Canadian SR&ED

Review the expenditure categories

Depending on the facts and calculation method, allowable current expenditures may include salary or wages, consumed or transformed materials, eligible contracts, equipment lease costs incurred after December 15, 2024, overhead and other expenditures under the traditional method, and third-party payments. Certain depreciable property acquired after December 15, 2024 may also qualify as a capital 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.

How the credit is calculated

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.

Provincial and territorial R&D credits may also be available. Government assistance and provincial or territorial credits can reduce the expenditures used in the federal calculation, so the result depends on more than one headline rate.

Move the work into the prescribed forms

Form T661 describes the claimed work and calculates SR&ED expenditures. Corporations calculate the federal investment tax credit on T2 Schedule 31, while individuals use Form T2038-IND. The claim is submitted with the applicable income tax return, together with any relevant provincial or territorial forms.

Test the work against both CRA requirements

The CRA currently states two requirements: the work must be conducted in Canada for scientific or technological advancement, and it must be a systematic investigation or search carried out in science or technology by experiment or analysis. Scientific or technological uncertainty explains why new knowledge was needed. We break the requirements down with examples in the eligibility guide.

Make the path from work to amount easy to follow

A reviewer should be able to move from the technical narrative to the underlying experiment, people and costs without guessing. Record the work as it happens, keep the allocation method, and write in cautious, specific language. See the documentation guide and CRA review guide.

SREDlog claim preparation software keeps source records, form drafts and reviewed amounts connected. Explore evidence management for the source review workflow, or software for accounting firms for the handoff into a corporate tax file.