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The Scientific Research and Experimental Development (SR&ED) tax credits program uses tax incentives to encourage Canadian businesses to conduct research and development (R&D) in Canada. Through our network of trusted partners, Swoop can help you quickly unlock cash from innovation being created by your business.
Businesses working on a technological advancement
Up to around 64% of eligible salary costs, depending on your province and business structure
Government tax relief for companies conducting R&D
The CRA aims to process claims accepted as filed within 60 calendar days, and claims selected for review within 180. Pre-claim approval decisions take about eight weeks.
Application cost is linked to the size of your claim
Register your business with Swoop for access to tailored funding and savings opportunities
Page written by Michael David. Last reviewed on September 9, 2026. Next review due April 1, 2027.
The Scientific Research and Experimental Development (SR&ED) Program uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada.
Whether you have a startup, a small business, or a sizable enterprise, you may be able to take advantage of the SR&ED program.
There are three types of tax incentives:
Administered by the Canada Revenue Agency, SR&ED is the largest federal R&D support program in Canada. In the year to March 2026 the CRA allowed $4.6 billion in credits across more than 24,000 claims.
In August 2021 the CRA replaced its old five question test with two questions. Everything now turns on Why and How.
There has to have been a technological uncertainty: something you could not resolve with the knowledge and standard practice available to you. And the work has to have been aimed at resolving it, generating knowledge that advances the underlying technology.
The CRA is explicit that this is about purpose, not outcome. In its words, “success or failure in meeting your objectives is not relevant” to the Why test. A line of inquiry that failed still counts, as long as it was a real attempt at a real uncertainty.
For example, imagine if a headphone manufacturer did not have enough capacity to produce headphones quickly enough to meet customer demand, and there was no known way to solve this problem using existing methods, so they conducted research and development to invent a new manufacturing process. The time spent on this project might qualify for the SR&ED program.
The work has to have been a systematic investigation, carried out by experiment or analysis, by people qualified to do it. Form a hypothesis, test it, look at what happened, adjust, go again. Trial and error on its own is not enough. Neither is a single attempt that happened to work first time.
For example, the headphone manufacturer might have had reason to believe that certain manufacturing steps could be automated based on their experience of doing them manually, and then could have tested a series of prototypes based on this hypothesis.
Documentation is not a third test. It is how you evidence the first two.
The CRA needs to see that the work happened the way you describe it, so keep records as you go rather than reconstructing them at filing. Timesheets, project notes, design documents, source control history, test results, meeting minutes, and photographs of prototypes and scrap all count. Contemporaneous beats comprehensive.
First, a common misreading. Building a facility, developing a new product line, upgrading a process, running an engineering project: none of these is disqualified. They’re business activities rather than SR&ED projects in their own right, and SR&ED work sits inside them all the time. New product development is one of the most common places a valid claim is found.
What matters is whether a specific piece of that work faced a technological uncertainty and was tackled systematically.
What the law does exclude outright:
Four types of expenditure qualify:
Note that credits on capital expenditures are up to 40% refundable for CCPCs, against 100% on current expenditures like salaries.
Keep in mind, you do not get to claim 100% of these expenses.
The SR&ED program offers a tax credit at a basic rate of 15% on qualified expenditures. This is a non-refundable tax credit that can only be applied to reduce income tax payable. This means its value is essentially capped by how much taxable income you have.
However, Canadian Controlled Private Corporations (CCPCs) — and, as of Budget 2025, eligible Canadian public corporations — may also be entitled to earn a refundable tax credit at an enhanced rate of 35% on qualified expenditures, capped at $6 million a year, for tax years beginning on or after December 16, 2024. That’s worth up to $2.1 million a year in refundable credits. If your tax year began before that date, the previous $3 million limit still applies to it.
This refundable tax credit is fantastic for smaller businesses and startups that may particularly benefit from the potential for improved cash flow. The benefits may be less for more established businesses, as the expenditure limit is reduced when the company’s taxable capital employed in Canada in the previous tax year exceeds $15 million and is eliminated when it reaches $75 million. For eligible Canadian public corporations the same $15 million to $75 million range applies, but it’s measured on average gross revenue rather than taxable capital.
That depends on your structure. A CCPC, or an eligible Canadian public corporation, claiming within the enhanced limit can earn 35% on up to $6 million of qualified expenditures, worth up to $2.1 million a year in refundable credits. Above that limit, and for businesses that are neither, the basic 15% non-refundable rate applies.
Start by summing up your allowable expenditures in the four categories of wages and salaries, sub-contractors, materials and capital.
For staff, keep track of who was directly involved in carrying out qualifying work and the hours they spent on the task. Multiply their actual hourly rate if they were paid hourly, or a deemed rate if they are on salary.
For subcontractors, you can total all of the work for a given project and claim 80% of that amount.
For materials, you can claim the cost of materials used to build prototypes and the scrap materials that were consumed during SRED experiments.
For capital expenditures, you can claim equipment and machinery acquired after December 15, 2024, where at least 90% of the property’s use is SR&ED. Buildings and leasehold interests in buildings do not qualify.
Once you have a total, you must apply the right percentage to calculate your expected SR&ED credit. Assuming you are an Ontario CCPC claiming within the annual expenditure limit, you can expect to claim roughly 64% of salaries and wages, 32% of subcontractor fees, and 42% of material costs.
Most businesses use the proxy method, which lets you add a further 55% of eligible salaries and wages to your claim in place of tracking actual overhead. The alternative, the traditional method, means itemizing real overhead costs and is only worth the work if your overhead is unusually high.
To understand your exact claim amount, it is recommended to work with a professional advisor.
These figures combine the federal credit with Ontario’s provincial credits, for a CCPC claiming within the annual expenditure limit:
| Cost type | Approximate credit, Ontario CCPC |
|---|---|
| Salaries and wages | 64% |
| Material costs | 42% |
| Canadian subcontractor fees | 32% |
Provincial credits vary considerably. Quebec’s refundable wage credit is more generous, Alberta runs the Innovation Employment Grant rather than an R&D tax credit, and British Columbia’s credit is non-refundable for businesses that aren’t CCPCs.
A business that isn’t a CCPC earns the basic federal rate of 15% instead of 35%, and that credit is non-refundable, which puts the effective return at roughly half the figures above.
Which provincial credit applies depends on where the work is carried out, not where you’re incorporated. You’ll need a permanent establishment in that province, with the R&D performed there.
You can use SR&ED and IRAP together, and plenty of businesses do. They’re run by different bodies: SR&ED by the Canada Revenue Agency, IRAP by the National Research Council.
The Industrial Research Assistance Program contributes toward salary and contractor costs for businesses developing innovative products or adopting new technology. That contribution counts as government assistance, which means it reduces the expenditures you can then claim through SR&ED. The same dollar can’t be supported twice, but holding one doesn’t disqualify you from the other.
So the question isn’t which to choose, it’s how to sequence them. Eligibility for one doesn’t guarantee eligibility for the other, and the interaction is far easier to get right before you file than to sort out afterwards. If you’re considering both, talk to an advisor early.
Yes, though the mechanism differs by credit. Federal investment tax credits are included in your income in the year after you receive them, so they’re taxed then. Provincial credits are treated as government assistance and reduce the expenditures you can claim federally.
Either way, your net benefit lands below the headline credit rate. Worth building into your cash flow forecast rather than discovering the following year.
You need to keep documents to show that eligible work was performed and allowable expenditures were incurred in the year for which you are filing your claim. This information should convey what work was done, who was involved with the work, when the work was conducted, and how you calculated the expenditures associated with the work.
Even if your claim is approved this year, the Canada Revenue Agency may contact you in a future year to review your documentation. For this reason, required records and supporting documents must be kept for a period of six years from the end of the last tax year to which they relate.
Examples of supporting information for SR&ED work and expenditures include (but are not limited to):
The SR&ED program is administered by the Canada Revenue Agency. To make a claim, there are forms that you need to complete and file with your income tax return, either by mail or online.
The CRA will assign technology advisors and financial reviewers to examine your SR&ED claim. These experts will assess whether your project qualifies and may visit you to review your documentation and other supporting evidence.
The CRA aims to meet these standards 90% of the time:
Since April 1, 2026 you can ask the CRA to confirm a project is eligible before you file. It’s optional, and it’s aimed at smaller claimants.
To use it you need to be a Canadian-controlled private corporation, a Canadian corporation or a Canadian partnership, with annual gross income under $25 million, and in good standing with the CRA.
The CRA aims to give you a decision within eight weeks of a complete application. You’ll get a case number within two to five business days and a meeting with a specialist within four weeks. An approval holds for up to three years. And if a later claim containing a pre-approved project is selected for expenditure review, that review is targeted at 90 days instead of 180.
If you want certainty before committing budget to a project, this is the most useful change the CRA has made to the program in years.
Swoop’s SR&ED experts provide guidance from start to finish, beginning with an eligibility check. Check your SR&ED eligibility
Written by
Michael David is a financial writer and former investment advisor. Writing for Capital Group, Dimensional Fund Advisors, Franklin Templeton Investments, HSBC, Invesco, PIMCO, Vanguard, global insurance companies, major banks and others, he has educated professionals, business owners and consumers about strategies for investing, insurance, banking and corporate finance for more than 20 years.
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