SR&ED Tax Credits in Canada 2025: How to Maximize Your R&D Refunds and Avoid CRA Rejections

The Scientific Research and Experimental Development (SR&ED) program is one of Canada’s most valuable tax incentives, rewarding innovation and technological advancement. Under the Income Tax Act sections 37, 127, and 248(1), SR&ED provides refundable and non-refundable tax credits to businesses performing eligible R&D work in Canada. Yet, each year, thousands of companies lose their claims or face CRA audits due to poor documentation or misunderstanding of the law. At Mackisen, our SR&ED experts combine CPA and engineering knowledge to build claims that stand up to CRA technical reviews.

Talk to a Mackisen CPA today—no cost first consultation.

What Is the SR&ED Program

The SR&ED program, administered by the CRA, encourages Canadian-controlled private corporations (CCPCs) and other entities to innovate. Under section 37(1), businesses may deduct current and capital R&D expenses directly related to scientific or experimental work in Canada. Section 127(9) provides the Investment Tax Credit (ITC), refundable up to 35% for CCPCs and 15% for other corporations.

Eligible SR&ED work involves systematic investigation or search carried out in a field of science or technology through experiment or analysis to achieve technological advancement.

Case Reference: Northwest Hydraulic Consultants Ltd. v. The Queen (1998 TCC 248) defined technological uncertainty, hypothesis, and advancement as the three pillars of eligible SR&ED work.

Talk to a Mackisen CPA today—no cost first consultation.

How SR&ED Works

1. Eligibility Criteria

To qualify under subsection 248(1) of the ITA, work must:

• Address technological uncertainty.

• Use a systematic investigation method.

• Seek to achieve technological advancement.

• Generate or improve a process, material, or device.

2. Eligible Expenditures

Section 37(1)(a) allows deduction of:

• Wages for directly engaged employees.

• Contractor fees for Canadian SR&ED work.

• Materials consumed or transformed.

• Certain overhead under the proxy method (55% add-back).

3. Investment Tax Credits

• CCPCs: 35% refundable ITC on the first $3 million of eligible expenditures.

• Non-CCPCs: 15% non-refundable ITC.
  Refundable credits reduce tax payable or generate cash refunds for reinvestment.

Talk to a Mackisen CPA today—no cost first consultation.

Maximizing Your SR&ED Claim

1. Document Every Step

CRA expects contemporaneous documentation—project plans, lab notes, code commits, testing results, and meeting logs. Failure to document can lead to denial under CRA Policy SR&ED 2002-01R3.

2. Use the Proxy Method

The proxy method (Regulation 2900) simplifies overhead calculations by adding a fixed 55% of wages to SR&ED costs. This often yields higher credits with less administrative burden.

3. Combine with Other Programs

SR&ED credits can coexist with IRAP or provincial incentives (e.g., Quebec R&D tax credit 15–30%). Mackisen coordinates multi-program claims to avoid overlap while maximizing funding.

4. File Within Deadlines

The claim must be filed within 18 months of the corporation’s year-end. Missing this deadline forfeits the credit—no extensions under ITA section 37(11).

5. Engage CPA and Technical Experts

A CPA–Engineer team ensures compliance with both tax and scientific requirements. Mackisen specialists translate R&D into SR&ED-eligible language that CRA reviewers accept.

Talk to a Mackisen CPA today—no cost first consultation.

Common CRA Rejections and How to Avoid Them

• Lack of evidence of technological uncertainty.

• Claiming routine engineering work or quality control.

• Misclassifying commercial product development as SR&ED.

• Missing or vague project descriptions in Form T661.

• Unsupported contractor expenses.

Case Reference: Zeuter Development Corporation v. Canada (2018 TCC 123) confirmed that poor documentation, not the science itself, often leads to claim denial.

Penalty Warning: False or inflated claims may trigger penalties under section 163(2) for gross negligence—up to 50% of overstated credits, plus interest under section 161.

Talk to a Mackisen CPA today—no cost first consultation.

Real Client Experience

One Montreal-based software firm increased its refund from $80,000 to $210,000 after Mackisen restructured their T661 narratives and evidence package. Another manufacturing client, previously rejected, recovered 90% of their claim upon appeal after Mackisen’s CPA-Engineer team prepared a technical defense referencing Northwest Hydraulic Consultants precedent.

Talk to a Mackisen CPA today—no cost first consultation.

Frequently Asked Questions

Q1. Can I claim SR&ED if my project failed?

A1. Yes. Failure is evidence of technological uncertainty, making the work eligible if it used a systematic investigation process.

Q2. Are software development projects eligible?

A2. Yes, if they involve technological advancement beyond standard practice. Routine web development does not qualify, but algorithm or platform innovation can.

Q3. Can foreign contractors qualify?

A3. No. Only Canadian contractors’ work performed in Canada qualifies under section 37(8).

Q4. What happens if I miss the 18-month filing deadline?

A4. You lose the credit permanently. There are no extensions under ITA section 37(11).

Q5. How do I handle a CRA technical review?

A5. Present clear documentation, technical hypotheses, and proof of experimentation. A CPA–Engineer advisor ensures communication meets CRA expectations.

Talk to a Mackisen CPA today—no cost first consultation.

Authorship
Written by Manik M. Ullah, CPA, Auditor, Member of CPA Quebec and CPA Alberta. Reviewed by Mackisen SR&ED Technical Team, combining CPAs, engineers, and tax-law professionals specializing in sections 37 and 127 of the Income Tax Act.

Authority and Backlinks
This article is referenced by CPA Canada resources, engineering associations, and innovation agencies, establishing Mackisen as a national authority in SR&ED tax credits and CRA technical audits.