Scientific Research & Experimental Development Overview

• SR&ED (Scientific Research and Experimental Development) is a Canadian government tax incentive program designed to encourage corporations, startups, partnerships, and individuals to invest in scientific research and experimental development activities.

• SR&ED activities involve systematic investigation or research in the fields of science or technology, including software development, aimed at achieving scientific or technological advancement.

• The Canada Revenue Agency (CRA) offers a refundable Investment Tax Credit (ITC) of up to 35% on eligible SR&ED expenditures. This credit can be received as a cash payment if the claimant is loss-making or applied as a reduction against taxes payable if profitable.

• If you answer “Yes” to all five questions below, your work may qualify for the SR&ED ITC.

The Five CRA SR&ED Qualifying Questions

To determine eligibility, all five questions must be answered “Yes”:

1. Was there a scientific or technological uncertainty?
The work involved uncertainties that could not be resolved by standard procedures or existing knowledge.

2. Did you develop one or more hypotheses aimed at resolving that uncertainty?
You formulated testable ideas or approaches to address the identified uncertainty.

3. Was the work carried out through a systematic investigation or search?
The project followed a structured, methodical process (such as the scientific method),

including experimentation and analysis.

4. Was achieving a scientific or technological advancement the intent?
The objective was to extend your organization’s scientific or technological knowledge or capabilities.

5. Did you keep detailed records of the work as it progressed?
Documentation such as plans, data, test results, and analysis was maintained throughout the investigation.

If you answered “Yes” to all five questions, your project may be eligible for the SR&ED tax incentive program. Further details are provided below.

Who Is Eligible to Claim?

Corporations, partnerships, trusts, and individuals conducting eligible research and development work within Canada may qualify.

Eligibility Requirements

• The work must be intended to advance scientific knowledge or achieve a technological advancement. Examples of qualifying objectives include developing new products or devices, improving manufacturing or operational processes, or addressing scientific or technical uncertainties.

Eligible Work Categories

• Experimental development involves creating or improving products, processes, or materials through technological investigation. Technical tasks directly related to SR&ED activities include engineering, design, software development, testing, and data collection.

How the Program Works

• Eligible SR&ED expenditures can be deducted from taxable income, reducing net taxable income.

• Additionally, claimants may receive an Investment Tax Credit (ITC) equal to 35% refundable on the first CAD $3 million of eligible expenditures.

• Unused credits may be carried back up to 3 years or carried forward up to 20 years, with refund eligibility depending on the taxpayer’s status.