The Canadian R&D tax relief regime R&D Relief factsheet

Eligibility criteria

To qualify for SR&ED credits, a project must meet three main criteria:

• Scientific or technological advancement: The work carried out must generate information that advances the understanding of scientific relations or technologies
• Scientific or technological uncertainty: Specifically, the term ‘technological uncertainty’ has been clarified to show that it may occur in either of two manners:
  • It may be uncertain whether the goals can be achieved at all
  • The taxpayer may be fairly confident that the goals can be achieved, but may be uncertain which of several alternatives (i.e. paths, routes, approaches, equipment configuration, system architectures, circuit techniques, etc.) will either work at all or be feasible in order to meet the desired specifications and/or cost targets
• Scientific and technical content:
  • Scientific method:
    • Hypotheses formulated
    • Experimentation or analysis, testing
    • Modifications to hypotheses
    • Conclusions
  • Sufficient documentation
    • Record of work performed and results kept as the work progressed
  • Qualified personnel

SR&ED benefits

• Investment tax credits (ITCs) for qualifying expenditures
  • Provincial and federals credits available
  • Qualifying rate and refundability depends on ownership and size
  • Include salary expense, overhead expense, material and Canadian subcontractor costs
• Canadian-owned corporations with $3 million expenditure limit in Ontario
  • Earn up to $65.6 for every $100 salary expenditure, refunded as cash (18 month filing deadline from fiscal year-end)
• Foreign-owned corporation/individual with $3 million expenditure limit in Ontario
  • Earn up to $38 for every $100 salary expenditure, reduces taxes payable and/or refunded in cash (individual—18 month filing deadline from calendar year)
• Investment tax credits earned may be 15 per cent or 35 per cent (CCPCs) for eligible expenditures (salary, overhead, materials and Canadian subcontractors), applied against taxes payable or refunded back in cash
• Most provinces contribute with a ‘top-up’ (10 per cent-20 per cent)
• Unused ITCs carry back three years and forward 20
• On Canadian SR&ED only

Qualifying expenses

Expenses eligible for SR&ED credits include:

• Salaries
• Proxy overhead—55 per cent of salaries
• Materials Consumed or Transformed
• Contractors (80 per cent)
• Third party contracts and payments (80 per cent)
  • Donations to universities for research

Claim process and compliance

• Documentation: Companies must maintain records of R&D activities, including technical project activities, experimental methods, and results.
• Filing: SR&ED claims are submitted with a company’s income tax return using Form T661.
• CRA Review: Claims may be subject to review or audit by the CRA to ensure compliance with SR&ED requirements. Successful applicants generally receive tax credits as a refund or a reduction in tax liability.

Economic impact and effectiveness

Canada’s SR&ED program has been widely regarded for its positive impact on innovation and economic growth. By offsetting the high costs of R&D, it allows Canadian companies to invest more in new technologies, which in turn drives productivity, job creation, and global competitiveness. The SR&ED program remains a cornerstone of Canada’s R&D policy framework.

This Canadian R&D tax relief framework helps sustain Canada’s innovation ecosystem by reducing the effective cost of scientific research and experimental development. For companies conducting R&D, understanding and applying for these credits can significantly enhance cash flow and reinvestment potential, fostering a cycle of innovation and growth.