How to not mess up your SR&ED claim
SR&ED is Canada's most generous R&D credit, and it's also the easiest to lose money on. Here's what to know.
Published February 12, 2025 · 9 min read
SR&ED is the federal Scientific Research and Experimental Development tax credit. It is by far the most generous R&D incentive in Canada. It is also where small businesses lose the most money to bad documentation, bad consultants, and bad luck. Here is what we have learned from talking to founders who got it right and ones who got it wrong.
What SR&ED actually rewards
Forget what the name suggests. SR&ED is not just about research scientists. It rewards businesses doing technological problem-solving where the outcome is uncertain at the start.
Building a new piece of software that does something existing tools cannot do, that counts. Improving a manufacturing process where you do not know if the change will work, that counts. Developing a new product where the engineering challenges are not solved at the start, that counts.
What disqualifies you
Routine work. Implementing known solutions. Using existing tools as documented. Marketing, sales, and business development. Quality assurance after the technical work is done.
If a competent professional in your field could have done the work without trying things and failing, it probably is not SR&ED.
The documentation problem
The number one reason SR&ED claims get reduced or denied is bad documentation. The CRA wants contemporaneous notes. Written at the time, not reconstructed later.
This means: weekly engineering notes. Lab notebooks. Time tracking by project. Git commits with descriptive messages. Documentation of what you tried, what failed, and what you learned.
Build this into your weekly process. Doing it once a year retrospectively is when claims fall apart.
The consultant problem
Most SR&ED consultants take 15 to 25 percent of your claim. They are useful for businesses with substantial R&D budgets ($500K+ of eligible spend). For smaller claims, the math does not work.
A good consultant earns their fee by knowing how to write the technical narratives the CRA wants to see. A bad consultant inflates your claim, which is great for their fee and terrible for your audit risk.
If you are considering a consultant, ask for references from businesses that were actually audited. The real test is what happens when the CRA pushes back.
Stack with provincial credits
Every province with serious R&D activity has its own credit that stacks on federal SR&ED. Ontario Innovation Tax Credit. Quebec RS&DE. BC SR&ED. Alberta Innovation Employment Grant.
The combined effective rate on R&D spending can be 40 to 60 percent of eligible expenses, refunded in cash. For a small R&D-focused business, that materially changes the math.
What changed in 2025 (it got more generous)
Budget 2025 expanded the program. The annual expenditure limit for the enhanced 35 percent refundable credit rose from $3 million to $4.5 million, with a further increase to $6 million proposed. For a refund-focused CCPC, that is a materially larger pool of expenses eligible for the higher rate.
Capital expenditures are eligible again. After being excluded since 2014, the cost of property acquired after December 15, 2024 for use in SR&ED can once more be claimed. If you are buying equipment for an R&D project, this changes the math.
The taxable-capital phase-out thresholds moved up too, from $10 million and $50 million to $15 million and $75 million, so more growing companies keep full access. The enhanced refundable credit is also being extended to eligible Canadian public corporations, not only CCPCs.
When to file
You have 18 months from the end of your fiscal year to file SR&ED. After that, you lose the right to claim that year forever.
Most businesses file with their normal T2. Some file later through a separate amended return. Do not let the deadline lapse.
We do not directly help with SR&ED applications. The work is too technical and too company-specific. But we can tell you whether your business is likely eligible based on your profile, and which provincial credits stack on top. Take the Deductly quiz to find out.