- AI and machine learning companies experimenting with model design
- Manufacturing companies developing new processes or materials
- Biotech, medtech, and cleantech companies
- Hardware, embedded systems, and robotics companies
- Agriculture technology companies
- Financial technology companies solving novel integration problems
The three eligibility criteria
CRA's three-part test
1. Technological uncertainty — the outcome was not predictable at the start using existing knowledge. 2. Systematic investigation — your team followed a structured approach. 3. Technological advancement — the work produced new knowledge in the relevant field.
What can you claim?
- Salaries and wages for employees directly engaged in SR&ED activities
- Contractor fees for arm's-length third parties performing SR&ED work
- Materials consumed or transformed during SR&ED experiments
- Overhead costs — typically calculated using the proxy method (55% of direct labour)
- Lease costs for equipment used primarily for SR&ED
How the CRA filing process works
SR&ED claims are filed with your T2 corporate income tax return using Form T661 and Schedule T2SCH31. For corporations, the deadline is strict: T661 must be filed within 12 months after the filing due date of the T2 return (generally 18 months after fiscal year end).
Common questions
Can startups claim SR&ED?
Yes. Any Canadian corporation can claim SR&ED, including startups with no revenue. CCPCs receive the most favourable rate — a 35% fully refundable ITC on the first $3 million of eligible expenditures.
Does the work need to succeed?
No. SR&ED credits the attempt, not the outcome. Failed experiments and negative results are eligible — provided your team faced genuine technical uncertainty.
How far back can we file?
For corporations, T661 must be filed within 12 months after the filing due date of the T2 corporate return. Missing this deadline means forfeiting the credit for that year.
Related SR&ED guides
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