Overview of the SR&ED Program

Back in 2008, the CRA published an excellent overview of the SR&ED program:  

“Support for your R&D in Canada – Overview of the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program”

A lot has changed with SRED since 2008.  That document is not available anymore from the government online as parts of it are outdated.

We reproduce the document below with updates to make it current. We’ve crossed out outdated material (outdated material) and added in correct current information. In some places, we’ve just provided the updated material where cross-outs were too extensive. Last, we’ve include some g6 commentary.


What is the SR&ED program?

The Scientific Research and Experimental Development (SR&ED) tax incentive program is the largest single source of federal government
support designed to encourage research and development (R&D) in Canada. Each year, the SR&ED program provides over $4 $3 billion in investment
tax credits (ITCs) to over 18,000 20,000 claimants. 75% of claimants under the program are small businesses, which the CRA calls CCPCs (Canadian-Controlled Private Corporations.

Each province has a tandem program which provides some amount of funding under the program.  The program is administered centrally by the CRA, regardless of the province where you are claiming. In Ontario, federal ITCs are topped up by the Ontario Innovation Tax Credit (OITC) currently at 8% for CCPCs, and the non-refundable Ontario Research and Development Tax Credit (ORDTC) at 3.5%.  See this post for background on refundable vs non-refundable credits

What is the objective of the SR&ED program?

The objective of the SR&ED program is to deliver SR&ED tax incentives in a timely, consistent and predictable manner, while encouraging businesses to
prepare their claims in compliance with tax laws, policies and procedures.

Historically the Program seeks to make Canadian businesses operating in fields of technology more competitive vs foreign companies by providing very generous, broad-based tax incentives.  There is no comparable widely available R&D tax incentive program in the USA.  SRED provides a large incentive for US and other foreign firms to locate engineering and scientific resources and technology centres of excellence in Canada.

How can the SR&ED program benefit my company?

The SR&ED program can provide financial incentives by helping to:

  • fund the scientific and technological advances that keep your company
    competitive and
  • better position your company for future SR&ED projects.

ITC and OITC SRED credits for CCPC’s in Ontario are fully refundable.  This means they come to you as a cheque or direct deposit assuming you are current on your tax balances.  The small Ontario ORDTC is a non-refundable credit.  This means that these credits are used to pay off Ontario tax balances.  This happens automatically if there are ON taxes owed in the year the SRED is awarded.  Surplus ORDTC credits may be carried back three years and cashed or they are put on the company’s account and carried forward up to 20 years to pay future tax balances.

All SRED credits for large/pub;ic/foreign companies are non-refundable.

What businesses are eligible?

The SR&ED program is available to any business operating and carrying out R&D in Canada.  A portion of the expenditures for SR&ED performed outside
Canada are also permitted as long as the work is performed by Canadian residents.

SRED is not available to government organizations like municipalities, commissions, academic institutions or charities.

Any business that is involved in basic or applied research, or in advancing technology in order to improve or develop new materials, devices, products or
processes may be eligible under the SR&ED program.

The businesses that are eligible under the SR&ED program fall into three groups:

  1. Canadian-controlled private corporations;
  2. Other corporations; and
  3. Proprietorships (individuals), partnerships and trusts.

1. Canadian-controlled private corporations (CCPCs)

If you are a CCPC, you may receive a refundable investment tax credit (ITC) on your qualified SR&ED expenditures. You must first apply these ITCs against
taxes payable in the year of the claim. The balance will be refunded.

The rate of refundability is based on your taxable income and taxable capital in the previous year and an expenditure limit. The table in the section “What are
the SR&ED Investment Tax Credit Rates” provides further information.

2. Other corporations

For other corporations, the ITC is 20% 15% of qualified current and capital SR&ED expenditures. The ITC may be applied to taxes payable and is not refundable.

3. Proprietorships, partnerships and trusts

For proprietorships, partnerships and trusts, the ITC rate is 20% 15% of qualified current and capital SR&ED expenditures. After applying the ITCs against taxes
payable, you may receive a cash refund on 40% of the balance of the ITCs earned in the tax year.

In practice, it is very difficult to claim SRED for proprietorships.  The SRED claim is made on the person’s personal income tax return so that person’s wages or salary are not eligible for SRED credits.

What is “SR&ED”?

The definition of “scientific research and experimental development” given in subsection 248(1) of the Income Tax Act can be summarized as:

…systematic investigation or search carried out in a field of science or
technology by means of experiment or analysis . . . to advance scientific
knowledge or to achieve technological advancement.

The work must fall into one of the following categories:

  • Experimental development – This is the work done to achieve technological
    advancement for the purpose of creating new, or improving existing,
    materials, devices, products or processes.
  • Applied research – This is work done to advance scientific knowledge with
    a specific practical application in view.
  • Basic research – This is work done to advance scientific knowledge without
    a specific practical application in view.

95% of the funding distributed under the SR&ED program is awarded for experimental development work.

SR&ED can also include other work that is directly in support of the experimental development, applied research or basic research. This support
work includes only the following eight specific types:

  • engineering
  • design
  • operations research
  • mathematical analysis
  • computer programming
  • data collection
  • testing
  • psychological research

In plain English, this means that SRED occurs from the time you start experimenting to resolve technological obstacles until you resolve the obstacles and unknowns or you abandon experimentation.  You claim not just for the direct experimental work, but also the support activities which are reasonable and necessary to carry out the experimental work.  Tak e an example of a winery which is conducting experiments to produce a sparkling wine with a new type of grape.  The SRED work claimed would include the field work necessary to produce a minimum feasible batch of grapes to process and bottle to determine the outcome of the experiment.

What is not “SR&ED”?

Certain work is not eligible for benefits under the SR&ED program, including:

  • market research or sales promotion;
  • quality control or routine testing of materials, devices, products or processes;
  • research in social sciences or the humanities;
  • prospecting, exploring or drilling for, or producing minerals, petroleum or natural gas;
  • commercial production of a new or improved material, device or product, or
    the commercial use of a new or improved process;
  • style changes; and
  • routine data collection.

What are the eligibility requirements?

For any R&D work to be eligible for SR&ED:

The work must be a systematic investigation or search carried out by means of experiment or analysis;

  • This would include identifying the obstacle, formulating an objective, developing a plan of action
    including the method of experimentation or analysis and testing the hypothesis.

The work must be carried out in a field of science or technology that is not excluded by the legislated definition of SR&ED;

  • Excluded work is described under the heading “What is not SR&ED?”


The work must be undertaken either:

  • For the purpose of achieving technological advancement. The work must attempt to increase the technology
    base or level from where it was at the beginning of the systematic investigation or search. The technology
    base or level includes all the technological resources within the business and all the knowledge on the
    technology that is reasonably available in the public domain.


  • For advancing scientific knowledge. A systematic investigation or search must be carried out with the aim
    of generating new scientific information or understanding of scientific relations.

A project does not have to succeed to qualify for the SR&ED tax credit. To help you determine if your R&D work meets SR&ED requirements, the CRA has developed an online tool:  SR&ED Self-Assessment and Learning Tool SALT.

What expenditures can I claim?

You may claim many of the expenditures incurred for SR&ED during your fiscal year. These expenditures may include:

  • Salaries and wages*;
  • Materials
  • SR&ED contracts
  • Lease costs of equipment;
  • Overhead:
  • Third-party payments; and
  • Capital expenditures.

A portion of salaries and wages for SR&ED performed outside of Canada are now permitted as long as the work is performed by Canadian staff travelling outside Canada for collaboration.

Capital and lease costs were never widely claimed due to restrictive eligibility rules.  Several years ago, the CRA made these expenditures fully ineligible for SRED.

How do I determine my SR&ED expenditures?

In determining your SR&ED expenditures, you must choose one of the
following two methods:

1. Traditional Method

The traditional method involves claiming all of the SR&ED expenditures you
incurred during the year. You must specifically identify your overhead costs.

2. Proxy Method

The proxy method involves calculating a substitute amount for overhead expenditures using a formula, rather than specifically identifying and
allocating these expenditures as you would with the traditional method.

Almost all SRED claims are prepared using the Proxy method.  Qualifying labour expense is marked up by a 55% uplift factor to account for overhead automatically.  This is a generous allocation and only in unusual circumstances is it financially advantageous for a company to calculate and apply traditional overhead amounts.  The one common circumstance for companies to claim using the traditional method are companies which have zero qualifying payroll to claim.  In this case, the proxy amount will also be zero, so any claimable overhead is a net positive.

What are the SR&ED investment tax credit rates?

The investment tax credit (ITC) rates and the percentage that you can have refunded or credited vary according to the way your business is structured.
The following table outlines the ITCs and the refundable rates that apply to qualified SR&ED expenditures. Most businesses are Canadian-controlled
private corporations (CCPCs) with taxable income of less than $400,000 $500,000.

Unused ITCs may be carried back three years or carried forward 20 years.

The chart above has been updated to remove capital as a claimable sred expense and to reduce the ITC rates for other corporations etc from 20% to 15%.

How do I make a claim?

To make an SR&ED claim you must file an income tax return along with the following prescribed forms:

The “meat” of the SRED claim is Part 2 of the T661.  This is the project description.  You fill out a Part 2 project description for every SRED project you are claiming in the year.  The 661 form can be a bit confusing.  If you are claiming only one project the form is straightforward.  If you are claiming multiple projects, you include in your claim package one T661 form composed of parts 1 and parts 3 to 10.  Then you include as many filled T661 Pt 2 forms for the number of projects you are claiming.

You also file forms to apply for the provincial component of your SRED credits.  For Ontario, these forms are:

Finally, you will file a Schedule 1 or an amended Schedule 1 from the fiscal year’s T2 for which you are applying for SRED.  This Schdule 1 will incorporate SRED entries for liness 118, 411 and possibly line 605:

Schedule 1, Net Income (loss) for Income Tax Purposes

When do I file my claim?

There are two ways to file SRED claims.  The first and preferred way is to file SRED as part of your regular annual T2 filing.  Forfirst time filers and procrastinators, it is also possible to file a SRED claim as an amendment to your already processed T2 filing, as long as you are still within the SRED reporting deadline window.

To apply for SR&ED tax incentives, you must file the applicable prescribed forms by your reporting deadline. The reporting deadline for corporations is 18 months (individuals have 17.5 months) from the end of the tax year in which you incurred the expenditures.

This deadline is fixed (except for the COVID allowance noted below).  If you don’t file a complete and correct SRED claim by the deadline, you lose all ability to claim for that fiscal year.  Claims submitted late are not processed, no exceptions.

For more information on the reporting deadline, see here: Determining the reporting deadline for an SR&ED claim.

Some claim deadlines have been extended due COVID-19.  See this g6 post for detail.

What happens after I send in my claim?

When you send in your claim, the CRA will determine if it can be processed as filed without further review. If we can process
your claim as filed, we will reduce your taxes payable or, if applicable, issue a cheque to you. If we
cannot process your claim as filed, we may contact you to request more information or to discuss the review of your claim.

The following chart illustrates how we process SR&ED claims:

Claims for first time claimants are handled differently.  The CRA announced a policy several years ago to review all first time SRED claims.  The workload to review all first time claims by the CRA is too large.  Therefore a proportion of first time claims are diverted and handled under a program called the First Time Claimant Advisory Service, FTCAS.  You want your first time claim to be handled in this manner.  The CRA will still visit you to deliver a SRED training session but your SRED claim will be accepted as filed as part of the FTCAS process. See this post for details on FTCAS.

How long will it take to process my claim?

Here’s the old chart for service standards and goals for processing
your SR&ED claim:

Service standards have been moving around for SRED.  There’s no standard published currently for non-refundable SRED claims (ie large/public/foreign corporations).  We believe these claims’ standards remain unchanged at 365 days.

CCPC service standards were simplified and improved as of early 2018 for CCPC’s.  Refundable claims now fall under the following service standard:

  • All claims which have been accepted as filed will be processed within 60 calendar days of the date we receive a complete claim.
  • Refundable claims selected for review/audit will be completed within 180 calendar days of the date we receive a complete claim.

The CRA is committed to meeting these service standards 90% of the time.

What happens during the review process?

Businesses claiming the SR&ED credit are subject to technical and financial reviews by the CRA to ensure that all eligibility and compliance
requirements, as set out in the Income Tax Act, are met.

If the CRA cannot process your SR&ED claim as filed, we may contact or visit you to review information relating to your claim.

The CRA’s technical and financial review staff works as a team to ensure that you get the SR&ED credits to which you are entitled.

The technical reviewer evaluates the work to determine whether it meets the SR&ED eligibility criteria. The financial reviewer
looks at the costs associated with your projects to ensure they are eligible SR&ED expenditures. These reviews may involve a
site visit to review your documentation, talk to your technical staff who were involved in the SR&ED work, and talk to your
financial staff who understand the expenditures being claimed.

All information provided to the CRA technical and financial review staff is held in strictest confidence. Legislative provisions
and stringent rules protect the confidentiality of all claimants’ records.

Prior to the COVID-19 pandemic, all CRA reviews were carried out in-person.

What do the reviewers need from me?

To expedite your claim and deliver your tax credits in a timely manner, it helps if you:

  • identify a technical contact person in your company who was involved in the
    SR&ED work;
  • identify a financial contact person in your company who understands the
    expenditures being claimed;
  • contact the CRA’s technical and financial reviewers if you need to clarify
    information requested;
  • maintain the technical and financial documents needed to substantiate the
    claim and make them available if requested; and
  • respond in a timely manner to CRA requests for more information.

For detailed information on the review process, please see the “Guide to Conducting a Scientific
Research and Experimental Development Review
” “Claim Review Manual for Research and Technology Advisors

What supporting documentation do I need to keep?

In order to support your SR&ED claim, it is important to maintain evidence that substantiates the SR&ED work performed and
expenditures incurred. If your SR&ED claim is selected for review, you will be asked during the review process to provide this
evidence. Generally, the best evidence is that which was generated as the SR&ED was being carried out.  The CRA calls this evidence “contemporaneous”.

Examples of technical and financial supporting evidence that could be kept are:

  • Project planning documents
  • Documents on design of experiments
  • Experimentation plan
  • Design documents and technical drawings
  • Project records, laboratory notebooks
  • Design, system architecture and source code (software development)
  • Records of trial runs
  • Project progress reports
  • Minutes of project meetings
  • Test protocols, data, results, analysis and conclusions
  • Final project report or professional publications
  • Photographs, videos
  • Prototypes, samples
  • Scrap, scrap records
  • Contracts, lease agreements
  • Records of resources allocated to the project, time sheets, activity records,
    payroll records
  • Purchase invoices and proof of payment
  • Accounting records

The best documentation is dated and was generated as the work was being carried out, ie contemporaneously.

What can I do if I have concerns?

If you have concerns during the review process or once the claim has been processed, refer to

Application Policy Number SR&ED 2000-02R, Guidelines for Resolving Claimants’ SR&ED Concerns for information on what you can do.

What services are available?

The SR&ED program offers several free services that can help you take full advantage of the benefits offered. These services have been changed over the years in an attempt to increase their popularity. These services include:

  • First-Time Claimant Service; First Time Claimant Advisory Service
  • Preclaim Project Review (PCPR) Service; Pre Claim Consultation
  • Account Executive (AE) Service; and
  • Public Information and Industry-Specific Seminars.

First Time Claimant Advisory Service – FTCAS

This program doesn’t really fit with the other services and seminars listed here as it is a mandatory service.  First time claimants who are selected for this service avoid full reviews for their first claim.  This diversion from a full review is beneficial and sought after. See this g6 post with an overview of the important FTCAS program.

Pre Claim Consultation

A pre-claim consultation will tell you if there is scientific research and experimental development (SR&ED) work in any of your projects before you send an SR&ED claim.

For a pre-claim consultation, you must meet the basic requirements for claiming SR&ED tax incentives, and the projects for which you are requesting a consultation must meet the following requirements:

  • be completed or in progress
  • were not already reviewed and given an eligibility determination
  • do not involve an issue that is under notice of objection or in litigation

The pre-claim consultation can only be requested for a maximum of three (3) projects per tax year.

In addition, the date of your request for a consultation must be no later than four months after the end of the tax year in which you did your work.

Based on the information you provide for the consultation, SR&ED reviewers will:

  • identify the research and development work that qualifies as SR&ED
  • provide advice on the supporting documents you need to keep
  • answer your questions, and offer advice and recommendations
  • provide a decision in a written report, which will identify the work that qualifies for SR&ED tax incentives. The decision will correspond to Step 1 of the Eligibility of Work for SR&ED Investment Tax Credit Policy. The report will not include decisions on the extent of eligible work or the allowable expenditures.

To ask for a pre-claim consultation, you have to complete and send an online pre-claim consultation request form. After you send your completed form, a Canada Revenue Agency (CRA) officer will call you to ask for more information to help the CRA decide if you qualify for a consultation.

In your pre-claim consultation request and during your conversation with the officer, give the same contact and business information. Also, have your business and project information on hand to respond to the officer’s questions.

If you have questions about the Pre-Claim Consultation, get in touch with your local SR&ED contact.

Public Information and Industry-Specific Seminars

The SR&ED program offers, across the country, free public general information seminars as well as seminars on SR&ED issues specific to a sector or industry.  The availability and frequency of seminars has declined as they are slowly being replaced by webinars.

Public general information seminars provide a general overview of the SR&ED program, covering the following: eligibility criteria, qualifying expenditures, how to prepare and file an SR&ED claim and supporting documentation. These seminars are intended for claimants who are new to the program or are planning on filing a claim, and are suitable for an audience of both technical and financial staff.

Seminars on SR&ED issues specific to a sector or industry are specialized workshops for SR&ED stakeholders involved in a specific sector or industry, and include presentations, a panel discussion and a case study or examples. The focus is on issues affecting SR&ED claims in a specific sector or industry. These workshops are intended for an audience familiar with the SR&ED program. It is recommended that you first attend an SR&ED public general information seminar.

To view the current seminars in your area please go here.

Sector specific seminars are here.

SR&ED webinar information is here.

Where can I obtain more information?

You can obtain more information about the SR&ED program, including seminars, forms and publications, on the CRA SR&ED Web site at www.cra.gc.ca/sred  https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program.html

Who can I contact to get more information?  SRED offices and phone numbers

SRED is now administered out of 6 offices across Canada.  You can phone your local office for more information about the SRED program.  You can also call your SRED office if your submitted SRED claim is still in progress after the applicable service standard has been exceeded.

Here are the 6 SRED offices, their phone number, and the provinces and/or cities that each office serves.

Toronto Centre  (416) 973-1717  

  • Ottawa
  • East Central and Northern Ontario
  • Nunavut
  • Toronto Centre
  • Toronto East
  • Toronto North Eastern

Toronto West  (905) 566-6010

  • Hamilton
  • Kitchener-Waterloo
  • London
  • Mississauga
  • St. Catharines
  • Thunder Bay
  • Windsor

Fraser Valley  (866) 317-0473

  • British Columbia
  • Yukon

Western Quebec  (888) 784-8709

  • Chicoutimi
  • Laval
  • Montréal
  • Montérégie-Rive-Sud
  • Outaouais
  • Québec
  • Rimouski
  • Rouyn-Noranda
  • Trois-Rivières
  • Sherbrooke

Edmonton  (587) 475-3030

  • Manitoba
  • Saskatchewan
  • Alberta
  • Northwest Territories

Nova Scotia  (866) 433-5986

  • Newfoundland and Labrador
  • Prince Edward Island
  • Nova Scotia
  • New Brunswick