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Your R&D costs can earn a federal tax credit through the SR&ED program, and the claim is due 12 months after your T2 is due, which is 18 months after your year end. For most Canadian-controlled private corporations, the credit is 35% on qualifying spending up to a limit, and $6 million is the limit for tax years that begin after 15 December 2024. So how you record the costs from day one decides how much of that you can prove.
Which R&D costs can you claim?
The CRA groups eligible spending into four types. Salaries and wages of employees directly doing the work. Materials, whether consumed or transformed. Payments to contractors. And overhead, which you can figure by the traditional method (costs directly related and incremental) or by the proxy method.
| Type | What counts | Watch for |
|---|---|---|
| Salaries and wages | Staff directly engaged in the work | Cap for specified employees at five times the year’s maximum pensionable earnings |
| Materials | Consumed or transformed in the work | Transformed materials carry a different treatment |
| Contracts | Payments to those doing the work for you | Arm’s length and non-arm’s length differ |
| Overhead | Traditional or proxy method | You choose, so ask which gives the better result |
Not every cost of building a product qualifies. The work has to meet the CRA’s tests, including systematic investigation by experiment or analysis and technological uncertainty, meaning the answer isn’t known from generally available knowledge. The T4088 guide has the full list. If a task is routine, it’s not R&D for this purpose, however hard it was.
How do you keep records for research and development costs?
Keep the project papers the work produced, the proof of what you spent, and a description of any contractor’s role. That’s the CRA’s own list. In practice, that means timesheets that name the project, invoices coded to it, and the notes from tests that failed.
Do it while the work is happening. Rebuilding it 15 months later from memory is painful and reads badly. If your payroll system can’t tag hours by project, set that up before the next quarter, not before the claim.
You can also see what those staff cost in full with the payroll remittance calculator, which adds the employer share of CPP and EI to the pay.
What could a claim be worth?
Suppose a CCPC spends $200,000 on qualifying current expenditures and is under its expenditure limit. At the higher 35% rate, that’s $70,000 of credit before any adjustments, and the CRA says the credit on current expenditures at that rate is fully refundable. Capital expenditures are refunded at 40%.
Other corporations, individuals, trusts and partners earn the basic 15%. On the same $200,000, that’s $30,000. We didn’t work through how the credit interacts with your deductions or with other government assistance, and that’s a reason to have the claim reviewed before filing.
For CCPCs with tax years beginning after 15 December 2024, the limit starts to shrink when taxable capital reaches $15 million and is nil from $75 million. The corporate tax calculator shows the tax side of the same year, though it doesn’t model SR&ED credits.
How does the deadline work?
A corporation has 12 months after its T2 due date to submit the claim. Since the T2 is due six months after the year end, that’s 18 months in total. Trusts get 12 months after the T3 is due, and individuals with a business get 12 months after the T1 is due. The CRA still suggests sending the claim with the return.
A complete claim has form T661, plus T2SCH31 or T2038(IND) to claim the credit. Corporations file it electronically through certified software. The CRA says to check that the claim is complete, accurate and backed by evidence.
Where R&D accounting goes wrong
Confusing the books with the tax return. The accounting standards you follow for your financial statements set how research and development costs are recorded, and that isn’t the same question as what the CRA will accept for the credit. We couldn’t confirm the wording of those standards from a page we could open, so ask your accountant which framework you use and what it says about capitalizing development costs.
Another slip is claiming too much. Everything in a busy month of engineering isn’t R&D. And the third is forgetting provincial credits, which the CRA lists on its own page.
Is a project worth doing at all? The ROI calculator is a fast way to test the business case with your own figures, before the credit even enters the picture.
Where the numbers come from
Expenditure types, tests, records and deadlines come from the CRA’s T4088 guide to Form T661 and its SR&ED pages on submitting a claim. Rates, refund shares and the expenditure limit are from the CRA’s investment tax credit page. The examples are our arithmetic and assume every dollar qualifies. We did not confirm the accounting standards’ text or any provincial credit rate.
Frequently asked questions
What is the SR&ED credit rate?
The CRA says the basic rate is 15%, and most Canadian-controlled private corporations may earn a refundable credit at 35% up to their expenditure limit.
What is the expenditure limit?
$6 million for tax years beginning after 15 December 2024, and $3 million for years beginning before 16 December 2024.
When is the SR&ED claim due?
For a corporation, 12 months after the T2 due date, so 18 months after the tax year end.
Which forms do I need?
Form T661 plus T2SCH31 or T2038(IND) to claim the credit, with other forms as needed.
Are salaries eligible?
Yes, for employees directly engaged in the work, with a cap for specified employees at five times the year's maximum pensionable earnings.
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Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.