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SR&ED Overview

The Scientific Research and Experimental Development (SR&ED) tax incentive program was designed to encourage Canadian businesses to conduct research and development (R&D) in Canada. The program is the largest source of government-funded financial support for R&D. Participants receive tax incentives and refunds for the cost of eligible activities that seek scientific or technological advancement through experimentation or analysis. Each year, the SR&ED program provides more than $3 billion in tax incentives to over 16,000 claimants. Among them, 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 qualified expenditures, including salaries, subcontractor fees and consumables.

Incentives are not based on the success of a company’s endeavours. Instead, tax reductions and cash payouts are provided to fuel innovation in Canada. These refunds play an essential role in supporting R&D activities, and assist companies with long-term financial planning and cash flow management.

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What is an SR&ED Tax Credit Loan?

Canadian businesses use SR&ED tax credits for a wide range of expenditures, from inventory and operating expenses to expanding current R&D projects. The CRA strives to complete all accepted claims filed within 60 days and all refundable claims selected for audit review within 180 days, but this is only after the company has submitted their year-end taxes. This extended wait time for funds can leave organizations in a significant bind. They need to pay for materials, services and operating expenses, and the funding may arrive long after payments are due.

Easly Advances allow companies to use future refunds to secure SR&ED tax credit advances. Following a timely review process, funds from Easly are provided within 72 hours after approval in predictable installments that simplify cash flow and support re-investment.

SR&ED tax credit loans also provide an essential source of non-dilutive funding. Early access to these funds eliminates the need to sell equity or take on high-interest loans. Instead, the tax credit advance provides necessary financing while avoiding unaffordable debt and preserving the hard-won value and control over your business.

Which Companies Qualify for SR&ED Tax Benefits? 

SR&ED tax benefits are available to all companies that operate in Canada and undertake eligible R&D endeavours. These include:

  • Canadian-controlled private corporations (CCPCs)
  • Other corporations
  • Individual proprietorships
  • Partnerships
  • Trusts

Funds allocated by these entities for R&D must be spent within Canada. This investment helps enhance the country’s innovation strategy, strengthens provincial and federal economies, and ensures Canada remains competitive in domestic and global markets.

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How to Determine SR&ED Eligibility? 

Not all R&D is necessarily eligible for the SR&ED program. To qualify, there must be a scientific or technological uncertainty involved in achieving the objective. This uncertainty must be approached with a systematic investigation that identifies a problem. The investigation must also formulate an objective and hypothesis and devise a plan of action. Finally, an experimental methodology or analytical framework must be used to test the theory.

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

  • Basic research - work is undertaken to advance scientific knowledge without a specific practical application in view.
  • Applied research - work is undertaken to increase scientific knowledge with a specific practical application in view.
  • Experimental development - work is undertaken to promote technology to create new or improve existing materials, devices, products or processes.

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

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

Your R&D efforts don’t have to be successful to meet eligibility requirements. All that is necessary is to undertake R&D in science or technology to achieve technological advancement or advance scientific knowledge.

Best practices for submitting a successful SR&ED claim

If you receive advances on your SR&ED refund, following best practices for submitting a successful SR&ED claim helps ensure funds will be available to repay your loan and avoid additional expenses. Successful claimants typically follow these simple steps.

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. This is especially important if you choose the traditional method for determining eligible expenditures, rather than the proxy method, as each amount claimed must be noted and justified.

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 investigate a shortcoming in the current knowledge base systematically.

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.

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