Shayan is one of the founding members of SRJ Chartered Accountants and has been preparing SR&ED claims for Canadian corporations for more than 15 years. The misconceptions in this article come straight from initial conversations with prospective clients, companies that almost didn’t file because of something they’d been told or assumed about the program.

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Key Takeaways

You don’t need a dedicated R&D lab or research staff; most SR&ED work happens in regular operating environments using existing employees on a pro-rated basis.
Pre-revenue and pre-profit CCPCs get the most value from SR&ED; not the least, the enhanced credit is refundable, meaning cash back even with no tax payable.
The filing deadline is 18 months from your fiscal year end, not negotiable, with no extensions.
“Engineering work” can absolutely qualify; the test is technological uncertainty and systematic investigation, not the job title of the people doing the work.
You don’t need to have written down a formal hypothesis at the start; the hypothesis can be reconstructed from the actual work, as long as the work itself was systematic.
Failed experiments count, foreign-controlled companies can claim, and software development frequently qualifies. Many of the “we don’t qualify” assumptions are wrong.

The Scientific Research and Experimental Development (SR&ED) tax credit is Canada’s largest federal R&D incentive, and one of the most consistently underclaimed, because companies talk themselves out of filing based on assumptions that aren’t true. We hear most of these in initial calls with prospective clients: “We don’t have a lab,” “We didn’t make any profit,” “We’re an engineering shop, not a research one.” Some of these assumptions cost six-figure refunds.

Below are the seven most common SR&ED misconceptions we see, and what the actual rules say in 2026, including what changed under Bill C-15, which received royal assent on March 26, 2026, and significantly expanded the program.

A note on 2026 numbers: Bill C-15 doubled the SR&ED enhanced expenditure limit from $3 million to $6 million per year, raised the phase-out thresholds from $10M–$50M to $15M–$75M of taxable capital, brought capital expenditures back into the eligible base for property acquired after December 15, 2024, and extended the enhanced refundable rate to certain Canadian public corporations. The changes apply to tax years starting on or after December 16, 2024. Where this article references current rates and limits, they reflect the post-Bill C-15 framework.

Misconception 1: “We don’t have an R&D lab or dedicated research staff”

The most common reason companies don’t file. They assume SR&ED means white coats, separate facilities, and full-time research teams. It doesn’t.

SR&ED happens wherever real R&D happens. A manufacturer experimenting with new production processes on the regular shop floor. A software team building a new architecture for handling real-time data. A craft brewery trying out fermentation chemistry in the existing brewhouse. The CRA’s test is whether the work involved technological uncertainty and systematic investigation, not whether the work happened in a building labelled “R&D.”

What you do need is documentation of who spent how much time on which qualifying activities. Most SR&ED claims for smaller companies are built on pro-rated employee time; engineers, developers, technicians who spend 30%, 50%, or 80% of their time on eligible work and the rest on routine operations. The claim captures the qualifying portion, not the full salary.

If your engineers, developers, or technical staff are solving problems that aren’t already solved in public knowledge, you almost certainly have an SR&ED claim. Whether the claim is worth filing depends on the size of the work, but the absence of a dedicated lab is rarely the reason it’s not.

Misconception 2: “We had no profit, so SR&ED isn’t worth claiming”

This one usually costs the most. Pre-revenue and pre-profit Canadian-controlled private corporations are actually the biggest beneficiaries of SR&ED, not the smallest.

Here’s why. For qualifying CCPCs, the enhanced 35% credit on the first $6 million of eligible expenditures (the new Bill C-15 limit, up from $3 million) is refundable. That means even if the company owes zero tax, common for early-stage startups burning capital on engineering, the CRA pays the credit out in cash.

A qualifying CCPC spending $2 million on engineering R&D can receive roughly $700,000 in federal refundable credit, with Ontario layering adding another 8% (OITC) on top for qualifying corporations. The cash arrives a few months after filing.

Under Bill C-15, this is no longer CCPC-only. Certain Eligible Canadian Public Corporations (ECPCs), Canadian public corporations not controlled by non-residents, can now access the enhanced refundable rate, too, with the $6M limit set by a gross-revenue phase-out.

For corporations that don’t qualify for the refundable rate (large CCPCs above the phase-out, foreign-controlled corporations, and most public companies), the basic 15% credit is non-refundable but carries forward for up to 20 years. It still has real value as a future tax-payable reduction once the company becomes profitable.

No profit isn’t a reason to skip SR&ED. For pre-revenue companies, it’s usually the largest source of non-dilutive cash available.

Misconception 3: “We missed the deadline, maybe we can still file”

This is the misconception we have the worst news about. The SR&ED filing deadline is 18 months from your corporation’s fiscal year end, and the CRA treats it as a hard wall. Miss it, and the claim is permanently lost, no late filings, no extensions, no exceptions in any case we’ve ever seen.

For December 31, 2024, fiscal year-end, the deadline is June 30, 2026. For March 31, 2025, fiscal year end, it’s September 30, 2026.

The taxpayer relief provisions in the Income Tax Act technically allow a Minister of National Revenue extension in cases of extraordinary circumstances (natural disaster, serious illness, CRA error). In our 15 years of practice, we have not seen one granted for missing an SR&ED deadline. The discretion exists on paper. It does not function as a backup plan.

If you’re approaching the deadline and the claim isn’t ready, file what you have. A partial, less-than-perfect claim filed on time is worth more than a comprehensive claim filed a day late, because the late one is worth zero. The CRA accepts amendments and additional information after filing, but only if there’s a filing in the first place.

Misconception 4: “We do engineering, not research”

The CRA’s SR&ED program covers exactly the kind of work most engineering and product teams do every day, provided the work resolves a real technological uncertainty.

The category called “experimental development” is by far the largest source of corporate SR&ED claims. It covers work to create new or improved materials, devices, products, or processes, exactly what most engineering organisations are doing. A mechanical engineer trying production techniques the team hasn’t used before. A software developer architecting a system to meet latency requirements that off-the-shelf approaches can’t hit. A process engineer testing whether a different chemistry works on an existing line. All of these are SR&ED candidates.

Two things often confuse companies on this:

“Research”: doesn’t mean academic research: It means investigating something whose answer isn’t already in public knowledge. The bar is “not currently knowable through routine engineering,” not “we’re trying to publish a paper.”
Failure counts: A project that doesn’t reach its goal isn’t disqualified, failed experiments often produce the cleanest evidence that real technological uncertainty existed at the start. Successful and unsuccessful work both count, as long as both were systematic.

Software work is particularly often dismissed as “just engineering.” Custom backend architecture, ML model development, real-time systems, novel algorithms, these regularly qualify. Routine implementation of well-understood patterns does not.

Misconception 5: “We didn’t write down a formal hypothesis at the start”

The hypothesis requirement is real, but how the CRA tests it isn’t what people think.

The CRA wants to see that the work proceeded systematically, that someone formed an expectation about what would happen, tested it, observed the outcome, and adjusted. That sequence is the hypothesis-and-experiment cycle, whether or not the team called it that at the time.

What doesn’t pass: pure trial-and-error with no expected outcome and no adjustment between attempts. What does pass: any iterative process where decisions about what to try next were informed by what happened in the previous attempt.

In practice, almost every engineering team works this way. They just don’t always document it that way. The hypothesis can be reconstructed retrospectively from commit messages, sprint retrospectives, lab notes, design decisions, and team discussion, provided the underlying work was actually systematic. We help clients articulate the implicit hypothesis in their existing records, then build a habit of writing it down at the start of future projects so the next claim is easier.

The takeaway: not having a written hypothesis at the start of the work doesn’t disqualify the claim. Not having a systematic process at all does.

Misconception 6: “We’re foreign-owned, so we can’t claim SR&ED”

Foreign-owned Canadian companies can absolutely claim SR&ED, they just don’t get the enhanced 35% refundable rate that’s reserved for Canadian-controlled corporations.

A wholly-owned Canadian subsidiary of a US, UK, European, or Asian parent claims the basic 15% federal Investment Tax Credit, non-refundable, on its qualifying SR&ED expenditures. The credit reduces Canadian tax payable in the year earned, with unused amounts carrying forward for up to 20 years. The Ontario Research and Development Tax Credit (3.5% non-refundable) layers on top.

The 15% rate is lower than the 35% headline number that CCPCs see, but it’s still real money, and for a foreign-owned Canadian operation doing serious R&D, the claim can be substantial. We’ve worked with US software companies, European manufacturers, and Asian tech parents whose Canadian R&D arms claim meaningful SR&ED every year.

Where the structure question gets interesting is when a foreign investor takes a minority position in a Canadian-controlled company. That can preserve CCPC status and the enhanced refundable rate, but the control analysis has to be careful, because the CRA looks at de facto control, not just equity percentages. For more, see our foreign companies and SR&ED guide.

Misconception 7: “Software development doesn’t qualify for SR&ED”

Software is now one of the largest SR&ED claim categories in Canada. The misconception persists because the CRA tightened software eligibility scrutiny several years ago, and some companies took that to mean “software is out.” It isn’t. The CRA’s test for software is the same as for everything else: technological uncertainty and systematic investigation.

What typically qualifies:

Custom backend architecture solving a problem that doesn’t have a known off-the-shelf answer
Machine learning and AI model development (training, architecture work, novel approaches)
Real-time and low-latency systems where the constraints push past standard practice
Algorithm development: search, recommendation, optimisation, fraud detection
Performance work that achieves results not previously known to be possible at that scale

What typically doesn’t qualify:

Building standard CRUD applications using established frameworks
Integration work, connecting one well-documented system to another
User interface design and front-end implementation using known patterns
Configuration of existing platforms (Salesforce, SAP, etc.)
Routine bug fixes and feature additions

Most software companies have a mix of both. The SR&ED claim captures the qualifying portion. The Bill C-15 restoration of capital expenditure eligibility is also significant for software-heavy R&D; GPU purchases and compute infrastructure for AI/ML work acquired after December 15, 2024 are now eligible for the first time since 2014.

Case Study

The Manufacturer That Almost Didn’t File

A specialty manufacturer of precision-engineered consumer goods came to us through a referral. They had been operating for over a decade and had never claimed SR&ED, on the assumption that their work, refining a proprietary surface coating and building internal software to support production was “just engineering” and that without a dedicated lab they wouldn’t qualify.

Problem

Three of the five misconceptions in this article were stacked: no dedicated R&D facility, work characterised internally as engineering rather than research, and no formal written hypothesis at the start of any project. They had also assumed that because the work spanned two different disciplines (chemistry on the coating side, software on the production side), they would have to pick one or the other for filing, neither of which felt like an obvious fit.

How we approached it

We walked through the work with the technical lead and identified two separate SR&ED projects: one filed under Field Code 2.05.03 (Coatings and Films) for the surface chemistry work, and one filed under Field Code 2.02.09 (Software Engineering) for the supporting toolchain. We reconstructed the hypothesis structure for each project from existing technical documentation, commit histories, design notes, and internal experiment logs. The “facilities” question turned out to be a non-issue once we documented pro-rated employee time properly.

What we learned

The combination of misconceptions had cost the company years of potential SR&ED claims they couldn’t go back and recover. The Income Tax Act doesn’t let you file retroactively past the 18-month deadline for prior years. Going forward, the structure we set up captured both streams of R&D work without forcing one into the wrong category. The principle generalises: assumptions about why you don’t qualify deserve a second opinion before they become a permanent decision not to file.

How SRJ CPA Helps Companies Past the “We Don’t Qualify” Stage

The hardest part of SR&ED, in our experience, is the gap between the work that’s happening and the claim that gets filed. Most of that gap is misconception, about who qualifies, what counts, and what the documentation has to look like. The work itself is usually already eligible.

SRJ Chartered Professional Accountants is a Toronto and Mississauga-based CPA firm serving Canadian corporations across tech, manufacturing, biotech, and professional services. Our team has worked on SR&ED claims of every size, from first-year startups filing under $100,000 to mature companies claiming the new $6 million enhanced limit. We handle the SR&ED claim, the corporate tax return, and the ongoing planning as one integrated engagement.

If you’ve talked yourself out of filing because of one of the misconceptions above, the conversation is worth having before another fiscal year closes and the window narrows further.

Contact SRJ CPA today.

Frequently Asked Questions

Do I need a dedicated R&D facility to qualify for SR&ED?

No. SR&ED is about the nature of the work, not where it happens. Companies regularly claim SR&ED for R&D performed in regular operating environments; shop floors, software offices, kitchens, workshops, using existing employees on a pro-rated basis. The CRA’s test is whether the work resolved a technological uncertainty through systematic investigation, not whether you had a separate lab.

Can a startup with no taxable income still claim SR&ED?

Yes, and pre-revenue startups are often the biggest beneficiaries. Qualifying CCPCs (and now Eligible Canadian Public Corporations under Bill C-15) get the 35% enhanced credit as a refundable cash credit on the first $6 million of qualifying expenditures. That means the CRA pays the credit out in cash even if the company owes no tax. For early-stage companies, this is often the largest source of non-dilutive funding available.

Can I file SR&ED after the 18-month deadline?

Almost never. The CRA does not grant extensions to the SR&ED filing deadline except in extraordinarily narrow statutory circumstances. In practice, missing the 18-month deadline means the claim is permanently lost. If you’re close to the deadline and the claim isn’t perfect, file what you have, a partial filing on time is worth more than a complete filing a day late.

Does engineering work qualify for SR&ED, or only “research”?

Engineering work qualifies. The largest SR&ED category, experimental development, covers work to create or improve materials, devices, products, or processes. Engineering teams doing this kind of work every day are common SR&ED claimants. The test is technological uncertainty and systematic investigation, not whether the team identifies as researchers.

Do I need to have formulated a written hypothesis before starting the work?

No, but the work has to have proceeded systematically. The CRA wants to see that someone expected an outcome, tested it, observed what happened, and adjusted, that pattern is the hypothesis-and-experiment cycle whether you called it that or not. Existing records like commit histories, sprint retros, lab notes, and design decisions can support the claim retrospectively, provided the underlying work was genuinely iterative.

Can a foreign-owned Canadian company claim SR&ED?

Yes. A wholly-owned Canadian subsidiary of a foreign parent claims the basic 15% federal Investment Tax Credit, non-refundable, with up to a 20-year carryforward. The enhanced 35% refundable rate is restricted to Canadian-controlled private corporations (and now Eligible Canadian Public Corporations under Bill C-15), so foreign-controlled subsidiaries don’t get it, but the 15% credit on a substantial R&D budget is still meaningful.

Does software development qualify for SR&ED?

Often, yes. Custom backend architecture, machine learning model development, real-time systems, novel algorithms, and performance work pushing beyond known limits regularly qualify. Routine implementation of well-understood patterns, standard CRUD applications, integration work, UI work using known frameworks, and platform configuration generally does not. Most software companies have a mix of both, and the SR&ED claim captures the qualifying portion.