Defining the SR&ED Tax Incentive and What It Could Mean for Your Business

Canadian businesses are pushing the boundaries of science, technology, and innovation. Not only are they blazing new trails, but their work could also qualify them for major tax incentives. In 2025, the Canada Revenue Agency (CRA) granted $4.5 billion in tax credits to more than 21,000 applicants through the Scientific Research and Experimental Development (SR&ED) program.

Whether you own a fashion company that's developing a new sustainable fabric or a pharmaceutical business creating a new vaccine, the SR&ED incentives could help reduce your tax liability for the year. But before you file, it’s important to understand just how this unique tax credit works, which projects are eligible, and how to submit a compelling claim.

Read on to find out all you need to know about the SR&ED tax program and how it can benefit your business.

What are the SR&ED tax incentives?

The Scientific Research and Experimental Development (SR&ED) federal tax incentive program helps certain Canadian businesses reduce their tax liability. It was created to encourage innovation and technological advancements.

Businesses can apply to receive 2 types of incentives:

• Deduct SR&ED expenses from their business income.
• Earn an investment tax credit (ITC) on qualified SR&ED expenditures to reduce the taxes they owe or receive a cash refund.

 

Who is eligible for the SR&ED tax incentives?

Corporations, individuals, trusts, and partnerships that conduct SR&ED work in Canada may be eligible for this tax incentive program. According to the CRA, a business’s SR&ED work must meet both of these requirements:

• The work must be conducted for the advancement of scientific knowledge or for the purpose of achieving a technological advancement.
• The work must be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis.

More specifically, eligible types of work include:

• Basic and applied research conducted in a laboratory.
• Experiments to develop new products or processes.
• Other work done to directly support research and development, such as design, data collection, and computer programming.

Real estate investment trusts, in particular, can apply for the Clean Technology (CT) Investment Tax Credit (ITC) if they made eligible investments in clean technology property.

Meanwhile, work that is not eligible for the SR&ED tax credit includes:

• Market research
• Sales promotion
• Quality control
• Routine testing
• Prospecting for minerals or natural gas
• Commercial production of a new device or product
• Training
• Routine data collection

Not sure if your work is eligible for this tax incentive? Use the CRA’s SR&ED Self-Assessment and Learning Tool (SALT) to find out.

How much can you claim with SR&ED tax incentives?

The amount you can claim with the SR&ED tax program will depend on a few factors to do with 2 different incentives:

1. Deduct expenses from your business income

If you’re looking to claim a deduction, you’ll need to follow these steps:

• Calculate your allowable expenditures using Form T661, Part 3, Section B. These are some of the expenses you could accumulate to complete your eligible SR&ED work:
  • Salary or wages
  • Materials
  • Contracts
  • Overhead
  • Third-party payments
• Determine the pool of deductible expenditures to be claimed in the year — using Form T661, Part 3, Section C — which includes adjustments for reimbursement.
• Claim your expenditures or carry forward unused expenditures indefinitely to deduct against income in a different year.

2. Earn an investment tax credit (ITC)

The ITC is calculated based upon approval of SR&ED qualified expenditures, plus any necessary adjustments. For example, if you received other types of government assistance, you'd deduct those from your allowable expenditures.

Eligible businesses can receive an ITC at one of 2 rates:

• Basic rate of 15%. This rate is given to most corporations, sole proprietors, partners, and beneficiaries.
• Enhanced rate of 35%. Only Canadian-controlled private corporations (CCPCs) can earn the enhanced rate, covering up to $3 million of expenses. Any expenses beyond that limit earn an ITC at the basic rate of 15%. Some CCPCs can also receive all or part of their ITC as a cash refund. For example, a CCPC can receive a cash refund when their taxable income from the previous year was not more than their qualifying income limit for the current year.

Any unused investment tax credit can be carried back 3 years or forward 20 years.

How do you apply for the SR&ED tax incentives?

So, you think you might be eligible for the SR&ED tax incentive, but how do you actually submit the necessary information? Use Form T661 to report your relevant SR&ED expenditures with your individual or corporate tax return. To apply for the ITC, individuals use Form 2038 and corporations use Schedule 31.

SR&ED filing deadline

Form T661, Schedule 31, and Form 2038 are due 12 months after your income tax return filing due date.

Here’s a quick look at how this works, depending on your taxpayer status:

Taxpayer	Tax return filing due date	SR&ED filing deadline
Individual	June 15	17 ½ months after the end of the calendar year
Corporation	6 months after the end of your fiscal year	18 months after the end of your fiscal year
Trust	90 days after the end of the trust's tax year	15 months after the trust's tax year end

However, the CRA recommends submitting your SR&ED claim at the same time as your income tax return. This gives the CRA enough time to conduct an initial review and ask you to provide any missing information to substantiate your claim.

Submitting a compelling claim

Take these steps to support your claim and boost the chances of your incentive application being approved:

• Provide all relevant documentation. Retain and organize any SR&ED-related paperwork throughout the year. For example, you might hold onto project planning documents, laboratory notes, technical drawings, test results and analyzes, contracts, purchase invoices, and proof of payment for your SR&ED expenses.
• Involve employees and consultants. Ask for input from technical staff who had hands-on experience with your research or development project. Invite them to double-check your documents and ensure their accuracy.

Request a pre-claim consultation with the CRA. Receive guidance from SR&ED officers who can help determine if your projects are eligible for the incentive.

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Turn innovation into tax credits

Innovation has the power to not only move your industry forward and impact people's lives; it can actually earn you tax credits. The SR&ED tax incentive can offer businesses a valuable opportunity to reduce their tax burden and save money for future innovative projects.

Still, applying for this incentive — including the ITC tax credit — can be complex. You want to make sure you properly calculate your expenditures and submit a comprehensive claim to reduce your tax burden as much as possible. No matter your business type or industry, it's important to take advantage of every credit and deduction you can.

That's where TurboTax Business can help.

You run the business, we handle the taxes

Use TurboTax Business, a CRA-certified tax software, to file your taxes with ease and accuracy. You can get unlimited help and guidance during your return and a final review before you file — so you’re never on your own.

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