Highlights of the CRA SR&ED Program Policies Updates – January 28, 2025

Early this year, on January 28, 2025, the Canada Revenue Agency (CRA) announced some updates to SR&ED policies, including the SR&ED Salary or Wages Policy, the SR&ED Filing Requirements Policy, and the Gross Negligence Penalty on Overstated SR&ED Claims Policy (formerly Application Policy SR&ED 96-05). These updates account for income tax changes since their last publication dates, and add clarity and consistency in language and formatting. 

Updates to the SR&ED Salary or Wages Policy

The SR&ED Salary or Wages Policy revision overview states:

“The information regarding the proration of salary or wages expenditures for SR&ED work carried on outside of Canada incurred before February 25, 2008 was removed, because the distinction is no longer needed. The corresponding formula for calculating the proration was also removed.

Other changes relate to revised wording for consistency with other Canada Revenue Agency (CRA) documents.

The text of this document has been revised to reflect these changes, see Appendix B.1 Explanation of changes.“¹

The changes detailed within Appendix B.1 Explanation of changes are as follows:

• “Section 2.0 was updated to include “for SR&ED purposes” in the heading that applies to the list of amounts not included in salary or wages. The paragraph was restructured to include bullets.
• Section 2.2 was reworded for plain language purposes.
• Section 2.2.1 was updated to include the term “non-cash” taxable benefit.
• Section 2.3 was reworded for clarity. It was also updated to include the sentence: “Salary or wages could relate to gross wages reported on a T4 slip for the calendar year if the tax year ends at the calendar year-end,” which was previously in section 3.0. This information was added to the note “Only bonuses and remuneration based on profits that can be included as SR&ED salary or wages expenditures are discussed in this policy document.”
• Section 3.2 was reworded to include the phrase: “that can be claimed,” for clarity.
• Section 4.0 the term non-specified employees was changed to “other than specified employees” for consistency.
• Section 4.2 was reworded to move the phrase: “and not a bonus or remuneration based on profits” within the sentence, for clarity.
• Section 5.1 was updated to replace the Worker’s Compensation Board (WCB) with the Workplace Safety and Insurance Board (WSIB) and the Commission de la santé et de la sécurité du travail du Québec (CSST) with the Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST).
• Section 5.2.1 was reworded to remove “a non-specified employee” from the example, because it was not relevant.
• Section 5.3.1 was updated to remove the reference to the proposed legislation because it was enacted.
• Section 6.1.2 was reworded to match the wording from Form T1174, Agreement Between Associated Corporations to Allocate Salary or Wages of Specified Employees for Scientific Research and Experimental Development (SR&ED).
• Sections 7.1, 7.2, 8.2, 8.4, and 10.2.3 were updated to match the title of the “T4088 Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661.”
• Section 7.3.2 now includes a reference to see “Enforceable bonus” in section 4.2.
• Section 10 was updated to remove the reference to “after February 25, 2008” as this distinction is no longer relevant.
• Section 10.1 was updated to remove the criteria and formula for calculating the proration of the salary or wages for SR&ED work carried on outside of Canada incurred after February 25, 2008, as this distinction is no longer needed. It was also updated to include “SR&ED” work, to be consistent with the other points in the list of criteria.
• Section 10.1.1 was updated to bring forward the tax years in the example to 2023 and Company A was renamed to K Limited. Further, “other than specified employees” was removed from the example, as it was not relevant. As well, employee 1 was removed, because the proration was no longer applicable, since the tax year was updated to 2023. Lastly, the amount of time carrying on SR&ED work outside of Canada for employee 2 was updated to 5 months, so the ASA rule would no longer apply.
• Section 10.2.2 was updated to include the new Income Tax Folio S5-F2-C1 Foreign Tax Credit which replaced the Interpretation Bulletin IT-270R3.
• Section 11.0 was reworded and restructured for clarity.
• Section 12.1 was updated to remove the following phrase “which is available on the CRA’s web site” since it is not necessary.
• Section 12.2 was reworded to match the wording from Guide T4001, Employer’s Guide – Payroll Deductions and Remittances.
• Section 12.3 was reworded for clarity. The words “corporation/company(ies)” were replaced with “party(ies).”
• Section 13.5.2 was updated to add the word “work” for clarity.
• Other minor formatting and editing corrections were made throughout the document.“²

Highlights of the CRAs changes to the SR&ED Salary or Wages Policy

The CRA has updated the SR&ED Salary or Wages Policy to reflect a more contemporary perspective by removing outdated references and irrelevant examples. This change helps to modernize the policy, ensuring it aligns with current practices and provides clearer, more relevant guidance for claimants. They have also made changes to standardize the policy terminology – for instance, replacing “non-specified employees” with “other than specified employees”—to ensure alignment across sections.

Including the statement, “Salary or wages could relate to gross wages reported on a T4 slip for the calendar year if the tax year ends at the calendar year-end,” in Section 2.3 – Amounts included in SR&ED salary or wages, will hopefully help claimants more easily identify the relevant information needed to support their SR&ED claims.

The CRA replaced “corporation/company(ies)” with “party(ies)” which assists to make the policy more accurate, inclusive, and consistent. “Party(ies)” is a broader term that covers all types of entities—not just corporations or companies—including sole proprietors, partnerships, and trusts. It’s also commonly used in legal and tax documents, helping ensure the policy language is clear, consistent, and applies to everyone involved in SR&ED arrangements.

Updates to the SR&ED Filing Requirements Policy

The SR&ED Filing Requirements Policy revision overview states:

“All references to COVID-19 pandemic have been removed from this version of the policy document.

Clarification is provided such that the use of the pool of deductible SR&ED expenditures and claim preparer information is not subject to the SR&ED reporting deadline.

The text of this policy has been revised to reflect these changes, see Appendix B.1 Explanation of changes for more information.“³

Additionally, the changes detailed within Appendix B.1 Explanation of changes are as follows:

• All references to COVID-19 pandemic including previous, Appendix A – COVID-19 Extension of filing due date and SR&ED reporting deadline, have been removed from this version of the policy document. Accordingly, Appendix A is now References and Appendix B is now Revisions.
• Section 4.1, clarification has been provided that the use of the pool of deductible SR&ED expenditures is not subject to the SR&ED reporting deadline if the SR&ED expenditures comprising the pool were identified on time on Form T661. Also, Part 9 claim preparer information is not subject to the SR&ED reporting deadline but if this information is not supplied, a penalty may be assessed. A similar statement has been added in section 8.0, question 1. At the end of section 4.1, the appropriate Legislative References: Income Tax Act have been added.
• Section 4.2, clarification has been provided that corporations should identify the amount of ITC deducted from Part I tax, carried back to previous years, and when applicable the refund of credit claimed, in Part 12 of T2SCH31. At the end of this section the appropriate Legislative References: Income Tax Act have been added.
• Section 5.0, the title has been revised to “Filing due date for a tax return vs SR&ED reporting deadline” to better reflect the topic discussed. The section has been reformatted to include 3 subsections, but much of the content is the same. The previous version’s section 6.1 information has been moved to new section 5.2 “SR&ED reporting deadline” or new section 5.3 “Taxpayers and deadlines.”
• Section 6.0, content under former section 6.1 was moved to sections 5.2 and 5.3. With the removal of section 6.1, former sections 6.2, 6.3, 6.4, and 6.5 were renumbered 6.1, 6.2, 6.3, and 6.4. The examples in these sections have been updated with more recent tax year ends, consequently revising the income tax return filing due dates and SR&ED reporting deadline dates.
• Other minor formatting and editing corrections were made throughout the document.⁴

Highlights of the CRAs changes to the SR&ED Filing Requirements Policy

As of the January 28, 2025 revision, all references to the COVID-19 pandemic were removed from the SR&ED Filing Requirements Policy, including Appendix A, which had outlined temporary deadline extensions. The appendices were renumbered accordingly, reflecting the return to standard filing procedures.

Section 4.1 was updated to clarify that the use of the pool of deductible SR&ED expenditures is not subject to the SR&ED reporting deadline, provided the expenditures were identified on time using Form T661. It also confirms that while Part 9 (claim preparer information) is not subject to the deadline, penalties may apply if the information is missing. A similar note was added to Section 8.0, question 1. These updates help claimants understand which components are deadline-sensitive.

In Section 4.2, corporations are now advised to report Investment Tax Credits (ITCs) deducted, carried back, or refunded in Part 12 of T2 Schedule 31, with supporting legislative references added. This change offers clearer guidance on proper ITC reporting for SR&ED claims.

Updates to the Gross Negligence Penalty on Overstated SR&ED Claims Policy

The Gross Negligence Penalty on Overstated SR&ED Claims Policy revision overview states:

“The policy reflects a 1998 legislative amendment revising the preamble of subsection 163(2) of the Income Tax Act (Act), effective after June 20, 1996. The amendment clarified that the CRA can apply gross negligence penalties to taxpayers filing amended income tax returns.

As well, the policy clarifies how the gross negligence penalty applies on a scientific research and experimental development (SR&ED) claim when the taxpayer claims the refund of an overstated refundable investment tax credit (ITC).

For the purpose of this policy, a claimant is a taxpayer who files an SR&ED claim.”⁵

Highlights of the Gross Negligence Penalty on Overstated SR&ED Claims Policy

The CRA has updated the Gross Negligence Penalty on Overstated SR&ED Claims Policy incorporates a 1998 legislative amendment to the Income Tax Act, specifically revising the preamble of subsection 163(2). This amendment clarified that the CRA can apply gross negligence penalties to taxpayers filing amended income tax returns. Additionally, the policy now explicitly addresses how the gross negligence penalty applies in cases where a taxpayer claims a refund for an overstated refundable investment tax credit (ITC) in an SR&ED claim. These changes aim to provide clearer guidance on the application of penalties in these specific circumstances. Please see our article “Gross Negligence Penalties: A Step Backward for SR&ED Claimants?” for details on how the gross negligence penalty applies in cases where a taxpayer claims a refund for an overstated refundable SR&ED ITC.

The changes to the above policies account for income tax changes since their last publication dates, and add clarity and consistency. The CRA has removed information that no longer applies such as All references to COVID-19 pandemic and information regarding the proration of salary or wages expenditures for SR&ED work carried on outside of Canada incurred before February 25, 2008.

While we know it can be confusing at times to determine exactly which expenditures are allowable under SR&ED and which are not, the adjusted wording within the SR&ED Salary or Wages Policy specifically will be helpful to determine the eligibility of expenses. We hope that these changes will enhance the taxpayer’s understanding of the individual policies and the program as a whole.

Other articles of interest may be: Treatment of Pay In Lieu of Notice (Termination Pay) for SR&ED, Filing Late – Will it Impact SR&ED?, and Gross Negligence Penalties: A Step Backward for SR&ED Claimants? We will continue to keep our readers updated on any additional changes or updates to the SR&ED Policies mentioned in this article, other SR&ED policies, and reporting deadlines. To keep up to date on all SR&ED program changes please keep an eye on the What’s new – SR&ED Program CRA page.

Connect With Us! 

Share your thoughts by commenting below or joining the conversation on our LinkedIn page, Facebook page, or via Twitter.