SR&ED Overview

The Scientific Research and Experimental Development (SR&ED) tax incentive program was designed to encourage Canadian businesses to conduct R&D in Canada. Each year, the SR&ED program provides more than $3 billion in tax incentives to over 20,000 claimants, of which 75% are small businesses.

If your company is conducting R&D in Canada, you may be eligible to receive significant tax refunds from the Canada Revenue Agency (CRA) on all SR&ED eligible expenditures, including salaries, subcontractor fees and consumables. Get in touch to learn more.

What is SR&ED eligible?

Not all R&D is necessarily SR&ED. To qualify, there must be a scientific or technological uncertainty involved in achieving an objective. This uncertainty must be approached with a systematic investigation involving the formulation and testing of hypotheses.

SR&ED work falls into one of these three categories:

Basic research - work undertaken for the advancement of scientific knowledge without a specific practical application in view.
Applied research - work undertaken for the advancement of scientific knowledge with a specific practical application in view.
Experimental development - work undertaken for the purpose of advancing technology in order to create new, or improve upon existing, materials, devices, products or processes.

Other work that directly supports SR&ED can also qualify as eligible expenditure. Eligible support work includes engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research.

The following types of work are not generally considered SR&ED eligible:

Market research or sales promotion
Quality control and routine testing
Research in the social sciences or the humanities
Prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas
The commercial production of a new or improved material, device or product
Style changes
Routine data collection

Best practices for submitting a successful SR&ED claim

Keep all contemporaneous documentation

Notebooks, emails, whiteboard pictures and meeting minutes can all be very useful in defending your work. Establish a system of tracking and storing this information as early as possible.

Establish the technological uncertainty and your systematic investigation

The purpose of the SR&ED program is to incentivize activities that risk commercial failure. The CRA is less concerned with your commercial achievement and more focused on how you tried to systematically investigate a shortcoming in the current knowledge base.

Timesheets are key

The majority of expenses claimed are usually salaries associated with the SR&ED undertaking. Use automated time-tracking tools to account for time spent on specific projects. This can save you time when you prepare your claim.

Learn more

The CRA has great resources where they explain the program in detail.

They have produced the videos below, which are a good place to start if you’re new to SR&ED.

Who can claim SR&ED tax incentives?

What work qualifies for SR&ED tax incentives?

How do you calculate your SR&ED expenditures and investment tax credit?

How to apply for SR&ED tax incentives?

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