How SR&ED Tax Credits Work
Canada's largest R&D incentive puts over $4.5 billion back into the hands of innovative companies every year. Here's how it works — and how to claim your share.
What is SR&ED?
The Scientific Research and Experimental Development (SR&ED) program is the Canadian federal government's largest tax incentive for research and development. Administered by the Canada Revenue Agency (CRA), it encourages Canadian businesses to conduct R&D in Canada by providing refundable tax credits on eligible expenditures.
Unlike grants, which require applications and approvals before work begins, SR&ED is a tax credit. You claim it after the work is done, as part of your corporate tax return. This means you don't need pre-approval — you just need to document that your work qualifies.
For Canadian-Controlled Private Corporations (CCPCs), the credits are fully refundable. Even if your company owes zero taxes, you get a cash payment from CRA. It's not a deduction — it's money deposited directly into your account.
Who qualifies?
If you're a Canadian corporation doing work where the outcome wasn't certain, you likely qualify. SR&ED isn't just for pharma labs and biotech — software companies are one of the largest claimant segments.
Software Development
Building custom algorithms, APIs, data pipelines, or application architectures where the approach isn't straightforward.
Software use casesAI & Machine Learning
Training models, developing novel ML pipelines, or applying techniques to new problem domains with uncertain outcomes.
AI agency use casesHardware & Engineering
Designing prototypes, developing new manufacturing processes, or solving materials and systems integration challenges.
Scientific Research
Systematic investigation to advance scientific knowledge, conducted by or for a Canadian business.
Clinical research use casesExplore by Industry
The Core Test: Technological Uncertainty
The CRA requires that your work involved technological uncertainty — you were trying to achieve something and it wasn't obvious whether or how it could be done using standard practice. If your engineers had to experiment, iterate, or push beyond known methods, that work likely qualifies.
How much can you get back?
The amount depends on your corporate status, province, and eligible expenditures. Here's the breakdown.
Federal CCPC Rate
Refundable ITC on the first $3M of qualified SR&ED expenditures for Canadian-Controlled Private Corporations.
Ontario Provincial
Example: Ontario adds OITC (8%) and OR-DTC (3.5%). Provincial top-ups vary by jurisdiction.
Proxy Method
Overhead calculation: 55% of R&D salaries added as eligible expenditure using the simplified proxy method.
Worked Example
Estimated refundable tax credits (federal + provincial)
$200K – $350K+
Amounts vary based on province, CCPC status, taxable capital, and portion of time allocated to eligible work.
What does the CRA need?
Every SR&ED claim is filed using Form T661, the main claim form. The heart of the form is the technical narrative — a structured description of the work you did, filed across three key fields:
Technological Uncertainty
What problem were you trying to solve? What was unknown or uncertain about the approach?
Systematic Investigation
What work did you do to address the uncertainty? What hypotheses did you test? What methods did you try?
Technological Advancement
What did you achieve or learn? Even negative results — proving an approach doesn't work — count as advancement.
How to claim
The process follows a clear sequence: identify eligible work, document it, calculate expenditures, complete Form T661, and file with your T2 corporate return — or separately, up to 18 months from your fiscal year-end.
Identify eligible work
Review your R&D activities for technological uncertainty — work where the approach or outcome wasn't straightforward.
Document everything
Build technical narratives (Lines 242, 244, 246) and gather supporting evidence: commit logs, design docs, meeting notes.
Calculate expenditures
Tally eligible costs: salaries, contractor fees (80%), materials consumed, and overhead using the proxy method (55% of salaries).
Complete Form T661
Fill out CRA's claim form with your technical narratives, financial summaries, and project descriptions.
File and receive credits
Submit with your T2 return. CRA processes the claim and deposits your refundable tax credits directly.
DIY
Complex, time-consuming, and easy to get wrong without SR&ED expertise.
Traditional Consultant
Expensive retro interviews, 4-hour CTO sessions, and slow turnaround.
Shreddit
Automated evidence capture, AI-generated narratives, and CRA-ready exports.
Common mistakes
These are the errors we see most often — and the ones most likely to cost you money or trigger an audit.
Not claiming at all
The single biggest mistake. Thousands of eligible companies leave money on the table every year because they assume they don't qualify.
Retroactive documentation
Writing narratives months after the work was done. CRA auditors flag this. Contemporaneous evidence — documentation created as the work happens — is far stronger.
Confusing "routine" with eligible work
Not all development qualifies, but more than you'd think. The key is technological uncertainty — if the outcome wasn't guaranteed, it may be eligible.
Not tracking contractor work
Contractor fees are eligible at 80% under ITA §37(1.5), but only if properly tracked and documented separately from in-house work.
Missing the filing deadline
SR&ED claims must be filed within 18 months of the end of the fiscal year in which the work was performed. Miss it and the credits are gone.
Think your company qualifies?
Join the waitlist and we'll help you find out. Shreddit automates the entire SR&ED process — from evidence capture to CRA-ready claim exports.
Or talk to us directly →