What Is the SR&ED Program?
The Scientific Research and Experimental Development (SR&ED) program is the single largest source of federal government support for industrial R&D in Canada. It provides over $3 billion annually in tax incentives to more than 20,000 claimants.
For Canadian-Controlled Private Corporations (CCPCs), the program offers an enhanced tax credit rate of 35% on the first $3 million of eligible expenditures, with the credit being fully refundable. This means even pre-revenue startups can receive cash back from the CRA.
Who Qualifies?
SR&ED is more accessible than most companies realize. You do not need a lab or scientists — you need to be solving technical problems.
The Three Criteria
Your work qualifies if it meets all three of these:
- Scientific or technological uncertainty: You faced a challenge that could not be solved using standard practice or publicly available knowledge
- Systematic investigation: You used a structured approach — hypothesis, testing, analysis — to resolve the uncertainty
- Technological advancement: Your work resulted in new knowledge or capabilities, even if the project ultimately failed
Common Qualifying Activities
- Developing new software algorithms or architectures
- Creating new manufacturing processes or materials
- Engineering prototypes that push beyond existing capabilities
- Integrating systems in novel ways that required solving technical unknowns
- Adapting existing technology to new environments with uncertain outcomes
Key insight: Failed projects qualify too. SR&ED rewards the attempt to advance technology, not just successful outcomes.
Eligible Expenditures
Labour (typically 60-80% of claims)
Salaries and wages for employees directly performing, supervising, or supporting SR&ED work. This includes developers, engineers, project managers, and QA testers when directly involved in eligible activities.
Materials
Raw materials consumed or transformed during SR&ED activities.
Overhead
You can use the proxy method to claim 55% of your eligible labour costs as overhead, simplifying the calculation significantly.
Subcontractor Payments
80% of payments to arm’s-length subcontractors performing SR&ED on your behalf are eligible.
How to Calculate Your Credit
For a CCPC with under $3M in eligible expenditures:
Example: A tech company with $500,000 in eligible SR&ED expenditures
- Labour costs: $350,000
- Overhead (proxy method): $350,000 × 55% = $192,500
- Materials: $50,000
- Subcontractors: $100,000 × 80% = $80,000
- Total eligible: $672,500
- Federal credit (35%): $235,375
- Plus provincial credits (varies: 4.5% to 30% depending on province)
Ontario companies can receive an additional 3.5% provincial credit. Quebec offers up to 30% on labour costs. Combined federal and provincial credits can cover 40-65% of eligible R&D costs.
Financing Your SR&ED Claim
The biggest challenge with SR&ED? Timing. CRA processing typically takes 60-120 days for straightforward claims, and up to 12+ months for those selected for review.
SR&ED financing bridges this gap by advancing 70-80% of your expected refund value within 2-4 weeks of filing. This is non-dilutive capital — no equity given up, just accelerating money already owed to you.
How SR&ED Financing Works
- You file your SR&ED claim with CRA
- A financing partner reviews the claim and advances funds (typically 70-80% of the expected refund)
- CRA processes and approves the claim
- The refund goes directly to the financing partner, who deducts their fees and remits any remainder to you
Financing costs typically range from 2-5% of the claim value, which is very reasonable considering you get access to the funds months earlier.