What is SR&ED?
What is SR&ED? A Simple Guide to Canada’s R&D Tax Incentive Program
If your company is investing in research and development in Canada, there’s a good chance you’ve heard of SR&ED. Short for Scientific Research and Experimental Development, SR&ED is the federal government’s largest tax incentive program designed to encourage Canadian businesses to innovate, build new technologies, and solve technical challenges.
But what does that actually mean in practice, and who can benefit?
Let’s break it down.
The Basics of SR&ED
At its core, SR&ED provides tax credits and refunds to companies performing eligible R&D work in Canada. These incentives help offset the cost of experimentation, engineering, and product development. SR&ED makes innovation more financially accessible.
Companies can recover a significant portion of:
Employee wages tied to R&D
Contractor and subcontractor costs
Materials consumed or transformed in testing
Certain overhead expenses related to development work
For many early-stage and growing companies, SR&ED refunds become a critical source of non-dilutive funding, helping extend runway without giving up equity.
Who Qualifies?
SR&ED is available to:
Canadian-controlled private corporations (CCPCs)
Public companies
Foreign-owned corporations operating in Canada
Sole proprietors performing eligible R&D
While eligibility is broad, the type of work performed matters more than the industry. SR&ED is not limited to traditional lab research, and many software, manufacturing, engineering, and even agriculture companies qualify.
What Counts as Eligible R&D?
To qualify, work generally needs to involve:
A technological uncertainty
You’re trying to solve a problem where the solution isn’t already known or easily achievable.
Systematic investigation or experimentation
You follow a structured process: testing, iterating, analyzing results along the way.
Technological advancement
The work generates new knowledge or improves existing technology, even if the final product fails.
Importantly, commercial success isn’t required. Failed experiments can still qualify if real technical learning occurred.
How Much Funding Can You Receive?
The value of an SR&ED claim depends on company size and structure, but in general:
CCPCs can access refundable tax credits of up to 35% on eligible expenditures (within annual limits).
Larger or non-CCPC companies typically receive non-refundable credits around 15%. (although the new budget has voted through the return of refundable credits and e
Proposed federal budget changes would significantly expand access to refundable credits:
Eligible public and larger non-CCPC corporations may gain access to the 35% refundable rate on a defined amount of annual SR&ED expenditures.
Expenditure limits and taxable capital phase-outs are also expected to increase, allowing more mid-sized and scaling companies to benefit from enhanced credits.
It’s important to note that these measures are not yet law and remain subject to legislative approval and implementation details. However, the direction is clear: broadening refundable SR&ED support beyond traditional CCPC boundaries to strengthen Canada’s overall R&D investment landscape.
Because refundable credits result in cash back, SR&ED can function similarly to a government grant for qualifying businesses.
Why SR&ED Matters
SR&ED plays a major role in Canada’s innovation ecosystem by:
Reducing the financial risk of R&D
Encouraging companies to hire technical talent
Supporting commercialization of new technologies
Keeping high-value innovation work inside Canada
For many companies, SR&ED becomes a core part of annual financial planning, not just a one-time opportunity.
Final Thoughts
SR&ED is one of the most powerful funding tools available to Canadian innovators, but navigating eligibility, documentation, and claim preparation can be complex.
Understanding the fundamentals is the first step. From there, clear technical narratives, accurate financial tracking, and proactive planning make the difference between a basic claim and a fully optimized one.
TL;DR (Summary)
SR&ED is Canada’s largest R&D tax incentive program.
It provides cash refunds or tax credits for eligible research and development work.
Available across many industries
Strong documentation and strategy are key to maximizing results.
At Spritz, our mission is simple: helping companies unlock non-dilutive funding so they can innovate faster, scale smarter, and focus on building what’s next.
Reach out, we’d be happy to chat
-Mark