The SR&ED tax credit: a complete guide for 2026

This is an independent guide. ClearSRED is not affiliated with the Canada Revenue Agency. It explains the program; it is not tax advice for your situation.

SR&ED at a glance (October 2026)

The key numbers and rules, each linked to the official source.

What is the SR&ED program?

SR&ED is a federal tax incentive, run by the Canada Revenue Agency, that pays back part of what Canadian businesses spend on research and experimental development. The CRA says its purpose is to encourage businesses to do R&D in Canada.

It is large and widely used. In the CRA's 2025-26 fiscal year, businesses filed 24,160 claims and the CRA allowed $4.6 billion in investment tax credits, out of $4.9 billion claimed. Unlike a grant, there is no application window or competition: if your work and costs meet the rules, you are entitled to the credit.

The program gives two things. First, a deduction: eligible current SR&ED spending can be deducted in the year or pooled and carried forward. Second, and more valuable, an investment tax credit (ITC) that either reduces federal tax or, for qualifying companies, is paid out in cash. The credit is what people usually mean by "SR&ED tax credit," "SR&ED refund" or "R&D tax credit in Canada."

The rules changed significantly in 2026. Bill C-15 received Royal Assent on March 26, 2026, doubling the enhanced expenditure limit to $6 million, widening the phase-out, opening the enhanced rate to eligible Canadian public corporations and restoring capital expenditures. The details are in our guide to the 2026 SR&ED expenditure limit.

Who can claim SR&ED?

Any business that carries out eligible SR&ED in Canada can claim: corporations, individuals with a business, trusts and members of partnerships. What changes is the rate and how much comes back as cash.

• Canadian-controlled private corporations (CCPCs) get the enhanced 35% rate on up to $6 million of qualified expenditures, reduced as taxable capital (or, by election, revenue) rises from $15 million to $75 million. This is where most startups and growing tech companies sit.
• Eligible Canadian public corporations also get 35% on up to $6 million for tax years beginning after December 15, 2024, with a revenue-based phase-out.
• Other corporations, including foreign-controlled subsidiaries, earn the 15% rate as a non-refundable credit against tax.
• Individuals and trusts claim on Form T2038(IND) instead of Schedule 31.

You don't need to be profitable, have a lab or employ scientists. Many claimants are small software, hardware, manufacturing, food, agriculture and life sciences companies.

What work qualifies for SR&ED?

Work qualifies if it passes the CRA's two-part test: why you did it and how you did it. The CRA retired its old "five questions" checklist in 2021; the current guidance uses these two requirements.

1. Why: the work was done "for the advancement of scientific knowledge or for the purpose of achieving a technological advancement." You don't have to succeed. Learning that an approach doesn't work can count.
2. How: it was "a systematic investigation or search that is carried out in a field of science or technology" by experiment or analysis: defining a problem, advancing a hypothesis, planning and testing it, and drawing conclusions from the results.

In practice, the question is whether there was a technological uncertainty that a competent professional couldn't resolve with known methods, and whether your team worked through it methodically and kept records as it went. Support work such as programming, testing and data collection counts if it directly supports that investigation and is proportionate to it.

The law excludes some work outright, however difficult: market research, routine testing and quality control, social science research, style changes, routine data collection and commercial production. Training and buying in existing knowledge don't count either.

Read our full guide to SR&ED eligibility, test your projects with the SR&ED eligibility check, or, if you build software, see SR&ED for software development.

What costs can you claim?

You can claim the costs of doing eligible work in Canada. The main categories are:

• Salaries and wages of employees directly engaged in SR&ED, for the share of their time spent on it. For most claimants this is the largest item, so time allocations need to be based on records.
• Materials consumed or transformed in the work, such as prototype components or test batches.
• Contractors: SR&ED done on your behalf by arm's length contractors in Canada. Only 80% of these contract payments, and of third-party payments, counts for the credit.
• Overhead: most claimants use the proxy method, which replaces actual overhead with a prescribed proxy amount (PPA) of 55% of the salary base. The alternative, the traditional method, means tracking and claiming actual overhead directly related to SR&ED.
• Capital: equipment and other capital property acquired after December 15, 2024 is eligible again, after being excluded since 2014. The enhanced credit on capital is 40% refundable for CCPCs.

Government assistance, including provincial R&D credits and many grants, reduces your qualified expenditures. Our SR&ED calculator handles these adjustments for a quick estimate.

How much SR&ED credit do you get back?

A qualifying CCPC gets 35% of qualified current spending up to $6 million, fully refundable as cash, so up to $2.1 million a year. Spending above the limit earns 15%, of which 40% is refundable for qualifying CCPCs.

Source: CRA Investment Tax Credit Policy. "Qualifying CCPC" and the phase-out rules are explained in our expenditure limit guide.

As a simple illustration, a qualifying CCPC with $500,000 of qualified current spending and no provincial credit would earn a federal credit of $175,000, all refundable. In practice the figure is lower, because most provinces pay their own R&D credit first and that reduces the federal base. Ontario, Quebec, British Columbia, Alberta and others each have different rates and refund rules; see provincial SR&ED tax credits.

Non-refundable credits reduce federal tax and can be carried back 3 years or forward 20. Credits you claim also reduce your pool of deductible SR&ED expenditures the following year, which is why the credit is said to be taxable in effect. For your own estimate, use the SR&ED calculator.

How do you make an SR&ED claim?

You claim SR&ED with your tax return. A corporation files Form T661 and Schedule 31 with its T2, plus its provincial schedule, by the reporting deadline.

1. Identify your projects

   Group the year's work into projects, each built around a specific technological uncertainty, and check each against the two-part test.

2. Gather evidence

   Collect records made during the work: design notes, commit history, tickets, test results, meeting notes and time records.

3. Write the T661 project descriptions

   For each project, answer line 242 (the uncertainty, maximum 350 words), line 244 (the work done, maximum 700 words) and line 246 (the advancement, maximum 350 words).

4. Calculate expenditures and the credit

   Choose the proxy or traditional overhead method, total eligible costs in T661 Part 3, then calculate the credit and refundable amount on Schedule 31.

5. Sign and file

   Complete Part 9 (any paid preparer and how they bill), have an authorized officer certify the form, and file with your T2.

The deadline is strict. You have 12 months after your return's filing due date, which for a corporation is about 18 months after year-end. A company with a December 31, 2025 year-end must file its 2025 claim by June 30, 2027. The CRA says it cannot by law extend this. Check your own date with the SR&ED deadline calculator.

For a line-by-line walkthrough, read how to file an SR&ED claim and our guide to Form T661.

What is SR&ED pre-claim approval?

Pre-claim approval is an optional CRA process, open since April 1, 2026, that confirms a planned project's technical eligibility before you claim it. Businesses with gross income under $25 million apply on Form T1322.

It approves the work, not your costs, and an approval can cover up to three years. If every project in a refundable claim has approval and the claim is reviewed, the review is generally limited to expenditures and the service standard is 90 days instead of 180. It does not extend the filing deadline. See our pre-claim approval guide.

What happens after you file, and how long does the refund take?

The CRA risk-assesses every claim. Most are processed as filed: 90% in 2025-26. Others are selected for a technical review, a financial review or both.

For refundable claims, the CRA aims to process claims accepted as filed within 60 days, reviewed claims where every project has pre-claim approval within 90 days, and other reviewed claims within 180 days. The clock starts once the CRA has the complete claim and your tax return. First-time claimants may be selected for the CRA's mandatory First-Time Claimant Advisory Service, which is guidance rather than an audit.

In a review, a research and technology advisor talks to the people who did the work and looks at your evidence; a financial reviewer checks the costs. If the CRA proposes changes, you can respond in writing and later object to the reassessment. Read what to expect in an SR&ED review.

Should you get help with your SR&ED claim?

You can file SR&ED yourself, and some companies with a technical founder and a good accountant do. Most use a preparer, because the project descriptions are hard to write well and errors show up in reviews.

Preparers charge in different ways: a percentage of your refund, hourly rates, or a flat fee agreed up front. Whoever prepares it, your company reviews, signs and files the claim and is responsible for it, and any paid preparer must be disclosed in T661 Part 9. Compare options in choosing an SR&ED consultant and what SR&ED consultants cost.

ClearSRED prepares claims from your own engineering records. We use AI to draft from your repositories, tickets and documents plus a short interview, then an experienced SR&ED reviewer checks every claim. You pay a flat fee agreed up front, not a percentage of your refund, and CRA review support is included. See how it works.

SR&ED glossary

1. CRA: Scientific Research and Experimental Development tax incentives (modified 2026-10-14)
2. CRA: SR&ED program statistics (modified 2026-04-30)
3. CRA: What work is eligible (modified 2026-10-14)
4. CRA: Investment Tax Credit Policy
5. CRA: Guide T4088, Guide to Form T661
6. CRA: Prescribed Proxy Amount Policy
7. CRA: SR&ED news and updates
8. CRA: SR&ED Filing Requirements Policy
9. CRA: After you claim SR&ED
10. CRA: Apply for pre-claim approval
11. Parliament of Canada, LEGISinfo: Bill C-15