How the Value of an SR&ED Claim is Determined

How the Value of an SR&ED Claim is Determined

Understanding SR&ED Claims

The Scientific Research and Experimental Development (SR&ED) program, managed by the Canada Revenue Agency (CRA), is a cornerstone of Canada’s efforts to foster innovation and technological advancement. This program offers significant tax incentives to businesses in qualifying research and development (R&D) activities. By reducing the financial burden associated with R&D, the SR&ED program aims to stimulate economic growth and competitiveness.

Steps to Calculate the Value of Your SR&ED Claim:

Step 1: Identify Eligible Expenditures

The first step in calculating your SR&ED claim value is identifying and classifying eligible expenditures. These expenditures typically include wages, materials, and overhead costs directly associated with SR&ED projects. Accurate and thorough documentation is vital for substantiating these claims.

Step 2: Determine Eligible SR&ED Projects

Identifying eligible SR&ED projects is crucial, as only some R&D efforts qualify for tax credits. To be eligible, projects must advance scientific knowledge and address technical uncertainties that cannot be resolved using existing methodologies. Clearly defining and documenting your projects in alignment with CRA guidelines is essential. Documentation should detail the project’s objectives, methodologies, experiments, and results, showcasing how the project meets the eligibility criteria. Proper documentation strengthens your claim and ensures it aligns with CRA requirements for advancing scientific knowledge and addressing technical challenges.

Step 3: Recognize Eligible R&D Activities

Recognizing eligible R&D activities under the SR&ED program involves understanding that these activities encompass experimental development, applied research, and basic research. Experimental development refers to work aimed at achieving technological advancements to create new or improve existing materials, devices, products, or processes. Applied research is directed toward solving specific problems, while basic research seeks to advance scientific knowledge without immediate application. These activities must be meticulously documented to support your claim, including detailed descriptions of the R&D processes, objectives, hypotheses, experiments conducted, and outcomes achieved. Comprehensive records ensure that the activities meet CRA requirements and substantiate the eligibility of the claimed R&D efforts.

Step 4: Calculate labour Costs

Calculating labour costs is a crucial aspect of SR&ED claims, as these costs often represent a significant portion of the total claim. To accurately capture labour costs, businesses must meticulously document the time and salaries of employees engaged in eligible R&D activities, ensuring to include the percentage of their time dedicated specifically to these projects. This involves maintaining precise time-tracking and payroll records, which are essential for substantiating claims and demonstrating compliance with CRA requirements. Accurate and thorough documentation of labour costs not only strengthens the credibility of your SR&ED claim but also maximizes the potential financial benefits.

Step 5: Calculate Overhead Expenses

Overhead expenses, such as utilities, rent, and property taxes, can be included in your SR&ED claim, provided they are directly associated with your R&D projects. Properly attributing these costs requires a systematic approach to ensure they are linked accurately to eligible activities. This involves maintaining detailed records and supporting documentation to substantiate the claim. The CRA offers specific guidelines on how to allocate these expenses, which should be meticulously followed to maximize the claim’s validity and compliance. Thorough documentation and alignment with CRA guidelines will enhance the credibility and strength of your claim.

Step 6: Calculate Costs for Materials and Equipment

Materials, supplies, and equipment costs used in R&D activities are also eligible for SR&ED claims. Detailed records of these expenses, including purchase invoices and usage logs, are necessary to substantiate your claims. Ensure that these costs are directly related to your SR&ED projects.

Step 7: Determine Your Total SR&ED Claim Amount

The total SR&ED claim amount is calculated based on your eligible expenditures. The calculation method varies depending on the size of your business. Small and medium-sized enterprises (SMEs) are typically eligible for a federal claim rate of 35%, while large corporations can claim at a rate of 15%. Utilizing an SR&ED calculator can help estimate your claim amount accurately.

Strategies for Maximizing Your SR&ED Claims

To optimize your SR&ED claims, maintaining accurate and thorough records is paramount. This includes detailed documentation of R&D activities, project descriptions, labour costs, overhead expenses, and materials and equipment costs. Additionally, aligning your R&D projects with CRA guidelines and ensuring all eligible expenditures are properly classified will enhance your claim’s credibility.

Leveraging Professional Assistance

Many businesses choose to work with SR&ED consultants to maximize their claims. Professional consultants bring expertise and experience in navigating the complexities of the SR&ED program, ensuring that your claims are optimized and compliant with CRA requirements.

Benefits of Hiring SR&ED Consultants

Hiring SR&ED consultants offers several benefits:

  1. Expertise: Consultants have in-depth knowledge of the SR&ED program and can identify all eligible expenditures and activities.
  2. Efficiency: They streamline the claim preparation process, allowing businesses to focus on their core activities.
  3. Maximized Claims: Consultants can help identify additional eligible costs and activities, maximizing the claim amount.
  4. Compliance: They ensure that all claims are compliant with CRA guidelines, reducing the risk of audits and rejections.

How to Choose the Right Consultant

When selecting an SR&ED consultant, consider the following factors:

  1. Experience: Look for consultants with a proven track record of successful SR&ED claims.
  2. Specialization: Choose a consultant with expertise in your industry to ensure they understand the specific R&D activities and challenges.
  3. Reputation: Check client testimonials and references to gauge the consultant’s reliability and professionalism.
  4. Fee Structure: Understand the consultant’s fee structure, whether it’s based on a percentage of the claim or a flat fee, and ensure it aligns with your budget.


Understanding the intricacies of the SR&ED program and following a structured approach to calculate your claim value can yield substantial financial benefits. Leveraging professional assistance from experienced SR&ED consultants can further optimize your claims, ensuring you maximize the potential of this valuable tax incentive program.


What is the limit for SR&ED?

There isn’t a specific dollar limit for SR&ED claims; however, the percentage of the eligible SR&ED tax credits varies based on the size and type of the corporation. Small and medium-sized enterprises (SMEs) can claim a federal tax credit of 35% on qualified expenditures up to $3 million, while large corporations can claim at a rate of 15%.

What does SR&Ed cover?

SR&ED covers a range of expenditures related to scientific research and experimental development, including wages, materials, overhead costs, and certain contracts. The program focuses on costs directly associated with advancing technological knowledge or developing new products and processes.

How to claim SR&ED?

To claim SR&ED, businesses need to:

  1. Identify and document eligible R&D activities and expenses.
  2. Complete Form T661 (Scientific Research and Experimental Development (SR&ED) Expenditures Claim) and any other required forms.
  3. Submit these forms with your corporate tax return by the SR&ED claim deadline, which is typically 18 months after the fiscal year-end.
What is an SR&ED claim?

An SR&ED claim, often referred to as a “shred” claim, is a tax incentive claim under the SR&ED program. It allows businesses to recover a portion of their R&D expenditures through tax credits, encouraging ongoing innovation and technological advancement.