What the SR&ED program is
SR&ED is the federal government's main tax incentive for research and development. If your corporation does eligible work in Canada, you can earn investment tax credits (ITCs) that reduce your income tax. Depending on your status, part of the credit can be paid to you as a refund even when you owe no tax. That is why startups and small technology companies with losses often claim it.
What work qualifies
Eligible work is about advancing technology, not about selling or running the business better. The CRA generally looks for three things:
- Technological uncertainty: you faced a problem that could not be resolved using generally available knowledge or standard practice.
- Technological advancement: the work aimed to add to the knowledge of the technology involved.
- Systematic investigation: you tested hypotheses in an organized way, and you can show it with records.
Routine software development, market research, style changes and ordinary quality control usually do not qualify. A new feature does not qualify just because it is new to your product. The question is whether your team had to resolve a real technical unknown to deliver it.
Which expenses count
- salaries and wages of employees directly engaged in the work
- materials consumed or transformed during the work
- 80% of arm's-length contract payments for SR&ED performed on your behalf
- payments to certain third parties, such as approved research organizations
- lease costs for equipment used in the work, for amounts after December 15, 2024
- overhead, using either the traditional method or the proxy method
- capital expenditures after December 15, 2024, if they meet the CRA's use tests
Government assistance, grants and other funding generally reduce the amount you can claim. See our page on business grants before you stack programs.
Credit rates for 2026
The basic ITC rate is 15%. A higher 35% rate applies to Canadian-controlled private corporations (CCPCs) on qualified expenditures up to an expenditure limit. Legislation that received Royal Assent on March 26, 2026 raised that limit from $3 million to $6 million for tax years beginning after December 15, 2024. It also widened the taxable capital phase-out range to $15 million to $75 million, and extended the 35% rate to eligible Canadian public corporations.
| Type of corporation | Rate | Refundability |
|---|---|---|
| Qualifying CCPC, up to the expenditure limit ($6 million) | 35% | Fully refundable |
| CCPC, amounts above the limit | 15% | Partly refundable |
| Other corporations (not CCPCs) | 15% | Non-refundable; reduces tax payable |
| Eligible Canadian public corporations | 35% within the limit | Non-refundable |
The maximum enhanced credit is $2.1 million (35% of $6 million). Your actual rate depends on your corporation's status, its associated companies and prior-year taxable capital. Have an advisor confirm which row applies to you before you budget around a refund.
How to claim
- Identify projects and the technical uncertainties in each.
- Track eligible time and costs by project during the year.
- Write the technical description for each project on Form T661, answering the CRA's questions on uncertainty, work performed and results.
- Complete the financial schedule, T2SCH31, to calculate the credit.
- File both forms with your T2 corporate return.
Your T2 corporate tax return is the vehicle for the claim, so the SR&ED work and the tax filing need to line up. The CRA also offers optional pre-claim project approval for businesses that want earlier feedback.
The deadline
For corporations, the claim must be filed within 18 months after the end of the tax year in which the expenses were incurred. For individuals the period is 17.5 months. A claim for a December 31, 2025 year-end is therefore due by June 30, 2027. Missing the deadline generally means losing the credit, so do not wait for the T2 deadline to start the paperwork.
Documentation that holds up in a review
The CRA can review any claim, and weak records are the usual reason credits are reduced. Keep these on file:
- project plans, design notes, test results and failed approaches, dated at the time
- timesheets or other records tying employees to specific projects
- invoices and contracts for outside work, including who owned the results
- repository history, lab notebooks or similar technical evidence
- a record of other funding received for the same work
Write down what you tried and why it failed as you go. It is much harder to reconstruct it a year later.
Common reasons claims go wrong
- Claiming general product development without a clear technical uncertainty.
- Including salaries for staff who only spent a small share of time on the work, with no record of it.
- Forgetting to reduce the claim for grants and other government funding.
- Missing the 18-month filing window because the year-end T2 was late.
Working with a professional
SR&ED claims are technical and fact-heavy. A good preparer talks to your developers or engineers, not only your bookkeeper. Our SR&ED service covers identifying projects, documenting them and filing, and our accounting and tax team keeps the financials consistent. You can also contact us to check whether your work is likely to qualify.
Official sources: SR&ED updates and SR&ED filing requirements.