SR&ED 101: A Practical Guide to Canada’s R&D Tax Credit Program

Canada’s Scientific Research and Experimental Development program, commonly called SR&ED (pronounced “Shred”), provides more than $4 billion each year to support companies performing innovative work in Canada.
This guide explains how the program works, who can benefit, and what CEOs/CFOs/CTOs should understand to make the most of this important source of non-dilutive funding. If you have questions about SR&ED, you can contact GrowWise: contact@growwise.ai

What Is SR&ED?

SR&ED is a federal tax incentive administered by the Canada Revenue Agency (CRA) and claimed as part of a company’s annual corporate tax return.

Unlike grant programs that require approval before work begins, SR&ED is accessed after eligible research and development activities have taken place and related expenses have already been incurred. Companies submit their claim following their fiscal year-end, together with their business tax filing.

For Canadian-controlled private corporations (CCPCs), the credit can be refundable. This means the company can receive a direct cash refund even if it is not yet profitable.

In many cases, SR&ED can return up to roughly two-thirds of qualifying R&D expenditures. Eligible costs can include technical employee wages, payments to contractors, materials consumed during experimentation, and certain capital equipment used primarily for research activities.

Companies can include several SR&ED projects within a single claim, provided each project addresses a genuine technical uncertainty and is approached through structured experimentation, iteration, and careful documentation. The CRA evaluates the technical day-to-day work performed during the project rather than the broader commercial objective of the business. 

Activities that rely only on established knowledge, routine engineering, or implementation of existing technologies generally fall outside SR&ED eligibility.

Because of this distinction, maintaining clear records of the technical challenge and investigative work from the start of a project is critical.

Who Can Qualify for SR&ED?

Eligibility is not limited by company size, stage, profitability, or sector. Organizations ranging from early-stage startups to mature manufacturers may qualify if their work meets SR&ED technical criteria.

 The program is available across fields such as software, life sciences, agriculture, clean technology, and advanced manufacturing. The determining factor is always the presence of unresolved technical uncertainty and a systematic effort to resolve it.

 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.

 All qualifying R&D work must be performed in Canada. This includes the location of employees and third-party contractors contributing to the technical effort.

 Because SR&ED is based on reimbursing incurred costs, a company must have eligible expenditures such as salaries, contractor invoices, materials, or equipment tied directly to the experimental work. 

Here is a checklist to determine if you are SR&ED eligible.

Documentation and Evidence Requirements

As per the CRA’s SR&ED Program Statistics, 90% of SR&ED claims are accepted as filed, and 10% are reviewed by the CRA each year.

When a review occurs, the organization must demonstrate both technical eligibility and accurate expense allocation.

 To support a defensible claim, the CRA expects evidence in four key areas:

• 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.
• What tasks were performed 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. You need to be able to show what exact tasks, tests, iterations and problem-solving approaches were done to address the technical challenge.
• 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. 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.

Supporting documentation may include:

• Time tracking and payroll data
• Technical plans, designs, and test results
• Meeting notes or email communications
• Code repositories (and allocated time per task)
• Prototypes or physical evidence
• Contracts, invoices, and material records
• Photos

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 Funding Can Be Received?

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%

 It is important to remember that these rates are for the portion of the work that relates to the SR&ED project. For example, a developer is paid $100k annually, but spends 50% of their time on tickets and small bugs, and 50% on addressing a larger security challenge that requires testing and iterating. 50% of the salary is then SR&ED eligible, so 64% of that $50k, equals a SR&ED tax credit of approximately $32k.

How the SR&ED Application Process Works

Ideally, companies submit their SR&ED application together with their corporate tax return after the fiscal year closes. If the company has already filed their business taxes, and it has been less than 18 months since the fiscal year ended, it is possible to go back and amend the tax return with the SR&ED application.

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.

 If you have questions about SR&ED or want to know how to apply for SR&ED, you can contact Lauren, Co-founder and Managing Partner at GrowWise: lauren@growwise.ai

SR&ED Frequently Asked Questions

What types of work usually qualify for SR&ED?
Projects that attempt to resolve a genuine technical uncertainty through experimentation, iteration, and analysis are the strongest candidates. Routine engineering, configuration, or cosmetic improvements generally do not qualify.

Does a project need to succeed to be eligible?
No. SR&ED focuses on the investigative process and knowledge gained, not commercial success. Failed experiments can still qualify if they advance understanding.

When should documentation begin for the SR&ED project?
Documentation should start as early as possible in the R&D cycle. Contemporaneous records provide significantly stronger audit support than reconstructed information prepared at year-end.

Can startups without profit apply to SR&ED?
Yes. Refundable credits for Canadian-controlled private corporations allow early-stage companies to receive cash even before reaching profitability, provided eligible expenses were incurred.

How long does it take to receive an SR&ED refund?
Processing timelines vary depending on claim complexity and whether a review occurs. Well-documented filings typically move more efficiently through the CRA review process. On average, a claim takes about 2-5 months for the CRA to process.

Is SR&ED limited to specific industries?
No. Any sector performing qualifying experimental work in Canada may be eligible, from software and manufacturing to agriculture and life sciences.

At Innovate Niagara, we are dedicated to helping startups and partners navigate these transformative shifts — from funding navigation and mentorship to fostering valuable ecosystem connections. 

Join Innovate Niagara as a Partner today and let’s work together to build Canada’s next chapter in innovation and drive meaningful change!