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Getting Ready to Claim SR&ED: A Complete Guide
Jan 30, 2026
Setting Up Your R&D Project for SR&ED Success: A Complete Guide
Most companies discover SR&ED after their project wraps up; then they scramble to reconstruct months of work from memory. The companies that secure the largest, cleanest refunds build SR&ED into their workflow from day one.
This guide walks you through everything you need to know before you write a line of code or cut a single part. But to start, lets go through what SR&ED can do for your business.
Program Summary
At a high level, SR&ED is a tax credit claimed by your corporation at the end of a tax year. In most cases, it is fully refundable, meaning you get the credit back as cash. If you have a qualifying scientific research or experimental development project, then a significant portion of the costs can be claimed back. The refund is composed of a federal part (35%), and a provincial part (% varies). Salary expenses get the most preferential rates back, followed by materials, and then subcontractors. Taking a BC based refund as an example, the refund on $200,000 of eligible developer salaries could be as high as $128,000 back in cash. If that seems too good to be true, keep reading. SR&ED claims are not always a walk in the park, but they can be worth your while if done right.
Start with the basics: Is Your Project Eligible? The Technical Criteria
SR&ED eligibility hinges on three requirements. Your project must involve a technological uncertainty that couldn't be resolved through standard practice or publicly available knowledge. The work must follow a systematic investigation: hypothesis, testing, analysis, and documented conclusions. And the goal must be technological advancement that generates new knowledge or capability.
Self-Assessment Questions
Before you commit resources, answer these questions honestly:
Is there genuine uncertainty? Could a competent professional in your field solve this problem using existing knowledge, published literature, or standard techniques? If yes, it likely doesn't qualify.
Are you experimenting? Are you testing hypotheses, iterating through approaches, and analyzing results? Routine engineering using established methods doesn't qualify.
What's the knowledge gap? Can you articulate what you don't know and why existing solutions won't work? The uncertainty must be technological, not business or economic. Sometimes it's not obvious - take some creative liberty here.
Is the outcome unpredictable? Would a qualified practitioner be uncertain about achieving the desired result? If the path forward is clear, it's likely standard practice.
Are you generating new knowledge? Will your work produce insights that advance understanding of the underlying technology? Commercial production of known solutions doesn't count.
What Work Qualifies (And What Doesn't)
Examples of eligible work:
Developing new manufacturing processes where existing methods can't achieve X
Creating prototypes to test whether novel material combinations meet performance specifications
Systematic experimentation to resolve adhesion, thermal, or structural failures
Process optimization trials where standard parameters don't work
Failed experiments and abandoned projects (success isn't required)
Examples of ineligible work:
Routine data collection after the uncertainty is resolved
Commercial production, even if it's your first production run
Market research, sales activities, or administrative overhead
Quality control for commercial purposes (testing for uncertainty resolution is different)
Applying known solutions to your specific situation
CRA Pre-Claim Consultation, a Double Edged Sword
The CRA offers a formal pre-claim consultation where you submit a project description and receive an official assessment of eligibility before filing. This can determine your claim's fate before you invest significant effort. The technical narrative must clearly articulate the uncertainty, the systematic approach, and the advancement sought. A poorly written proposal can result in a negative determination that undermines future claims. Getting this right matters unless you want to face increased audit risk.
What Costs Can I Claim? The Financial Criteria
SR&ED credits can be claimed only against specific cost categories. Understanding these upfront helps you track the right expenses from day one.
Pro tip: start a SR&ED folder or share drive, populate it with templates that you can fill out come year-end with easy to access amount, and file the underlying financial documents in a way you won't forget.
Canadian Salaries and Wages
Salaries paid to employees directly engaged in SR&ED work in Canada form the largest component of most claims. They are also eligible for the proxy amount boost which means, compared to other categories of costs, they are refunded at the highest rate, up to 70%+ sometimes. Eligible roles include engineers, scientists, developers, technicians, and supervisors directly involved in the R&D.
Figuring out how much of their salary can be claimed comes down to what they were doing on the project. Time tracking is the ideal evidence the CRA looks for, and adding tags to your system for the following can be a great way to figure out where the costs on a project are going.
Track time spent on eligible activities, which include:
Data collection for resolving uncertainty
Establishing technical requirements
Technical project management
Internal technical documentation
Core engineering and development
Technical and statistical analysis
Testing and review of results
Supervision and planning related to R&D
Prototyping
Administrative staff, HR, and sales employees don't qualify unless they perform direct technical functions on the project, under the supervision of qualified personnel.
What Financial Information Do I Need For Salaries?
Names and Job Titles
Salary Totals
Bonus Amounts
Province of Employment
Start/End Dates of Employment
Specified Employee Status
Exceptions: Specified Employees (shareholders of 10% or more)
Owners, shareholders holding 10% or more of any share class, and employees who don't deal at arm's length with the employer are "specified employees." Their salaries remain eligible for SR&ED, but two restrictions apply.
First, the max salary that can be claimed is capped at five times the Year's Maximum Pensionable Earnings (YMPE), prorated for days employed. The YMPE changes year to year, but is generally about $75,000 - so a max of $375,000 per specified employee. As an example, we do occasionally see founding engineers on a project leading teams that are also involved with the development of a SR&ED project.
Second, specified employees contribute only 75% of their eligible salary to the proxy pool when calculating overhead (more on this below).
CRITICAL: Dividends are not salary and cannot be claimed. If you're a founder doing technical work, pay yourself a salary to access the credit. The costs on the personal tax are outweighed by the benefit of the SR&ED refund.
Canadian Contractors
Payments to arm's length contractors for SR&ED work performed in Canada can be claimed at 80% of the contract value.
Contractor invoices need project-level detail and descriptions of the technical work performed. Hourly breakdowns strengthen your claim; lump-sum invoices are weaker and more vulnerable to audit reduction. Structure your contractor agreements to require detailed invoicing from the start, and ensure to document IP ownership. Retaining the IP is important to being able to claim the SR&ED credits against the invoices.
What Financial Information Do I Need For Contractors?
Name of the Company and Business Number
Province
Taxable Supplier Y/N
Contract $ Total and Invoice Copies
Activities Performed
Materials
Materials consumed or transformed during SR&ED work qualify. This includes components used in prototypes, raw materials for testing, and supplies destroyed during experimentation.
Key distinction: materials must be consumed during R&D, not commercial production. If a prototype is later sold or converted to commercial use, only the non-recoverable portion qualifies.
What Financial Information Do I Need For Materials?
Material Invoices
Document how much was consumed for the SR&ED project
Note if it was transformed into a prototype or consumed through testing
Overhead and the Proxy Method
You have two options for claiming overhead costs: the traditional method and the proxy method. If your project costs are salary dominant, your choice is likely going to be proxy.
The traditional method requires you to track actual overhead expenses (rent, utilities, equipment, insurance) and allocate a portion to SR&ED based on detailed records. This demands meticulous accounting and is audit-intensive (higher audit risk, and claim can become prone to reduction by CRA reviewers).
The proxy method offers a simpler alternative. Instead of tracking actual overhead, you claim an additional 55% of eligible salary and wages as overhead. No receipts, no allocation calculations, no separate tracking required, just a juicy boost to your claim size.
However, specified employees (owners, related parties, 10%+ shareholders) contribute only 75% of their salary to the proxy pool calculation.
Example: If your founder earns $100,000 in eligible SR&ED salary, only $75,000 enters the proxy calculation, yielding $41,250 in overhead (55% of $75,000) rather than $55,000.
Most small to mid-sized companies use the proxy method for its simplicity and reduced audit exposure.
Corporation Eligibility and Credit Rates
Your corporate status determines the credit rate and whether the credit is refundable.
Canadian Private and Public Corporations
CCPCs and CPCs receive the most favorable treatment:
35% enhanced rate on the first $3 million of qualified expenditures (increasing to $4 million for tax years beginning after 2025; $6 million by 2027)
This credit is fully refundable (you receive cash even if you owe no tax)
15% basic rate applies to expenditures above the limit
To qualify for enhanced rates, your prior-year taxable income must be below the business limit, and taxable capital must be below phase-out thresholds (now $15-75 million range after recent Budget changes).
Other Corporations
Non-CCPCs such as foreign-controlled corporations receive a 15% non-refundable credit. The credit offsets taxes payable but doesn't generate cash refunds.
Provincial Credits
Most provinces offer additional R&D credits on top of federal SR&ED. Rates vary:
British Columbia: 10% refundable
Ontario: 3.5% refundable (8% for qualifying CCPCs)
Alberta: 20% in the first year, down to 8% for subsequent years + 20% enhanced rate on YoY increased costs
Quebec: Up to 30% refundable
Estimate Your Claim
Use our calculator to estimate your potential federal and provincial credits based on your expenditures and corporate status:
Time Tracking: The Foundation of a Defensible Claim
The CRA expects contemporaneous evidence and a reasonable method for determining time spent on SR&ED activities. Retroactive estimates assembled at year-end raise audit risk and frequently result in claim reductions.
The Gold Standard
A full time tracking system documents, for each individual:
Which project they worked on
What category of activity they performed (see the eligible activities list above)
The amount of time spent on SR&ED eligible work
Time spent on non-SR&ED activities
Brief notes about what was worked on: tests performed, results observed, development summaries
This creates a clear, defensible record that can produce precise SR&ED percentages per employee per project.
The Practical Alternative
If detailed time tracking isn't feasible, percentage-based estimations work as the next-best option. Record estimated percentages of time spent on eligible activities versus routine or non-SR&ED work.
Key requirements:
Record at minimum bi-weekly (weekly is better)
Have a technical lead or manager sign off on allocations, even informally via email
Generate this evidence throughout the year, not as a retrospective annual estimate
The critical factor: evidence must be created contemporaneously, as the work happens.
Recommended Tools
We find that Solidtime.IO works for most clients. It's open source, low cost (free if self-hosted), low friction, customizable, and integrates the reporting necessary to back up your SR&ED claim.
Digital Artifacts as Supplements
Commit logs, Jira tickets, Linear issues, sprint data, PR descriptions, and Slack threads can supplement time tracking. The CRA accepts "reasonable methods," and these digital artifacts often satisfy that standard when aggregated.
However, they're more prone to claim size reduction in audits compared to dedicated time tracking. Use them as supporting evidence, not the primary record.
Documentation Best Practices
Beyond time tracking, you need documentation that demonstrates the systematic nature of your investigation.
What to Capture
Technical uncertainty: Document the problem you couldn't solve using standard knowledge before you start solving it
Hypothesis: Record your proposed approach and why you believe it might work
Testing and iteration: Keep records of experiments, parameters tested, and results observed
Conclusions: Document what you learned, including from failures
Practical Formats
You don't need lab notebooks or formal reports. Acceptable evidence includes:
Timestamped photos of prototypes, test rigs, failed parts, whiteboards
Test data, simulation outputs, measurement logs
Emails and Slack threads discussing technical problems
Meeting notes (even informal)
Purchase orders for materials consumed in testing
Git commit messages and PR descriptions with technical context
Sprint retrospectives documenting technical challenges
The key: capture evidence as work happens. A photo of your whiteboard taken during a problem-solving session is worth more than a polished retrospective summary. Putting it into your SR&ED folder, even with a flat folder structure is better than nothing. Heck, even setting up an unmanaged email inbox that you forward relevant information to, just to store evidence of progress works!
The 5-Minute Weekly Habit
At minimum, maintain a simple weekly log answering:
What did we attempt this week?
What technical challenge were we addressing?
What was the result?
What's the next step?
This takes five minutes and creates the contemporaneous record that protects your claim. When 64% of your project costs hang in the balance, the ROI on that time can lead to outsized gains.
Setting Up Your Accounting
Configure your financial systems to support SR&ED from the start. This means…
Project Codes
Create separate project codes for R&D work in your accounting system. This makes it straightforward to isolate SR&ED-related expenses at claim time.
Material Tracking
Track material costs tied to experimentation separately from production materials. When you purchase components for prototyping, code them to the R&D project.
Contractor Invoices
Flag contractor invoices for SR&ED-related work as they arrive. Better yet, structure your contractor agreements to require the level of detail you'll need: project identification, hours worked, and descriptions of technical activities performed. Store the invoices for easy access later on (maybe in your planned SR&ED folder?)
How SR&ED Consultants Can Help.
The earlier you involve SR&ED expertise, the stronger your claim.
Before you start: A brief eligibility call can confirm your project likely qualifies and identify documentation requirements specific to your industry.
Mid-project: Check-ins catch scope creep, identify overlooked eligible activities, and address documentation gaps while there's still time to fix them.
At year-end: This is when most companies engage consultants, but it's also when documentation gaps become unfixable. You'll claim what you can prove, not what you did.
We offer free eligibility assessments. If you're starting a new R&D project, a 15-minute call can ensure you're set up for the largest possible claim before you spend a dollar.
TL;DR
figure out if your tech qualifies (is there a technological uncertain that cant be resolved using standard publicly available techniques? If Yes….
will you have qualifying costs (like Canadian salaries, Canadian subcontractors, materials)? If Yes…
are you a Canadian based corporation? If Yes…
set up your SR&ED file folder structure (we like a Fiscal Year folder, with Financial and per-project Technical document subfolders. Then….
set up your time tracking system (like Solidtime.IO) with SR&ED activity tags (like engineering, data collection etc) and USE IT! Else,
devise a practical way to collect reasonable evidence of time and work spent on your project. Then at the companies year end…
prepare your annual SR&ED claim. The CRA offers T4088 which is a step by step guide to preparing the tax schedules that your claim consists of
if you don't want to prepare the claim yourself, book a call with us.
Summary
SR&ED rewards systematic investigation into technological uncertainty. The companies that maximize their claims treat SR&ED as a natural extension of their R&D process, not a retroactive paperwork exercise.
Set up time tracking before your project begins. Document your uncertainty and hypothesis upfront. Capture evidence as work happens. Structure your accounting to isolate R&D costs. And engage expertise early enough to course-correct.
The difference between a strong claim and a weak one often comes down to preparation, not the sophistication of the underlying R&D.
Ready to set up your project for SR&ED success?