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What is SR&ED?

R&D Tax Credit

Untangling and defining the SR&ED program

It seems simple enough to define–SR&ED stands for Scientific Research and Experimental Development. However, many firms that are eligible do not apply, which may indicate that Canadian innovators do not fully understand the parameters of this world-renowned R&D tax incentive. This week, we’ve compiled some basic information to introduce you to the SR&ED program, its eligibility requirements, and its administration.

Who is SR&ED For?

Introduced in the 1980s, the SR&ED program is intended to encourage businesses of all sizes, particularly small to medium and start-up firms, to conduct applied research and development (R&D) that will lead to new, improved, or technologically advanced products, processes, principles, methodologies, or materials. As Canada’s largest federal program in support of industrial R&D, the SR&ED program provides over $4 billion in investment tax credits (ITCs) to over 18,000 claimants each year. Of these, about 75% are small businesses.[1]

What Costs does it Cover?

SR&ED expenditures (already deducted against revenue) may qualify for investment tax credits (i.e., a reduction in income taxes payable), cash refunds, or both. Qualifying expenditures may include wages, materials, machinery, equipment, travel and training expenses, property taxes, utility expenses some overhead, and SR&ED contracts from the following activities:[2]

  • Experimental development
  • Applied research
  • Basic research
  • Support work

How is Eligibility Determined?

In order to claim such expenditures, an assessment on scientific or technological eligibility of the claimed activities needs to be performed, according to three criteria [3]:

  • Scientific or technological advancement: The search carried out in the experimental development activity must generate information that advances your understanding of the underlying technologies. In a business context, this means that when a new or improved material, device, product or process is created, it must embody a technological advancement in order to be eligible. In other words the work must attempt to increase the technology base or level from where it was at the beginning of the project.
  • Scientific or technological uncertainty: Technological obstacles / uncertainties are the technological problems or unknowns that cannot be overcome by applying the techniques, procedures and data that are generally accessible to competent professionals in the field.
  • Scientific and technical content: A systematic investigation entails going from identification and articulation of the scientific or technological obstacles/uncertainties, hypothesis formulation, through testing by experimentation or analysis, to the statement of logical conclusions. In a business context, this requires that the objectives of the scientific research or experimental development work must be clearly stated at an early stage in the evolution of the project, and the method of addressing the scientific or technological obstacle/uncertainty by experimentation or analysis must be clearly set out.

Who Legislates and Administers SR&ED?

The Department of Finance is responsible for the legislation that governs the SR&ED program, while the Canada Revenue Agency is responsible for its administration.

Source: Wikipedia

This article only begins to scratch the surface of the SR&ED program. There many nuances (including the CRA’s claim review process, the mechanics of creating an airtight claim, and more) that are covered in greater detail elsewhere on

Still unsure about the definition of SR&ED? Contact us for more information and assistance.

This article is presented only for informational purposes and does not constitute legal advice. You should retain legal counsel if you require legal advice regarding your individual situation.

Do you have further questions about SR&ED? Sign up for our Comprehensive Guide to SR&ED today.


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