Junaid is a Master of Taxation and one of the partners at SRJ Chartered Accountants. He has worked on SR&ED claims for Canadian startups, scaling tech companies, and established corporations across Ontario for more than a decade, with a focus on integrating the claim into the company’s broader corporate-tax position.

What is SR&ED?

The SR&ED program is a federal tax benefit offered by the CRA that offers tax deductions to companies that carry out eligible R&D activities in Canada. More than 22,000 firms are supported through the program annually, which ranks amongst the most generous innovation tax incentives offered by OECD nations.

Two things make SR&ED unique. First, the credit is refundable for eligible small and medium-sized Canadian-controlled private corporations (CCPCs), so that even a company that doesn’t owe any tax can receive a cash refund. 

Second, technological uncertainty and systematic investigation are the eligibility criteria, not novelty. A business that is improving a product or process can be as eligible as one that is developing a new product.

What Changed Under Budget 2025 and Bill C-15

The federal government’s November 2025 budget introduced the biggest reforms of the SR&ED program in over a decade. The Budget 2025 Implementation Act, Bill C-15, received royal assent on March 26, 2026, while most of the amendments came into force on December 16, 2024.

Expenditure Limit Raised from $3 Million to $6 Million

The maximum annual spending, upon which the enhanced 35% refundable credit could be claimed, has been doubled. 

Under the previous rules, qualifying CCPCs were eligible to receive a 35% refund for the first $3 million of qualifying expenses, capped at about $1.05 million per year. This new rule increases the enhanced rate to the first $6 million, increasing the maximum annual refundable benefit to approximately $2.1 million.

This is the single largest dollar-value change in the budget. Companies that were spending above $3M on R&D and seeing the spillover drop to the 15% basic rate now have a much bigger window of refundable territory.

Phase-out Thresholds Raised

The tax credit rate for large corporations is based on the taxable capital phase-out range that has been increased from $10M-$50M to $15M-$75M. Firms with taxable capital below $15M can claim the full enhanced tax credit; firms with their taxable capital between $15M and $75M can claim some tax credits; and corporations with a taxable capital exceeding $75M do not qualify for the enhanced tax credit at all.

Enhanced Credit Extended to Certain Canadian Public Corporations

Historically, only Canadian-controlled private corporations could access the enhanced refundable rate. Bill C-15 extends it to “Eligible Canadian Public Corporations” (ECPCs), with the expenditure limit calculated using a gross-revenue method, a full $6M limit for ECPCs with a three-year average gross revenue at or below $15M, sliding down to zero at $75M. 

CCPCs also have the option to elect the gross-revenue method instead of the taxable-capital method, which can produce a better result depending on the company’s balance sheet.

Capital Expenditures are Eligible Again

From 2014 until now, capital expenditures (equipment, lab apparatus, manufacturing tools) have been excluded from SR&ED. Bill C-15 restores eligibility for capital property acquired after December 15, 2024 and lease costs incurred after that date. This is a major shift for any R&D that is equipment-heavy:

• • Hardware and infrastructure-heavy R&D (manufacturing, biotech, materials engineering)

• • AI and machine learning infrastructure, including GPU purchases and compute systems, now qualify

• • Cleantech and energy R&D requiring specialised equipment

• • Pharmaceutical and medical device development

Property acquired before December 16, 2024, remains under the post-2014 rules and is not eligible. Property that has been used or previously acquired by someone else, then acquired by the claimant, is also excluded.

Optional Pre-claim Approval Process

From April 1, 2026, claimants can opt into a pre-claim approval process. You submit a technical description of the planned work before filing the full claim. If the CRA pre-approves the approach, the full expenditure review is processed in 90 days instead of the standard 180. 

This is optional, not mandatory, and is most valuable for companies whose projects have material technical complexity, where audit risk is otherwise high and processing delays are expensive.

AI-assisted CRA Triage

The CRA is expanding its use of AI in SR&ED claim administration. Lower-risk claims should see faster processing and fewer redundant information requests. The government has also begun targeted consultations to simplify Form T661.

When the New Rules Apply

All of these adjustments are effective for tax years starting from December 16, 2024. Pre-approval procedure and administrative changes will commence on April 1, 2026. In case your tax year began prior to December 16, 2024, the previous criteria would remain valid for you; therefore, your accountant can determine the applicable criteria for your individual case.

The New Numbers, at a Glance

Who Qualifies for SR&ED?

CCPCs at the Enhanced 35% Rate

Canadian-controlled private corporations remain the largest beneficiaries. To qualify for the full enhanced rate, the corporation generally must be a CCPC, not controlled by foreign entities or public corporations. 

They must also remain below the taxable capital phase-out threshold (now $15M starting point, $75M cap). The enhanced rate applies to the first $6M of qualifying expenditures per year and is fully refundable.

Eligible Canadian Public Corporations

Under Bill C-15, certain Canadian public corporations can now access the enhanced refundable credit for the first time. 

The expenditure limit is set by a gross-revenue test rather than taxable capital. With the full $6M limit available for ECPCs with a three-year average gross revenue at or below $15M and a straight-line phase-out to zero at $75M.

Other Corporations at the Basic 15% Rate

Corporations that don’t qualify for the enhanced rate, large CCPCs above the phase-out, foreign-controlled corporations, public corporations outside the ECPC definition still get the basic 15% non-refundable investment tax credit. This cannot be refunded as cash, but it reduces tax payable and unused amounts carry forward for up to 20 years.

Partnerships and Individuals

Partnerships and unincorporated individuals can claim SR&ED, but the mechanics and rates differ. In most cases, the credit at the partnership level is allocated out to the partners, who claim it on their own returns. Unincorporated claimants are eligible only for the basic 15% rate, and the credit is non-refundable. For most companies conducting significant R&D, incorporating before claiming is the better path, but the timing matters.

How the SR&ED Tax Credit Works

Refundable vs. Non-Refundable

The most important distinction in the program. A refundable credit means that you’ll still get a payment from the CRA, even if your company does not owe any tax. A non-refundable credit can only reduce taxes payable, and the balance is carried forward for 20 years. 

Eligible CCPCs benefit from the refundable enhanced rate amount up to the expenditure limit; anything beyond that, and all credits claimed by other corporations will be non-refundable.

Traditional Method vs. Proxy Method

Two ways to calculate overhead in your claim. The traditional method requires you to itemise actual overhead and supporting expenditures, more documentation, but produces a higher credit if your overhead is substantial.

The proxy method lets you claim 55% of the salaries and wages of employees directly engaged in SR&ED, instead of itemised overhead. Most companies use the proxy method; it’s simpler, and the math usually works out in the company’s favour. We recommend modelling both for any first-time claim.

Eligible Expenditures

The main expense categories that flow into a claim:

• • Salaries and wages of employees directly engaged in SR&ED, plus a portion of supporting staff time

• • Contractor and subcontractor payments for SR&ED work (Canadian contractors fully eligible; foreign contractors limited)

• • Materials consumed or transformed in the R&D

• • Capital expenditures (new, acquired after Dec 15, 2024): equipment, GPUs, lab apparatus, manufacturing tools

• • Overhead (under the traditional method) or the 55% proxy amount

• • Third-party payments to qualifying universities and approved research institutions

What’s excluded

Activities that don’t qualify as SR&ED, no matter how innovative the company:

• • Market research and sales promotion

• • Advertising and commercial production

• • Quality control and routine testing

• • Style changes and cosmetic improvements

• • Routine data collection, prospecting, and exploration

• • Research in the social sciences and humanities (separate programs may apply)

How SR&ED Affects Your Taxes

While SR&ED credits can be valuable for reducing the cost of conducting R&D, the tax consequences are often more complicated than many first-time applicants expect. Issues such as refundability, taxing, carry-forward considerations, and provincial stacking have to be addressed.

The Credit is Taxable Income

SR&ED credits are taxable in the year received. While the program can generate significant refunds or reduce taxes payable, part of the benefit is taxed back. The real cash impact is the net credit after tax — not the headline refund amount.

Carryforward and Tax Planning

Unused non-refundable SR&ED credits can carry forward for up to 20 years. For profitable corporations, they offset future taxes payable. For early-stage CCPCs, the refundable portion is typically more valuable because it provides immediate cash flow.

Provincial Credits Can Stack

Provincial R&D incentives can materially increase the total benefit. Ontario offers:

• • 8% refundable through the Ontario Innovation Tax Credit (OITC)

• • 3.5% non-refundable through the Ontario Research and Development Tax Credit (ORDTC)

These credits may layer with the federal SR&ED investment tax credit, subject to the detailed eligibility, assistance, grind, and ordering rules. One Ontario-specific planning point is that a corporation may waive all or part of the ORDTC by filing a written waiver with its return, generally due within six months after the corporation’s fiscal year-end, or by filing an amended return. This can matter where claiming the ORDTC would produce an inefficient result or reduce other SR&ED-related benefits.

Quebec, British Columbia, Alberta, and other provinces have their own R&D incentive regimes, each with separate eligibility rules, rates, refundability rules, and filing mechanics. The provincial position should therefore be reviewed based on where the SR&ED work is performed and which corporation legally incurs the eligible expenditures.

Impact by Business Size and Stage

Three rough categories:

• • Early-stage and pre-profit CCPCs: The refundable enhanced credit is often the single largest source of non-dilutive funding available. The new $6M limit is particularly meaningful for Series A and Series B companies running engineering budgets that previously straddled the $3M cap.

• • Mid-sized profitable CCPCs: The credit reduces real tax payable and improves after-tax cash flow. The raised phase-out thresholds mean fewer of these companies are pushed out of the enhanced rate.

• • Large corporations and ECPCs: The basic 15% non-refundable credit still has long-term value as a tax-payable reduction. ECPCs that previously couldn’t access the refundable rate now can, which materially changes the math for listed innovation-focused companies.

How to Claim SR&ED

A successful claim cannot just rely on the fact that an invention was novel. In Canada, the Canada Revenue Agency expects timely submissions, accurate documentation, and credible technical backing, which are created within the R&D process itself.

Required Forms

Most corporations file:

• • Form T661 (SR&ED Expenditures Claim)

• • Schedule T2SCH31 (Investment Tax Credit)

• • Schedule 60 for project-level details

Errors or incomplete filings are a common cause of CRA rejection.

Filing Deadlines

SR&ED claims must be filed within 18 months of the corporation’s tax year-end. Missing the deadline generally means the claim is lost.

Example:

• • Dec. 31, 2024, year-end → June 30, 2026, filing deadline

Documentation Requirements

The CRA expects contemporaneous documentation created during the R&D work, including:

• • Technical uncertainties and hypotheses tested

• • Staff time and project involvement

• • Materials and capital used

• • Engineering notes, commits, tickets, and time tracking

Weak or reconstructed documentation is a major audit risk.

Pre-claim Approval Process

As of April 1, 2026, companies that qualify will have the option to apply for pre-claim approval before submitting a claim. The time for processing approved claims is about 90 days as opposed to 180 days. This is particularly beneficial for projects involving advanced technology such as AI, biotech, and manufacturing.

Common Mistakes We See in Practice

A few patterns come up often enough in our work with Toronto and Mississauga corporations that they are worth flagging directly.

• • Filing under the wrong field code: Companies default to the field code that matches their industry rather than the field where the technological advancement actually happened. A pen manufacturer that did the genuine R&D in surface chemistry should not file under Mechanical Engineering just because they make a physical product. Filing under the right code strengthens the technical narrative and the claim.

• • Treating software as a software claim by default: If you wrote code, your instinct may be to file under Information Technology. But if the code was a research instrument to advance materials science, agronomy, chemical engineering, or another underlying discipline, that’s where the claim belongs. The output medium doesn’t determine the category; the underlying technological question does.

• • Building documentation after the fact: Contemporaneous records are what hold up under CRA review. Companies that try to reconstruct their R&D narrative six months after the work was done almost always lose detail, miss eligible hours, and weaken the claim.

• • Missing the 18-month deadline: The deadline is hard. We see companies leave the claim until “next quarter” for two years running, then discover they have no claim at all for the first year. Set the calendar reminder at 12 months past year-end, not 17.

• • Assuming SR&ED isn’t worth it because you’re profitable: Larger, profitable corporations sometimes write off SR&ED as “startup money.” The non-refundable credit against tax payable still has real value on a sizeable claim, and the new $6M limit and capital expenditure eligibility make it more accessible than it has been in over a decade.

Case Study

Why a Software-Based Simulation Wasn’t Filed Under Software Engineering

An advanced materials and metallurgy firm built a software-based simulation tool to numerically validate new material combinations. The obvious filing instinct: “We wrote code, file it as a software project,” would have understated the claim. The deliverable was software; the advancement was not.

Problem. The company’s R&D portfolio included several materials engineering projects and one simulation project that, on the surface, looked like a software claim. 

Defaulting to Field Code 2.02 (Information Technology) for anything involving code would have misclassified the work, weakened the technical narrative, and arguably misrepresented the nature of the advancement.

How we approached it. We filed all projects, including the simulation, under Field Code 2.05.01, Materials Engineering and Metallurgy. The technical narrative we prepared argued that the technological uncertainty being resolved was about how material combinations behave, not how to write the simulation engine. 

The software was a research instrument, the same way a microscope or test apparatus would be. Its existence didn’t make the underlying research.

What we learned. The decision rule we apply across mixed-discipline R&D is: follow the advancement, not the artefact. It generalises to ML models built for agronomy work, optimisation algorithms built for logistics, and modelling tools built for chemical engineering. 

Under the new Bill C-15 rules, projects like this one also benefit from the restored capital expenditure eligibility, the compute infrastructure used to run a simulation of this scale is now itself SR&ED-eligible, which it wasn’t under the post-2014 rules.

How SRJCA Helps With SR&ED

SR&ED claims sit at the intersection of tax filing, technical narrative, and CRA defence, requiring companies to be strong in all three areas: first-time claimants who don’t know if they qualify, established claimants whose current accountant only handles the corporate return, and companies in CRA review who built the claim on weak documentation.

As a full-service CPA firm, we prepare SR&ED claims as part of the corporation’s overall tax position, not as a one-off filing. That means the credit is integrated into the year-end return, the carry-forward is tracked across years, and the documentation discipline carries through to other corporate filings. 

For an estimate of what your company might claim under the new $6M framework, see our SR&ED tax credit calculator, or read more about our SR&ED consulting service.

Contact SRJCA today.