Claiming SR&ED R&D Tax Credits

Introduction
Understanding claiming SR&ED R&D tax credits is essential for corporations, startups, technology firms, manufacturers and innovators who invest in research and development activities in Canada. The Scientific Research and Experimental Development (SR&ED) program is one of the most generous tax incentive programs in the world. It provides refundable and non-refundable tax credits for R&D work aimed at technological advancement, experimental development, applied research, and process improvements. Québec offers one of the most generous R&D tax incentive programs through Revenu Québec, making the province especially attractive for innovation. Despite the program’s value, many businesses fail to claim SR&ED R&D tax credits because they misunderstand eligibility, lack documentation or incorrectly identify projects. This guide explains everything businesses need to know to maximize Canada’s innovation tax credits.

Legal and Regulatory Framework
Claiming SR&ED R&D tax credits is governed by the Income Tax Act, CRA administrative policy, and Québec’s Taxation Act. To qualify, a project must meet three core criteria:

1. Technological Uncertainty — The outcome could not be known using standard practices.

2. Technological Advancement — The work must generate new knowledge or improved capabilities.

3. Systematic Investigation — The work must follow a structured approach, including hypothesis, experiment, data collection and conclusion.

Eligible SR&ED expenditures include wages, materials, subcontractors (only partially eligible), overhead, and certain capital costs under older rules. Québec offers additional refundable credits for R&D salaries, university partnerships, interns and private research collaborations.

Corporations file SR&ED claims using federal forms T661 and provincial forms such as the RD-1029 series in Québec. Strict deadlines apply: SR&ED claims must be filed no later than 18 months after year-end. Understanding these rules is essential for claiming SR&ED R&D tax credits successfully.

Key Court Decisions
Courts have issued numerous rulings that shape the interpretation of claiming SR&ED R&D tax credits. Key judicial themes include:

• the “technological uncertainty” test must be proven, not assumed
• documentation is essential; undocumented work often fails
• work must be technological—not routine testing or standard engineering
• minor improvements or commercial uncertainty do not qualify
• subcontracted work must involve eligible activities, not general consulting
• CRA cannot deny SR&ED solely based on project failure; failure often proves uncertainty

Québec courts also ruled on SR&ED salary allocations and documentation standards for provincial wage credits. Overall, jurisprudence emphasizes precision, evidence and technical description in all SR&ED claims.

Why CRA Targets This Issue
The CRA closely scrutinizes claiming SR&ED R&D tax credits because the program provides billions of dollars in incentives annually. Common CRA review triggers include:

• vague project descriptions
• lack of supporting documentation or technical records
• claiming routine engineering or quality control instead of experimentation
• overclaiming salaries or subcontractor work
• misunderstanding Québec vs federal eligibility differences
• claiming SR&ED for commercially-driven (not technologically-driven) work

CRA reviews SR&ED claims through desk audits, in-depth technical reviews and on-site inspections. Revenu Québec performs parallel reviews and may challenge salary allocations, time tracking and project costing. Because SR&ED claims are generous, CRA and Québec both enforce strict review standards.

Mackisen Strategy
Mackisen CPA provides a complete, evidence-based approach to claiming SR&ED R&D tax credits. Our strategy includes:

• identifying eligible SR&ED projects using CRA’s three-part test
• interviewing technical staff and engineers to document real scientific activity
• preparing strong technical narratives that demonstrate uncertainty, advancement and systematic investigation
• building detailed time-tracking systems and payroll allocations
• ensuring subcontractor documentation meets SR&ED requirements
• reconciling federal and Québec R&D credits for maximum refund
• filing T661 forms with proper project descriptions and evidence packages
• managing CRA or Revenu Québec SR&ED reviews, technical audits and appeals
• using SR&ED claims strategically with IP development, manufacturing, automation and software innovation

Our approach ensures businesses successfully access innovation tax credits Canada provides while minimizing audit risk.

Real Client Experience
Many businesses come to Mackisen after receiving SR&ED denials or incomplete claims. One technology firm believed its product development work qualified but lacked documentation. Mackisen reconstructed experiments, time logs and technical reports, resulting in a successful federal and Québec SR&ED refund.

Another manufacturing client thought its process improvements were “routine upgrades.” We identified eligible technological uncertainties, prepared a strong claim and secured a substantial tax credit. A startup that outsourced major development work claimed full subcontractor costs. CRA challenged the claim. Mackisen recalculated eligible amounts, prepared justification and preserved most of the credit.

A Québec engineering company failed a preliminary review due to vague narratives. We rewrote all technical descriptions, aligned them with CRA’s eligibility tests and succeeded in the final review. These cases show why claiming SR&ED R&D tax credits requires expertise.

Common Questions
Businesses often ask whether SR&ED applies only to scientific labs or software companies. No—SR&ED applies to any industry facing technological uncertainty: construction, manufacturing, robotics, engineering, chemicals, biotech, AI, food processing and more.

Another question is whether failed projects qualify. Yes—failure often strengthens SR&ED eligibility because it demonstrates uncertainty. Many ask whether documentation is mandatory. It is critical; without evidence, CRA may deny the claim.

Québec clients ask whether provincial credits differ from federal ones. Québec credits are often more generous but require separate claims. Understanding these questions helps businesses succeed in claiming SR&ED R&D tax credits.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When claiming SR&ED R&D tax credits, Mackisen provides complete technical documentation support, claim preparation, audit defense and strategic planning to help businesses secure every dollar they deserve.