SR&ED (research and development credit)

SR&ED (Scientific Research and Experimental Development) is the federal government’s largest tax program designed to support innovative businesses. When you’re trying to solve a technical problem with no known solution, the program reimburses you for a portion of your expenses, often by check, even if you don’t pay taxes.

At a glance

A tax credit (money the government gives you back) that can reimburse up to 35% of eligible expenses for a CCPC (Canadian-controlled private corporation, the legal structure of most local SMEs)
Base rate of 15% for other companies
Refers to efforts to overcome technical uncertainty, not just labs or high technology
Quebec is introducing its own refundable tax credit for the same types of projects
The claim is filed with the T2 return using Form T661, within a strict 18-month deadline following the end of the fiscal year: after this deadline, the credit is forfeited

Why it matters

Imagine a machine shop that spends months trying to figure out how to manufacture a part that no one knows how to produce: every failed attempt is part of the research, and a portion of the wages invested can be recouped in the form of a check. Many Quebec entrepreneurs mistakenly believe that SR&ED is reserved for high-tech businesses. In reality, developing a manufacturing process or solving a technical problem with no known solution can qualify, whether in a factory or a workshop. In numbers: for every $100,000 in eligible wages, a CCPC (Canadian-controlled private corporation, the same corporate structure as for the LCGE) can claim up to $35,000 in federal tax credits, in addition to Quebec’s refundable tax credit on the same wages. This is, in fact, a common reason to incorporate, often through a Section 85 rollover, to qualify for the 35% preferential rate. For an eligible SME, this credit can result in a refund even if no tax is owed, but it all depends on the documentation, which must be prepared during the project, not afterward (the application is submitted using the form T661 (attached to the T2 return). We’re here to help: Bankeo will connect you, for free, with a vetted accountant or Chartered Professional Accountant who is experienced with SR&ED.

Frequently asked questions

What exactly is SR&ED?

It’s money the government gives you back when your business tries to solve a technical problem for which no solution yet exists. You conduct tests, document what you learn, and a portion of the wages and materials you’ve invested is reimbursed to you, sometimes by check. Even if a project fails, you can still file a claim: it’s the effort that counts, not commercial success.

What types of work and expenses qualify?

Work conducted in Canada that seeks, through a structured approach, to resolve scientific or technological uncertainty. Eligible expenses primarily include the salaries of individuals assigned to this work, a portion of the materials used, and a portion of Canadian subcontracting (work outsourced to other local businesses). Quebec also offers its own refundable tax credit.

How can you claim it without getting rejected?

Keep detailed records as you go: hypotheses, tests, failures, and timesheets. The claim is filed along with the company’s tax return (Form T2) within a strict 18-month deadline following the end of your fiscal year. A solid application stands up to audits by the CRA (Canada Revenue Agency). We’re here to support you: Bankeo will connect you, for free, with a vetted accountant or CPA who specializes in SR&ED.