Could you receive a return on the R&D you already fund?
Most businesses that fund research and development in Canada are entitled to recover part of their investment, but many never do.
The Scientific Research and Experimental Development (SR&ED) incentive is the largest single source of federal support for business R&D in the country, and yet a significant share of eligible work goes unclaimed.
For any organization already investing in R&D, including the digital and AI transformation now reshaping how enterprises operate, SR&ED can turn necessary spend into a measurable, documented return.
Delivered through the tax system
SR&ED is delivered through the tax system, rather than as a grant. You claim it on an income tax return rather than applying for funding in advance.
It works two ways. Eligible R&D costs are deducted against income, and an investment tax credit (ITC) reduces the tax you owe.
The basic ITC rate is 15%, but some Canadian-controlled private corporations qualify for an enhanced 35% rate. For many of them, the credit is refundable, meaning cash returned even in a year with no tax owing.
Decades of consistent purpose
Canada has used the tax system to support R&D since the 1940s, and the program in its current form has run for nearly four decades.
Its purpose has held steady across successive budgets: to encourage businesses of every size and sector to undertake research and development in Canada. Each year the program delivers more than $4 billion in credits to over 19,000 claimants.
Corporations, individuals, trusts, and partnerships
Corporations, individuals, trusts, and partnerships carrying out eligible work in Canada can claim, regardless of sector.
The Canada Revenue Agency (CRA) recognizes three categories: basic research, applied research, and experimental development.
The last of these is where much modern software, digital, and AI work sits, where a team is resolving technological uncertainty through systematic investigation, rather than applying methods already known.
In practice, qualifying work attempts to resolve a scientific or technological uncertainty: developing new products, improving processes, or creating new materials or devices.
Eligible costs and firm deadlines
Eligible work must be tied to specific, claimable costs, such as salaries, materials, and some contractor fees, with these being reported on Form T661 and filed with your income tax return for the year.
The deadline is firm: claims are due within 18 months of the end of the tax year in which the work took place.
Other funding may also affect the claim, and support such as NRC IRAP or a provincial R&D credit reduces the amount you can claim. All funding received must be reported.
File with your corporate tax return
File the claim with your corporate tax return. Before a project begins, you can also request optional pre-claim approval: the CRA reviews the plan and confirms whether the work meets the SR&ED definition.
A single request can cover up to three projects, with each approval holding for up to three years. Claims built only from pre-approved projects may receive a faster 90-day review, and the CRA runs an outreach program for businesses working through their eligibility.
You can find out more information through the sources below, or get in touch to schedule a consultation about your own AI transformation.
Please note that this article is purely for information purposes, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.
Decide before your timeline decides for you.
If you are investing in AI or digital transformation, there may be eligible R&D activity already underway. We can help you assess whether SR&ED fits into your broader transformation plan.