SR&ED, in plain terms

SR&ED

Scientific Research and Experimental Development is a federal tax incentive for eligible work conducted in Canada. Depending on the claimant and expenditures, it can provide a deduction, an investment tax credit, or a refundable credit. What SR&ED is →

Technological uncertainty

A knowledge gap that prevents competent professionals from determining whether or how a result can be achieved using the available knowledge. It helps explain why an advancement was sought; the work must still meet both CRA requirements. Eligibility criteria →

Technological advancement

New scientific or technological knowledge or understanding sought through the work. A commercial product may result, but commercial novelty does not establish the advancement.

Systematic investigation

The CRA describes four steps: define the problem, advance a hypothesis, test it by experiment or analysis, and develop logical conclusions from the results.

T661

The prescribed form used to describe claimed SR&ED work and calculate expenditures. Corporations submit it with the T2 return; other claimant types submit it with the applicable income tax return. T661 guide →

T2 Schedule 31

The corporate-return schedule that calculates the federal investment tax credit (ITC) from your qualified SR&ED expenditures.

Investment tax credit (ITC)

The basic investment tax credit rate is 15%. Most Canadian-controlled private corporations can earn the enhanced 35% rate on qualified expenditures up to their calculated expenditure limit; eligible Canadian public corporations can also earn that rate for tax years beginning after December 15, 2024. For those tax years, the maximum expenditure limit is $6 million. The actual limit and refundability depend on the claimant, group structure, tax year and expenditure type.

CCPC

Canadian-controlled private corporation. Most CCPCs may earn the enhanced 35% ITC rate up to their calculated expenditure limit; the limit and refundability depend on the detailed rules.

Proxy method

Under the proxy method, the prescribed proxy amount is generally calculated at 55% of the salary base, subject to the detailed rules and limits in the CRA policy. T661 guide →

Qualified SR&ED expenditure

An amount included in the base used to calculate an investment tax credit after applying the relevant adjustments, reductions and transfer rules. It is not always the same as an allowable expenditure.

Eligible salary / wages

Salary or wages may be allowable to the extent the employee performed qualifying SR&ED work and the detailed salary rules are met. The claimant needs records supporting the amount attributed to that work. Time tracking →

Specified employee

An employee who does not deal at arm's length with the employer or who is a specified shareholder. A specified shareholder generally owns, directly or indirectly, 10% or more of any class of shares of the employer or a related corporation; the detailed ownership rules also count shares held by people who do not deal at arm's length with the employee. CRA salary or wages policy →

YMPE

Year's Maximum Pensionable Earnings, an annual figure used in the SR&ED salary limits. The salary or wages claimed for a specified employee are generally limited to five times the YMPE, subject to proration and the detailed rules; the proxy-method salary base has a separate limit of 2.5 times the YMPE. CRA glossary →

Contract expenditure

When SR&ED is performed on a claimant's behalf under an eligible contract, 80% of the allowable contract expenditure may be treated as a qualified expenditure for investment tax credit purposes.

18-month rule

For corporations, the SR&ED reporting deadline is generally 12 months after the T2 filing due date, which is usually 18 months after tax year-end. The prescribed information for an expenditure must be filed by that deadline for the expenditure to qualify for SR&ED incentives. Filing deadlines →

Contemporaneous documentation

Records created while the work was happening, such as design notes, test results, commits, tickets and timesheets. They can be easier to verify than a filing-time reconstruction because they preserve the original project context. Documentation requirements →

Audit / review

The CRA may review a claim to confirm the work and amounts. Organized source records help the reviewer follow how the claim was prepared. Preparing for a review →

First-time claimant

A claimant filing for the first time, or one that has not filed in the previous three years, may be selected for the CRA's First-Time Claimant Advisory Service. The service is educational and is not a claim review.

Provincial or territorial R&D credit

A separate R&D tax credit may be available depending on where the work and expenditures are located. The rates, eligibility rules and forms vary, and government assistance can affect the federal calculation.

Refundable vs non-refundable credit

A refundable investment tax credit may produce a refund after reducing tax payable. A non-refundable credit reduces tax payable and may be carried to another tax year under the applicable rules. Treatment depends on the claimant, expenditure type and tax year.

This guide is general information, not tax advice, and has not been reviewed by an independent qualified tax professional. SR&ED rules, rates and limits change, so confirm the current figures with the CRA or your advisor before you file. See our editorial policy.