Canada SR&ED Federal

Canada SR&ED Federal

Funds Canadian companies through federal innovation tax deductions for qualifying innovation experimentation costs.

The Scientific Research and Experimental Development (SR&ED) program is Canada's largest federal support mechanism for business R&D, administered by the Canada Revenue Agency (CRA). The program offers two parallel benefits: a deduction against taxable income calculated from a pool of allowable SR&ED expenditures, and an investment tax credit (ITC) applied against income tax payable. SR&ED-eligible work spans basic research, applied research, and experimental development conducted in Canada across all sectors.

The ITC rates vary by corporate structure. Canadian-controlled private corporations (CCPCs) earn an enhanced rate of 35% on the first CAD 3 million of qualified SR&ED expenditures and the basic rate of 15% on amounts above that threshold; large or non-CCPC corporations earn the 15% basic rate only. The enhanced credit for CCPCs is partially refundable. Companies may also seek optional pre-claim approval for up to three projects, each valid for up to three years, allowing CRA to confirm SR&ED eligibility before expenditures are incurred. An accelerated 90-day expenditure review applies when only pre-approved projects are claimed. SR&ED claims are filed with the annual corporate tax return; awards in the structured record range from CAD 1 to CAD 2.1 million with a median near CAD 40,000.

SR&ED is an entitlement-based program with no competitive selection, no application deadline, and no sector restrictions. Any corporation, individual, trust, or partnership incurring qualifying R&D costs in Canada may claim it. Other government R&D funding — including NRC IRAP grants — reduces the ITC base but does not disqualify a company from SR&ED. Provincial and territorial R&D credits may stack on top, though they reduce the federal expenditure pool.