What is SR&ED?
The Scientific Research and Experimental Development Tax Incentive Program, administered by the Canada Revenue Agency (CRA), is one of Canada's largest incentives for businesses in all industry sectors conducting research & development.
With over $4.2 billion in tax credits provided to businesses annually, SR&ED is a program you cannot miss when doing R&D work in Canada.
SR&ED helps companies recover 15% to 35% of eligible research & development costs and an additional provincial funding of up to 30% through tax credits and deductions.
Why is SR&ED beneficial to your business?
SR&ED is a tax incentive. In other words, you get incentives that reduce your total income tax payable.
For SR&ED, you either get a deduction against your income or earn an investment tax credit (ITC) that you can apply against your income tax payable. If your business qualifies, you may even get refundable tax credits. This way, you can get cash back even if you’re not profitable.
Moreover, for businesses with other funding sources, the SR&ED tax incentive is stackable. This means that you can combine this program with grants and other funding programs.
Lastly, SR&ED is available to all industries, no matter the size. So whether you’re in biotech or agriculture, as long as you have an eligible R&D project, this is a program for you.
How do you know if you qualify for SR&ED?
To qualify for SR&ED, there are two requirements you must meet:
- Technological advancement. Your work must be conducted for the creation of new knowledge that pushes the understanding of science or technology forward.
- Systematic investigation. The way you carry out your work must include the following steps:
- Defining a problem
- Advancing a hypothesis towards resolving that problem
- Planning and testing the hypothesis by experiment or analysis
- Developing logical conclusions based on the results
In addition, the why of your SR&ED work is also important to be eligible.
Your project must be geared towards acquiring new knowledge to overcome a scientific or technological uncertainty that existed at the start of the project.
But, it is important to note that you do not have to achieve your goal in order to gain new knowledge. What matters is that the problem you were trying to solve required an R&D approach—using a systematic process of testing, evaluating variables, and analyzing results—to address a technical challenge that could not be resolved using information readily available in the public domain
Thus, you may file a claim for the following types of work:
- Basic Research or advancing scientific knowledge without an immediate practical application in view.
- Applied Research or solving specific scientific knowledge with a practical application in view.
- Experimental Development or generating or discovering technological knowledge or know-how in order to develop or improve materials, devices, products, or processes.
- Support Work or work that directly supports R&D activities.
What are eligible expenditures for SR&ED?
- Salaries & Wages: 100% of time spent on R&D (including benefits).
- Materials: Raw materials consumed or transformed in experiments.
- Contractors: 80% of payments to third parties for R&D work.
- Capital Equipment: Machinery and equipment used directly in R&D (NEW for 2026).
- Lease/Rental Costs: Equipment leased for R&D purposes (NEW for 2026).
- Overhead: Choose between:
- Proxy Method: Simple 55% of R&D salaries (most popular).
- Traditional Method: Detailed allocation of actual overhead costs.
What’s new to SR&ED?
In Canada’s latest federal budget, we have seen one of the biggest enhancements to the Scientific Research & Experimental Development tax incentive program in decades.
Some of these changes were proposed during the federal 2024 Fall Economic Statement, where increasing the amount of expenditures that could be eligible for the enhanced 35% refundable SR&ED investment tax credit (ITC), expanding its access to more companies, and restoring eligibility for capital expenditures were initially presented.
Below is a rundown of all the major changes:
- SR&ED expenditure limit increased to $6 million. From $3 million, the annual expenditure limit for Canadian-private corporations (CPCCs) is raised to $6 million for taxation years beginning on or after December 16, 2024. This means that eligible corporations can claim up to $2.1 million annually in enhanced refundable tax credits at the 35% rate.
- Expanded phase-out thresholds. Prior-year taxable capital boundaries have been increased to $15-$75 million (from $10-$50 million).
- Expanded eligibility. The enhanced credits are now available to eligible Canadian public corporations, not just Canadian-controlled private corporations (CPCCs), allowing access for innovation-centered listed firms.
- AI-enhanced administration. Starting April 1, 2026, the CRA will be using artificial intelligence to identify low-risk claims. This will reduce unnecessary audits and ultimately speed up processing.
- Restoration of capital expenditures. Properties acquired or after December 16, 2024 are once again eligible for both the deduction against income and investment tax credit components. This means businesses can now claim SR&ED credits on:
- Machinery and equipment purchased for research & development
- Testing and prototyping equipment or machinery
- Specialized tools
- Property acquired specifically for research purposes
SR&ED Tax Credit Rates
- For Canadian Controlled Private Corporations (CCPCs)
- 35% federal refundable tax credit on the first $6M of R&D spending (previously $3M).
- 15% non-refundable tax credit on amounts over $6M.
- An extra 4% to 30% of provincial tax credits, depending on the province.
- For Other Canadian Corporations:
- 15% non-refundable tax credit (may be carried forward up to 20 years).
- For Canadian Public Corporations (NEW):
- 35% enhanced refundable tax credit is now available for qualifying companies.
How to claim the SR&ED Tax Incentive
Now that we’ve gone over the basics, it’s important to know what to do if you want to file a claim. As programs like this require strategic planning, we recommend scheduling a consultation with SR&ED experts to calculate and assess your potential claim value.
However, it’s still helpful to know the actual steps in the process. We’ve outlined it into five major steps below:
- Identify eligible projects. Review your fiscal year's technical work and identify projects meeting SR&ED criteria.
- Calculate expenditures. Gather payroll records, invoices, and choose your overhead method.
- Prepare technical documentation. Write project descriptions showing technological uncertainties, systematic approach, and advancements achieved.
- File with the CRA. Complete Form T661 (SR&ED Expenditures Claim) and all related scheduled and supporting materials. Submit with your corporate tax return (T2). It is important that you file the claim 12-18 months after the fiscal year-end.
- Receive your refund. For the new 2026 timeline, expect your refundable claims within 45 days (previously 60 days) from the CRA’s receipt of your completed claim.
Frequently Asked Questions (2026 Updates)
When do the new $6M limit and capital expenditure rules take effect?
For taxation years beginning on or after December 16, 2024. File in 2025 for 2024 fiscal year if your year started after December 16, 2024.
How do I qualify for pre-claim approval starting April 1, 2026?
Submit your R&D project plan to CRA for upfront technical validation. If eligible, you may also be provided a multi-year pre-approval where you may benefit from faster processing.
Can I claim equipment purchased in 2024?
Yes, if your taxation year began after December 16, 2024 and the equipment is used directly in R&D.
Will the new AI review affect my claim?
AI will be implemented to identify low-risk claims for faster processing. With proper documentation, it is unlikely that it will negatively affect your claim.
How much faster are 2026 refunds?
The target is 45 days for refundable claims (vs. 60+ days previously), with pre-approved claims in 90 days.
.svg)
%20(1).png)
.avif)
.png)