What Is SR&ED? Canada's R&D Tax Incentive Explained

SR&ED — Scientific Research and Experimental Development — is the largest federal tax incentive program in Canada. In 2024, the CRA distributed over $3.7 billion in credits to businesses that simply documented their R&D work and filed a claim.

Most companies doing qualifying work never file.

The One-Sentence Definition

SR&ED is a refundable tax credit that pays you back for work your company was already doing — developing new products, solving technical problems, writing novel software, or improving manufacturing processes.

If you hit a technical wall and had to systematically figure out a solution, you likely have an SR&ED claim.

Who Can Claim SR&ED

Any Canadian business can claim SR&ED. The most advantageous position is being a Canadian-Controlled Private Corporation (CCPC) — these companies receive a 35% refundable credit on up to $6M of qualifying expenditures a year (for tax years beginning on or after December 16, 2024; the limit was $3M before that and phases out between $15M and $75M of taxable capital). Spending above the limit earns 15%. That means cash back, regardless of whether you owe taxes.

Most other corporations receive a 15% non-refundable credit, which can only offset taxes owed. Eligible Canadian public corporations can now earn the enhanced 35% rate, but it is not refundable.

Provincial programs layer on top. Ontario adds an 8% refundable credit via OITC. Because the provincial credit reduces the federal claim base, a CCPC in Ontario recovers roughly 40 cents on every eligible dollar.

What Counts as SR&ED Work

The CRA applies three criteria. Your work must demonstrate:

1. Technical Uncertainty — You faced a problem that couldn't be solved with standard practice or readily available knowledge.

1. Technical Advancement — Your work advanced the general body of knowledge in your field, at least internally.

1. Systematic Investigation — You followed a hypothesis-test-iterate process.

SR&ED vs. "Normal" Business Expenses

| Activity | Qualifies? | |----------|------------| | Writing novel algorithms to solve a performance problem | Yes | | Integrating existing APIs into your product | No | | Building a prototype to test a new material | Yes | | Standard software development to spec | No | | Debugging an unknown root cause in a new system | Yes | | Customizing off-the-shelf software | No |

The Scale of the Opportunity

The average CCPC SR&ED claim is approximately $150,000 in credits. Many tech companies with 5–20 engineers are sitting on $300,000–$800,000 per year in unclaimed credits.

Why Most Companies Don't Claim

1. They don't know they qualify. The program is marketed as being for "research labs," but most qualifying work happens in product engineering teams.

2. They think it's too complex. AI-assisted platforms have changed this significantly.

3. They didn't document as they went. The CRA requires contemporaneous records — solvable at the start of each project, not at tax time.