Written by Lauren Valliere - GrowWise Partners
The SR&ED (Scientific Research and Experimental Development) program distributes over $4 billion annually towards innovative R&D work in Canada. This article breaks down everything you need to know about the program and how to take full advantage of SR&ED to fuel your innovation.
What is SR&ED?
SR&ED is a federal tax credit program administered through the Canada Revenue Agency (CRA) that companies apply for as part of their annual business tax filing.
Rather than being a grant that must be approved in advance (such as IRAP), SR&ED is claimed after R&D work has already occurred, and eligible costs have been incurred. Companies submit their SR&ED applications with their business tax filings after their fiscal year-end.
For Canadian-controlled private corporations (CCPCs), SR&ED can provide a refundable cash payment, meaning companies can receive money back even if they are not yet profitable.
In practice, SR&ED can refund companies for up to 2/3 of eligible R&D spending. Eligible expenses include technical employee salaries, contractor costs, materials used in experimentation and capital costs such as equipment.
SR&ED is a sector-agnostic and industry-agnostic funding program. Within the SR&ED application, companies typically have multiple SR&ED projects. To qualify, a project must be driven by a clear technical uncertainty or knowledge gap and addressed through systematic testing, iterative experimentation, and well-documented progress. The CRA is focused on the day-to-day work involved in the project rather than the larger goal of the project or the mission of the company.
By contrast, work that follows known methods, implements existing off-the-shelf technology, or focuses primarily on business outcomes rather than technical uncertainty is not considered SR&ED eligible. This blog outlines more details about R&D versus SR&ED.
Understanding this distinction from the beginning is essential because SR&ED eligibility is determined by the nature of the technical work performed and how well it is documented.
Who is Eligible for SR&ED
There are no limitations on company size, age of company, profitability, or industry, provided the project meets the SR&ED criteria. Companies can qualify for SR&ED whether they are losing money, breaking even, or profitable.
SR&ED funding is available to companies in any industry or field of research and can apply to manufacturing, pharmaceuticals, software development, agriculture, and more, as long as the outlined criteria are met.
Companies do not need to be incorporated to claim SR&ED, although incorporated businesses can earn tax credits at more than double the rate of unincorporated businesses. Additionally, the credits are refundable as cash payments for CCPCs, rather than non-refundable credits applied to the CRA account for non-incorporated businesses.
The most specific requirement for SR&ED is that all of the work must take place in Canada. The technical team members must be located in Canada, and any third-party contractors must be located in Canada as well.
Since SR&ED is an after-the-fact refund, companies must have incurred expenses to be refunded through SR&ED. Without technical salaries, contractor costs, material expenses or capital costs related to the technical project, there are no expenses to be refunded through SR&ED.
SR&ED Documentation Requirements
As per the CRA’s data from their 2024-2025 fiscal year, 90% of SR&ED claims were approved as filed, and 10% were selected for an SR&ED review/audit. When a claim is selected for review, the company must provide proof that the project(s) are SR&ED eligible and that the expenses were correctly attributed to the projects.
The CRA needs to see four main aspects to consider work to be SR&ED eligible and withstand a CRA SR&ED audit/review:
- The specific technical uncertainty or challenge. The CRA needs to see that there is a clear, well-documented technical challenge that existing knowledge or solutions cannot address. This information can come in any format (meeting notes, technical logs, emails, data sheets, etc.), but must show the specific area that requires further investigation.
- What tasks were performed to address the technical challenge. In a CRA SR&ED review/audit, the CRA dives quite deep into what exact tasks, tests, iterations and problem-solving approaches were done to address the technical challenge. This is where the core SR&ED eligibility comes from. There must be a true scientific/systematic investigation where inputs are changed, tested and manipulated, and outcomes are studied.
- What was learned from the investigation. Regardless of whether the investigation yields the result you were aiming for, the process must have revealed some new information or a deeper understanding of the area. If the results of the experiment do not create new information or understanding, it is unlikely that the work meets the technical depth and systematic investigation required of an SR&ED project.
- Who did this work/when. This is typically the most tedious part of this whole process. Companies must be able to show how much time each employee/contractor spent on each SR&ED project in each month throughout the year. Ideally, this comes from strong time-tracking records with tasks documented, which project they relate to, and how long each employee took each day. This level of detail isn’t always maintained. More on SR&ED expense tracking here.
Documentation may include time-tracking records, project plans, meeting minutes, testing data, prototypes, payroll records, photos, code repositories, project management software data, contracts, invoices, and other supporting evidence. Handwritten notes, photos, and physical samples can also serve as proof.
It does not matter as much where this data is stored, but you must be able to pull together the answers to the above questions from your data. The CRA needs to see that your application was based on data, not memory.
How Much SR&ED Funding Companies Can Receive
Companies can receive up to ⅔ of their expenses back through SR&ED. The exact rates depend on the province and business status, but this SR&ED Refund Calculator can be used to quantify the SR&ED refund based on company details.
Generally speaking, expenses are refunded (for CCPCs) at the following rates:
- Salaries ~ 64%
- Contractor Costs ~ 33%
- Material Expenses ~ 40%
- Capital Expenditures (used 90% or more for SR&ED projects) ~ 40%
How to Apply for SR&ED
Businesses submit their SR&ED claim to the Canada Revenue Agency alongside their corporate tax return after their fiscal year-end. Roughly 80% of companies choose to work with SR&ED consultants to prepare the technical and financial components of the filing and to ensure documentation aligns with CRA expectations.
GrowWise takes a technology-driven approach to this process, using its AI-driven platform to simplify information gathering and reduce the time required from internal teams. This type of workflow is designed to make SR&ED more organized, efficient, and easier to navigate while maintaining the rigour needed for a compliant claim.
Have SR&ED Questions?
If you have questions about SR&ED tracking, or your year-end SR&ED claim, reach out to GrowWise Partners: email: contact@growwise.ai or book an intro call with GrowWise’s Managing Partner, Lauren Valliere: 15 Minute Meeting with Lauren. If you want help setting up bookkeeping, payroll, and time tracking to maximize your SR&ED claim, talk to ConnectCPA.
SR&ED FAQs
Who typically qualifies for SR&ED? What types of businesses are eligible?
Canadian businesses that are incurring expenses to address challenging technical problems are eligible for SR&ED. Companies in any industry can apply, but most often, SR&ED is accessed by software, technology, manufacturing and pharmaceutical companies. The company must be working on solving challenging technical problems, where experiments, testing, and problem solving occurs.
What expenses qualify for SR&ED?
If the work aims to address a specific technical uncertainty, the project is likely SR&ED eligible. The main costs that can usually be claimed for the SR&ED project are employee salaries connected to the technical work (employees located in Canada), payments to Canadian contractors doing that work, materials used up during testing or prototyping, capital costs such as equipment or machinery used for testing, and a calculated portion of overhead based on R&D salaries. Costs like sales and marketing, general administration, equipment for normal business operations, and work performed outside Canada are typically not eligible.
What tasks and activities are SR&ED eligible?
SR&ED focuses on real technical problem solving where the answer was uncertain and required experimentation to figure out. Activities like testing different approaches, building prototypes, running experiments, analyzing results, and iterating on new or improved products or processes may qualify. Routine development, design changes, maintenance, bug fixes, market research, and scaling something that already works usually do not. The work must be considered part of the “systematic investigation” in order to qualify.
How are SR&ED engagements usually structured and billed?
SR&ED consultants typically charge upfront flat fees or success-based contingency fees. The latter means that when the SR&ED claim is approved by the CRA, and the SR&ED tax credits are issued, the consultant charges a % of the SR&ED refund as their fees.
What does working with an SR&ED consultant look like in practice (scope of service, process, etc.)?
In most cases, SR&ED consultants help determine which projects may qualify, gather the necessary technical and financial information, prepare the claim documentation, and support the filing alongside the company’s corporate tax return. This usually involves conversations with technical team members to understand the challenges they worked through, organizing evidence such as time tracking or test results, calculating eligible expenses, and preparing the technical narratives and financial schedules required for submission. Some advisors focus mainly on year-end preparation, while others support documentation and tracking throughout the year to strengthen the claim and reduce the burden on internal teams.
More modern approaches, such as the model used by GrowWise, place a stronger emphasis on simplicity, structure, and year-round documentation. Their AI-driven platform supports companies in documenting SR&ED supporting evidence year-round, while also simplifying the preparation of the claim through AI-enabled workflows. For founders and their teams, this often translates into less disruption to day-to-day operations, clearer documentation, and a smoother, more reliable SR&ED filing process.
Do you offer a free consultation to assess eligibility? If so, what does that typically cover?
Yes, GrowWise offers free SR&ED consultations to assess SR&ED eligibility. For first-time SR&ED claimants, that typically involves a 30-minute meeting to better understand the company’s work, technical challenges and expenses. Our team of experts asks questions to assess the company’s eligibility, and if they are determined to be SR&ED eligible, GrowWise asks questions to quantify the potential SR&ED tax credits. By the end of this meeting, the company will have a clear understanding of their eligibility and next steps.
