What Is SR&ED and Who Should Care
The Scientific Research and Experimental Development (SR&ED) program is a major federal initiative in Canada that rewards businesses conducting research and development. Managed by the Canada Revenue Agency (CRA), it provides tax credits or refunds for companies advancing science or technology through innovation.
According to CRA’s SR&ED guidelines, the program isn’t limited to high-tech or academic institutions. Startups, manufacturers, and software developers can all benefit—if they meet the eligibility criteria.
If you’re not sure what SR&ED means or how the program works, we recommend reading our full SR&ED guide for Canadian businesses first.
Eligible Activities Under SR&ED
Core Categories of Work
Not every research activity qualifies for SR&ED incentives. CRA recognizes three types of work:
- Basic research: Done for the sake of expanding scientific knowledge, without a commercial goal.
- Applied research: Designed to solve a specific, practical problem using science.
- Experimental development: The most common type, aiming to improve or create products, devices, or processes through technological advancements.
For example, a company building a machine learning algorithm to analyze customer behavior may qualify—if it involves uncertainty and a systematic method of problem-solving.
To help determine eligibility, our SR&ED calculator tool can provide quick estimates based on project type and spending.
How CRA Defines SR&ED Eligibility
The Three-Part Test
The CRA applies a structured test when assessing SR&ED eligibility:
1. Technological Uncertainty
The project must attempt to overcome a knowledge or capability limitation in the field of science or technology—not just a business or operational challenge.
For instance, tweaking a mobile app UI won’t qualify, but developing a new backend framework to improve app performance through novel methods might.
2. Systematic Investigation
The work must follow a logical, structured path: identifying a hypothesis, designing an experiment, collecting data, and analyzing results. Random trial-and-error doesn’t cut it.
3. Technological Advancement
There must be new knowledge generated. This could mean a new method, material, algorithm, or measurable enhancement.
For example, if your team develops a proprietary routing system for logistics that improves efficiency through a unique data model, it could meet all three CRA criteria.
Want a deeper dive into the framework? See how we break it down on our SR&ED eligibility page.
Who Can Apply for SR&ED Tax Credits
Types of Entities Eligible
Canada’s SR&ED program is remarkably inclusive. The following are eligible to apply:
- Canadian-Controlled Private Corporations (CCPCs): These get up to 35% refundable tax credits on eligible expenditures.
- Other corporations: Typically qualify for a non-refundable 15% credit.
- Sole proprietors and partnerships
- Public trusts engaging in qualifying R&D
Companies often wrongly assume they’re too small or not innovative enough. In reality, thousands of SMEs across Canada—especially in the tech and manufacturing sectors—qualify annually.
Find out how financing your claim can also enhance your cash flow by reviewing our section on SR&ED financing.
What Types of Costs Can Be Claimed
Eligible Expenditures Include
When your project qualifies, the following costs may be included in your SR&ED claim:
- Salaries and wages for R&D staff
- Materials consumed or transformed in the process
- Overhead costs directly tied to R&D
- Contractor expenses (with restrictions)
- Third-party payments to research institutions
For example, if your engineers spend 60% of their time on eligible development, that portion of their salaries can be claimed.
In contrast, the CRA does not allow costs like:
- Marketing, sales, or customer service
- Website design unrelated to R&D
- Acquisition of land or capital property (post-2014)
- Admin and legal expenses not tied to technical research
More details on qualifying costs can also be found in the official CRA resource.
Industries That Commonly Qualify
Don’t assume your business needs to be building rockets to qualify. Many industries conduct SR&ED-eligible work without even realizing it:
- Software development: Creating new platforms, algorithms, or backend systems.
- Biotech & pharmaceuticals: Drug formulation, diagnostics, lab automation.
- Manufacturing: Prototyping, automation, or scaling new production methods.
- Agriculture & food tech: Improving sustainability, shelf-life, or yield.
- Clean technology: Energy storage, emissions control, and waste reduction.
We’ve supported claims for companies across these sectors—learn more on our SR&ED consulting services page.
Myths and Misunderstandings About Eligibility
“We Didn’t Finish the Project”
Even failed or incomplete projects can qualify. What matters is the intent and methodology—not the outcome.
“We Didn’t Invent Anything”
Innovation doesn’t always mean creating something brand new. Often, it means improving something existing in a technologically complex way.
“We’re Not in a High-Tech Industry”
From food processors to logistics software companies, eligible work spans nearly every industry if there’s uncertainty and innovation involved.
Importance of Documentation
How to Prepare for CRA Review
To secure your claim, documentation is essential. You should maintain:
- Time-tracking logs for employees involved in R&D
- Technical notes and lab journals
- Meeting records, code repositories, test plans
- Prototypes and failure logs
The CRA expects you to provide evidence of systematic work, so proper documentation is not optional—it’s critical.
Need help documenting your work properly? We outline best practices in our SR&ED tax credit guide.
How Much Can You Expect to Get Back
For CCPCs, you may receive:
- Up to 35% refundable tax credit on the first $3 million in eligible expenditures
- 15% non-refundable tax credit on additional amounts
Non-CCPCs and foreign-owned companies are eligible for a 15% non-refundable credit, which still significantly offsets development costs.
Use our free SR&ED calculator to estimate your potential return.
External Resources to Support Your Understanding
For those looking to cross-reference or validate CRA policies and definitions, consider reviewing:
These are credible government and public sources trusted across Canada’s innovation ecosystem.
Next Steps: Are You Ready to Claim SR&ED?
If you’re tackling technical uncertainties, running systematic experiments, and trying to solve complex engineering or scientific problems—you likely qualify for SR&ED.
You can learn more about our comprehensive service offerings on our What We Offer page.
Still have questions? Reach out to our expert team via the Contact Us page. Let us help you maximize your claim and minimize the stress of navigating the CRA’s detailed process.
