Glossary
SR&ED, in plain terms
The words that come up when you prepare a SR&ED claim, defined without the jargon. Each links out to a fuller guide where there is one.
- SR&ED
- Scientific Research & Experimental Development — Canada's largest R&D tax incentive. It gives tax credits and refunds to businesses that resolve technological uncertainty through systematic investigation. What SR&ED is →
- Technological uncertainty
- The heart of an eligible claim: at the outset you couldn't know whether a result was achievable, or how to achieve it, using the existing knowledge base. Routine engineering with a known solution isn't uncertainty. Eligibility criteria →
- Technological advancement
- The advance in understanding you sought — even if the project failed. The goal is to generate knowledge that wasn't publicly available, not to build a commercial product.
- Systematic investigation
- A hypothesis-driven process: you formulated an approach, tested it, and drew conclusions. Trial-and-error without a systematic method generally doesn't qualify.
- T661
- The SR&ED claim form filed with the T2 return. It captures the project descriptions (lines 242 / 244 / 246) and the expenditure details. It's an XFA PDF, which is why most software can't fill it. 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 credit itself. A Canadian-controlled private corporation can earn an enhanced refundable ITC (35%) on qualified expenditures up to its limit; other corporations earn the basic (15%) rate. Confirm current rates before you file.
- CCPC
- Canadian-controlled private corporation. CCPC status is what unlocks the enhanced, refundable ITC rate — a major reason it matters who controls the company.
- Proxy method
- A way to claim overhead as a formula-based percentage of eligible salaries instead of itemizing actual overhead. Most claimants elect the proxy method because it's simpler and predictable. T661 guide →
- Qualified SR&ED expenditure
- The pool of costs the ITC is calculated on — eligible salaries, materials, contract payments and (under the proxy method) the prescribed proxy amount, with certain reductions.
- Eligible salary / wages
- The portion of employee pay attributable to SR&ED work. It's usually the largest line in a claim, which is why the hours behind it get the most scrutiny. Time tracking →
- Specified employee
- An employee who owns 10% or more of the company (or doesn't deal at arm's length with it). Their eligible salary is capped — tied to the year's YMPE — so it can't be inflated.
- YMPE
- Year's Maximum Pensionable Earnings, an annual figure that sets the salary cap for specified employees on T661 lines 305 / 306 / 380. It changes yearly.
- Contract expenditure
- Payments to a contractor for SR&ED work performed on your behalf. Arm's-length contract payments are typically included at a reduced rate; the rules differ for non-arm's-length.
- 18-month rule
- SR&ED expenditures must be claimed within 18 months of the end of the tax year in which they were incurred. Miss it and the claim is gone — there's no extension. Filing deadlines →
- Contemporaneous documentation
- Records created while the work was happening — design notes, test results, commits, tickets, timesheets. It's the strongest evidence in a review, because it can't be reconstructed after the fact. Documentation requirements →
- Audit / review
- The CRA may review a claim to confirm the work and the amounts. A review tests whether you can show your work — which is why traceable evidence matters more than a polished narrative. Surviving a review →
- First-time claimant
- A company filing its first SR&ED claim. The CRA offers first-time-claimant support, and first claims are a common point to bring in help — or software — because the process is unfamiliar.
- Provincial SR&ED credit
- Most provinces add their own SR&ED credit on top of the federal one, each with its own schedule and rules. A claim usually files federal plus one province's schedules.
- Refundable vs non-refundable credit
- A refundable credit can be paid out as cash even if you owe no tax — valuable for pre-revenue companies. A non-refundable credit only reduces tax payable. CCPC status affects which you get.
This guide is general information, not tax advice. SR&ED rules, rates and limits change, so confirm the current figures with the CRA or your advisor before you file.