SR&ED Eligible Expenses: What You Can Claim (And What Gets Rejected)

The SR&ED calculation starts with Qualified Expenditures (QEs). Getting this right is the difference between a $150,000 claim and a $400,000 claim on the same body of work.

Salaries and Wages

The biggest bucket. For most software and engineering companies, salaries represent 70–85% of the total SR&ED claim.

What qualifies: Salary, wages, and taxable benefits for employees directly engaged in SR&ED — only the SR&ED portion of their time.

What gets rejected: Administrative time on SR&ED projects, routine development that doesn't meet the uncertainty test, support roles (DevOps maintaining infrastructure).

Shareholder salaries are capped at $500,000 per year per individual.

Contractor Costs

The rule: 80% of fees paid to arm's-length contractors for SR&ED work qualifies.

Related-party contractors (founder's spouse, companies you control) do not qualify. Foreign contractors do not qualify.

Materials

Raw materials consumed or transformed during the SR&ED process qualify. Materials incorporated into a product you'll sell do not.

The cloud computing gap: AWS, GCP, and Azure costs are currently excluded under CRA guidelines — a known limitation for ML-heavy companies.

Overhead — The Proxy Method

Proxy Amount = 55% × Eligible Salaries

This is added automatically to your qualified expenditures without any additional documentation. Almost always preferable to the Actual Method.

What People Consistently Miss

Third-party payments. If you paid a university or research organization to perform SR&ED on your behalf, 80% of those payments qualify.

Prior year amendments. You have 18 months from fiscal year end to file or amend. If you missed last year, file now.

A Simple Calculation Example

For a CCPC in Ontario with 8 engineers:

| Item | Amount | |------|--------| | Eligible salaries (3 engineers, 60% time) | $420,000 | | Contractor fees × 80% | $64,000 | | Proxy overhead (55% × $420K) | $231,000 | | Total Qualified Expenditures | $715,000 | | Federal ITC at 35% | $250,250 | | Ontario OITC at 10% | $71,500 | | Total Credits | $321,750 |

That is recoverable capital from work your team was doing regardless.