What qualifies for SR&ED?

Work done in Canada that meets the CRA's two requirements. The "why": it aimed at a scientific or technological advancement, because available knowledge couldn't resolve an uncertainty. The "how": it was a systematic investigation carried out by experiment or analysis. Support work such as programming, testing or data collection can qualify when it directly supports that investigation. Success is not required.

What expenses are eligible for SR&ED?

Salaries of employees directly engaged in SR&ED, materials consumed or transformed, 80% of arm's-length contracts for SR&ED done in Canada, 80% of eligible third-party payments, overhead (through the 55% proxy amount or actual directly attributable costs), and capital property acquired after December 15, 2024. Government assistance reduces the total, and some costs, such as claim preparation fees and interest, earn no credit.

Do CCPCs get a bigger SR&ED credit?

Yes. A Canadian-controlled private corporation can earn the enhanced 35% credit on up to $6 million of qualified expenditures for tax years beginning after December 15, 2024, and much of it is refundable as cash. Other corporations generally earn 15%. Since Bill C-15, eligible Canadian public corporations can also earn 35% within the limit. The limit shrinks as taxable capital rises above $15 million.

Can I claim payments to contractors for SR&ED?

Usually 80% of them. If an arm's-length contractor performs SR&ED in Canada on your behalf and for your business, 80% of the contract amount counts toward your investment tax credit. If the contractor is not at arm's length, you get no credit on the contract, although the performer may be able to transfer its qualified expenditures to you on Form T1146.

Does SR&ED cover work done outside Canada?

Generally no. The work must be carried on in Canada, and contracts and third-party payments only count for SR&ED performed in Canada. A narrow exception in the Income Tax Act (subsection 37(1.4)) allows some salary for work done outside Canada by Canadian-resident employees, subject to a limit. Check the details before relying on it.

SR&ED eligibility: what work and expenses qualify in 2026

Q: Can equipment be claimed for SR&ED in 2026?

Yes, again. Capital property acquired after December 15, 2024 can be a qualified expenditure if, when you acquire it, you intend to use it all or substantially all (generally 90% or more) for SR&ED in Canada. Most buildings are excluded, and used property earns no credit. For CCPCs, 40% of the credit on capital is refundable.

SR&ED eligibility has two halves. The work must be done in Canada, aim to resolve a scientific or technological uncertainty, and be a systematic investigation by experiment or analysis. The expenses that qualify include salaries, materials, 80% of arm's-length contracts, overhead and, again since December 2024, capital property.

Checking a specific project? Run it through our SR&ED eligibility check. It takes a few minutes and uses the same two-part test described below. This is an independent guide; ClearSRED is not affiliated with the Canada Revenue Agency, and nothing here is tax advice for your situation.

What is the SR&ED eligibility test?

The CRA asks two questions about the work: why was it done, and how was it done. Both must be answered yes. The legal definition is in subsection 248(1) of the Income Tax Act, and the CRA explains it in its Guidelines on the eligibility of work for SR&ED tax incentives.

Why: advancement and uncertainty. The work was done "for the advancement of scientific knowledge or for the purpose of achieving technological advancement." In practice, that means your team faced a technological uncertainty: it couldn't know, from available knowledge and standard practice, whether or how it could reach its goal.
How: systematic investigation. The work was a "systematic investigation or search" carried out "by means of experiment or analysis." You formed hypotheses, tested them, and drew conclusions, and ideally recorded each step as you went.

The guidelines say success or failure "is not relevant" to the why requirement. A project that proved an approach can't work can still qualify. What doesn't qualify is work that was difficult, slow or expensive but used known methods.

You may still see the "five questions" in older articles. They come from a 2015 CRA policy that was archived when the current guidelines were published in 2021. They're a useful checklist, as our guide to filing an SR&ED claim explains, but they're not the official test any more.

Does support work count for SR&ED?

Yes, if it directly supports the investigation. The Act lists engineering, design, operations research, mathematical analysis, computer programming, data collection, testing and psychological research. This work must be "commensurate with the needs" of the SR&ED and "directly in support" of it. It isn't SR&ED on its own: writing code to run an experiment counts; writing code for a product feature that needed no experimentation doesn't.

What work is excluded from SR&ED?

Subsection 248(1) of the Income Tax Act names seven kinds of work that are never SR&ED, even inside an eligible project:

market research or sales promotion
quality control or routine testing of materials, devices, products or processes
research in the social sciences or the humanities
prospecting, exploring, drilling or producing minerals, petroleum or natural gas
commercial production of a new or improved material, device or product, or commercial use of a new or improved process
style changes
routine data collection

Training staff and buying existing knowledge don't count either, because they apply knowledge that already exists.

Who can claim SR&ED?

Businesses that carry on SR&ED in Canada: corporations, individuals with a business, members of partnerships and, through trusts, their beneficiaries. Corporations claim on Form T661 and Schedule 31 with their T2 return; individuals use Form T2038(IND).

Who you are sets your credit rate. A Canadian-controlled private corporation (CCPC) can earn the enhanced 35% credit on up to $6 million of qualified expenditures, for tax years beginning after December 15, 2024, and much of it comes back as a cash refund. Since Bill C-15, eligible Canadian public corporations can also earn 35% within that limit. Other corporations generally earn 15%, which reduces tax payable. The limit phases out as taxable capital rises from $15 million to $75 million; see the 2026 SR&ED expenditure limit for the details and the SR&ED tax credit overview for how the credit works.

The work itself must be done in Canada. A narrow exception allows some salary for work done outside Canada by Canadian-resident employees (Income Tax Act s. 37(1.4)), subject to a limit.

SR&ED examples: what qualifies and what doesn't, by industry

The same test applies in every industry. These examples are fictional and simplified; whether real work qualifies depends on its facts and on the evidence you kept.

Industry	May qualify	Usually doesn't
Software	Designing a sync method that keeps offline edits consistent across devices within a latency target, after documented approaches failed under the team's constraints	Building a new dashboard with a known framework; routine bug fixes
Manufacturing	Trials to find a welding process for a dissimilar metal pair where published parameters caused cracking	Routine quality-control testing of production batches (excluded)
Hardware and electronics	Experiments to cut a sensor board's power draw below a target no known design met	Choosing off-the-shelf components from datasheets
Food and beverage	Reformulating a product so its texture survives a processing step that broke down known stabilizers	A new flavour or packaging look (style change); taste panels for marketing (market research)
Agtech	Testing imaging models to detect a crop disease earlier than existing methods could under field lighting	Routine field data collection; producing a proven product at scale
Life sciences	Developing a formulation to stabilize a compound where standard approaches failed	Routine batch release or stability testing

For code, AI/ML and SaaS work in more depth, read SR&ED for software development.

Which SR&ED expenses are eligible?

Qualified expenditures are the costs of doing eligible work in Canada, minus anything the rules exclude or reduce. Here is the summary, with the CRA policy for each row.

SR&ED eligible expenditures (as of October 2026)

Expenditure	Rule	Source
Salary or wages	Employees directly engaged in SR&ED, based on their tasks, not job title. Under the traditional method, if 90% or more of an employee's time is SR&ED, all of it can count.	CRA: Salary or Wages Policy
Specified employees (10%+ shareholders or non-arm's-length)	Salary capped at 5 times the year's maximum pensionable earnings (YMPE), shared among associated corporations; no bonuses or profit-based pay	CRA: Salary or Wages Policy
Materials	Consumed (used up or made virtually valueless) or transformed by SR&ED; eligible under both overhead methods	CRA: Materials Policy
Arm's-length contracts	80% counts for the credit, for SR&ED performed in Canada on your behalf	CRA: Contract Expenditures Policy
Non-arm's-length contracts	No credit for the payer; the performer may transfer qualified expenditures on Form T1146	CRA: Contract Expenditures Policy
Third-party payments	80% counts, for payments to eligible universities, colleges, research institutes and similar bodies for SR&ED in Canada related to your business	CRA: Third-Party Payments Policy
Overhead, proxy method	Prescribed proxy amount of 55% of the salary base	CRA: Prescribed Proxy Amount Policy
Overhead, traditional method	Actual costs directly attributable to SR&ED (directly related and incremental)	CRA: Overhead Policy
Capital property	Eligible again if acquired after December 15, 2024 and intended for all or substantially all SR&ED use in Canada	CRA: Capital Expenditures Policy
Unpaid amounts	Costs unpaid 180 days after year-end are not counted in that year; they count when paid	CRA: Total Qualified Expenditures Policy
Government and other assistance	Reduces qualified expenditures (provincial R&D credits included)	CRA: Total Qualified Expenditures Policy

To turn these numbers into an estimated credit, try the SR&ED calculator.

How do salaries and specified employees work?

Salaries are usually the largest part of a claim. You can claim the portion of each employee's pay that matches their time on SR&ED tasks, including support work, so time records matter. The CRA judges eligibility by what people did, not their titles.

Owners get extra rules. A specified employee owns 10% or more of the shares of the employer or a related corporation, or doesn't deal at arm's length with the employer. Their claimable salary is capped at 5 times the YMPE (prorated), associated corporations share that cap (Form T1174), and their bonuses and profit-based pay are excluded.

Bonuses for other employees can count when they relate to SR&ED work, but they're left out of the salary base used for the proxy amount. Salary unpaid 180 days after year-end is treated as incurred when it's actually paid.

How are materials, contractors and third-party payments treated?

Materials count when SR&ED consumes them or transforms them into something else. Lab tools, equipment and general utilities aren't materials. If a product containing transformed materials is later sold or put into commercial use, part of the credit may be recaptured.

Contractors doing SR&ED for you in Canada count at 80% if you deal at arm's length. You carry the burden of showing the contracted work was SR&ED, so ask contractors for the same kind of records your own team keeps. Contracts with related parties earn you no credit, though the performer may transfer its expenditures to you.

Third-party payments to eligible universities, colleges and research institutes also count at 80%, if the SR&ED relates to your business, is done in Canada, and you're entitled to use the results.

Not sure which costs belong in your claim?

We build your expenditure schedules from your payroll, contracts and engineering records, and an experienced SR&ED reviewer checks every line before you sign.

Overhead: proxy method or traditional method?

You choose one for each year. Most smaller claimants use the proxy method: instead of tracking overhead, you add a prescribed proxy amount of 55% of the salary base of employees directly engaged in SR&ED. The salary base excludes bonuses, profit-based pay and taxable benefits. For a specified employee, it's limited to the lesser of 75% of their salary and 2.5 times the YMPE.

The traditional method lets you claim actual overhead that is directly related to SR&ED and incremental, such as dedicated utilities or administrative support for SR&ED staff. It takes more tracking, and general administration, sales, marketing and fixed telephone or internet costs are excluded. Once your T661 is filed, the choice can't be changed for that year.

Can you claim capital expenditures for SR&ED again?

Yes. Capital spending was excluded from 2014 until Bill C-15 restored it. Depreciable property acquired after December 15, 2024 can qualify if, when you acquire it, you intend to use it all or substantially all (generally 90% or more) of its operating time for SR&ED in Canada, or to consume almost all of its value in SR&ED.

Buildings are excluded, apart from prescribed special-purpose buildings. Land and goodwill don't qualify, and used property earns no credit. Under the proxy method, general-purpose office equipment and furniture are excluded. For a CCPC, 40% of the credit on capital is refundable, and selling the property or converting it to commercial use can trigger recapture.

What SR&ED expenses don't count?

Even inside an eligible project, these reduce or fall out of your claim:

Unpaid amounts. Non-salary costs still unpaid 180 days after year-end are dropped from that year and counted when paid.
Government and other assistance. Grants, provincial R&D credits and similar support reduce qualified expenditures.
Prescribed expenditures. Some costs, including SR&ED claim preparation fees, conference costs and interest, earn no credit.
Non-arm's-length contracts, unless the performer transfers its expenditures to you.
Excluded work from the list above, and routine development that didn't involve a technological uncertainty.

Ready to claim? Our step-by-step filing guide covers the T661, Schedule 31 and the 18-month deadline. For planned projects, pre-claim approval lets eligible businesses confirm technical eligibility with the CRA before the work is done.