TL;DR: Software development is often eligible for Canada’s SR&ED (Scientific Research and Experimental Development) tax credit program. According to the CRA, in 2025, 41% of all SR&ED claims in Canada were in the software development field. Projects focused on solving specific technical challenges that go beyond routine development and require problem-solving can be eligible. In 2026, in order to create maximized, strong SR&ED claims, it is essential that companies are tracking their technical challenges, the failures, the learnings, and what resources were dedicated to addressing these challenges.
SR&ED for Software Development – Framework:
To qualify for SR&ED in the software sector, your work must move beyond “routine engineering.” The CRA evaluates your project based on three distinct pillars.
SR&ED claims are created based on specific projects, not the company’s business goals. SR&ED projects can be as specific as security, performance or data connectivity issues. Just because the end solution you are building isn’t completely new or innovative, that doesn’t mean that there aren’t SR&ED eligible projects in the development process.
Pillar I: Technical Uncertainty (The “Roadblock”)
SR&ED eligibility begins when your team encounters a problem that cannot be solved using standard professional knowledge or “off-the-shelf” libraries. If a developer cannot find the solution in public documentation, StackOverflow, or through routine, simple trial-and-error methods, a “Technological Uncertainty” exists.
- Key Questions to Ask Yourself: Why was the standard approach insufficient for your specific constraints (e.g., scale, latency, or security)?
- GrowWise Insights: In software development, technical uncertainty isn’t always obvious. This can look like challenges in processing complex data sets, addressing platform failures when use increases, and adapting data processing logic to increase software speed. These aren’t ground-breaking technological advancements, but they are problems that don’t have a known solution, where the team needs to problem-solve and experiment to solve them.
Pillar II: Work Performed (The “Experiments”)
Once you identify the uncertainty, you must conduct what the CRA refers to as a “Systematic Investigation”. In a modern Agile/DevOps environment, this is your R&D workflow. It isn’t just writing code or fixing bugs; it is a series of controlled tests and iterations designed to address the specific challenge and figure out the problem. This is the core of SR&ED. The CRA needs to see that the work requires iterative problem-solving.
- Key Questions to Ask Yourself: What approach did you take to address the problem? Did you try multiple approaches or solutions before selecting the final solution? Did you experience failures, dead-ends or further roadblocks?
- GrowWise Insights: As SR&ED consultants, we often work with software companies where the experimentation and investigation are hidden within Jira, GitHub Commits, or other code repos. The key to SR&ED eligibility is being able to combine those data sources to create the technical narrative and paint the picture of the systematic investigation. This often looks like combining messy details from deep within code repos or project management software to show that the challenge had no clear solution and the team struggled, iterated, tried various approaches, failed and ultimately learned something.
Pillar III: Lessons Learned (The “Advancement”)
The final pillar is the learnings, or what the CRA refers to as the “Technological Advancement”. This is the new knowledge your team gained about the process, methodology, architecture, approach or system that was gained due to the experimentation you completed.
In 2026, the CRA considers failure to be an advancement. If you spent six months trying to integrate two incompatible data sources, and it failed, you now have the knowledge of why it is impossible, which is considered adequate for SR&ED eligibility.
- Key Questions to Ask Yourself: What new information did you gain from the experiments? Did the experiments lead to new knowledge about a system, process, technology or approach? Did you materially improve a quantitative metric such as platform speed or capacity?
- GrowWise Insights: Many of our clients in the software development space do not end their projects with material, tangible improvements, but rather with new knowledge of internal processes or architectures. Learning intricate technical details about how best to operate your unique business and solve your specific technical challenges is sufficient technological advancement for the CRA.
SR&ED Eligible vs. Ineligible Software Activities (2026 Comparison)
This table outlines the current 2026 stance on common development tasks and gives examples of what the CRA considers eligible vs ineligible for SR&ED in the software development space.
Activity Category | Eligible (SR&ED) – The “Yes” List | Ineligible (Routine) – The “No” List | GrowWise Insight: “How to Spot the Difference” |
Artificial Intelligence | • Training novel LLMs with proprietary data • Optimizing inference for edge devices • Developing custom loss functions • Reducing AI “hallucinations” via architecture | • Simple API calls to GPT-4 or Gemini • Basic prompt engineering for bots • Using pre-trained models “as-is” without modification • Routine data cleaning for generic models | Key Question: Are you using the AI, or are you teaching the AI how to behave in a way it couldn’t before? Using existing tools without modification, experiments, or improvements is likely not SR&ED eligible. |
Data Architecture | • Custom sharding logic for extreme scaling • Proprietary data compression for streaming • Novel indexing for high-velocity data • Solving database locks at extreme volume | • Standard database setup • Routine schema migrations/backups • Standard AWS/Azure data lake setup • Manual data entry or general cleaning | Key Question: Could a senior dev solve this in a day using standard tools, or did you have to write a custom engine? Did you face unique challenges with unknown solutions? |
Cybersecurity | • Proprietary Zero-Knowledge Proof protocols • Novel anomaly detection for zero-day threats • Custom encryption for incompatible kernels • Optimizing crypto-functions for latency | • Implementing standard SSL/TLS/HTTPS • Routine firewall/VPN configuration • Installing 3rd-party security patches • Basic user permission audits | Key Question: Are you installing a lock on the door (routine), or are you inventing a new kind of lock (SR&ED)? |
Legacy Integration | • Resolving kernel-level incompatibilities • Building custom bridges for undocumented APIs • Custom drivers for obsolete hardware | • Manual data uploads from spreadsheets • Standard ETL migrations (e.g., Fivetran) • Basic Zapier or Make integrations • Routine software updates for compatibility | Key Question: Are you going beyond standard data migrations? Are you building the systems by which to utilize data, or are you using existing systems to understand your data better? |
Cloud & DevOps | • Custom cold-start optimization for serverless • Novel resource-isolation for multi-tenancy • Auto-scaling logic for unpredictable loads • Building proprietary container orchestrators | • Standard site migration between hosts • Routine CI/CD pipeline setup (Jenkins) • Basic server maintenance/monitoring • Provisioning standard AWS/Azure resources | Key Question: Is there an SOP for how to solve your problem or are you figuring it out for the first time with your specific parameters? |
UI/UX Design | • Novel rendering engines for real-time 3D • GPU-accelerated frontend optimizations • Essential UI/UX work related to a larger technical problem that could not be addressed without a UI component | • Cosmetic CSS or font changes • Basic React/Vue component layouts • Standard “mobile-responsive” updates • Routine A/B testing for button placement | Key Question: Was this UI/UX work related to a larger technical uncertainty? Could this technical challenge be solved without the UI/UX work? |
Product Selection | Product selection exclusively is not eligible for SR&ED. • For example, in addressing a security challenge, if you are testing different solutions and selecting the best one, that is not SR&ED eligible. | • Testing which off-the-shelf solution best solves your problem. • Identifying the product/solution that solves your problem, and implementing that off-the-shelf product | Key Question: Are you innovating, modifying, or experimentally improving a product or just testing existing options and selecting the best one? |
Major 2026 SR&ED Updates: What Software Founders Need to Know
The landscape for SR&ED has fundamentally shifted as of April 2026. If your current SR&ED consultant isn’t talking about these three things, you are leaving money on the table:
- The $6 Million Enhanced Limit: The expenditure limit for the 35% refundable tax credit has doubled from $3M to $6M. This means qualifying CCPCs can now recover up to $2.1 million in cash annually.
- Restored Capital Expenditures: For the first time in over a decade, specialized hardware, including high-end GPUs and other physical equipment acquired after December 15, 2024, that is used 90% or more for your SR&ED project, is eligible to be reimbursed through SR&ED.
- The Pre-Claim Approval Process: The CRA now offers a voluntary “Pre-Claim” review. This allows you to get technical certainty before you file, drastically reducing the risk of a post-filing audit. This process will be helpful for first-time software development claimants.
- If you are a scaling company, you should be aware of these SR&ED changes in order to maximize your SR&ED claim and create stronger, larger SR&ED claims.
Calculate the impacts of these changes (and others) on your SR&ED claim with our 2025 SR&ED Comparison Calculator here.
SR&ED Documentation for Software Companies
Software teams that consistently secure the largest SR&ED refunds aren’t necessarily doing more R&D than you; they are simply better at capturing the struggle.
The difference between a $400k claim and a $700k claim, or a claim that passes an audit in days versus one that gets slashed by 40%, is almost always documentation. High-performing teams don’t rely on a lead developer’s memory 18 months after a sprint is over. Instead, they treat R&D data like a high-availability database: they capture details as the work happens.
The key is keeping it lightweight. A sustainable, “good enough” tracking system beats a phenomenal one that the team abandons after two weeks. In 2026, this looks like two specific strategies (more information about tracking SR&ED projects here):
1. Augmenting Your Current Stack (Jira, GitHub, Linear)
The most effective software teams don’t create new “SR&ED spreadsheets.” They capture technical context directly within the tools they already live in.
- Jira/Linear: A ticket shouldn’t just say “Fix Latency.” It should include a two-sentence comment on why the standard fix didn’t work and what architectural theory is being tested instead.
- GitHub/GitLab: Commit messages are the ultimate audit trail. Instead of “Update logic,” messages like “Iterating on custom sharding to resolve X-limit bottleneck” provide a timeline of experimentation that the CRA cannot dispute.
- GrowWise Insight: We recommend that our clients tag their Jira/GitHub work to specific projects or challenges. We then work with them at the end of the year to pull out all details related to specific challenges and projects. Building systems from day 1 is always easier than going back and trying to figure out and remember the details of old data.
2. Capturing the “Failure Data” (The Stuff That Isn’t in the Code)
The most valuable data for a software SR&ED claim is often what isn’t in the final production branch. The CRA wants to see the discarded prototypes, the failed “Proof of Concepts,” and the lessons learned from architectural dead-ends. This is the first information to get lost in a fast-moving dev shop.
To solve this, high-performing teams introduce Structured Micro-Touchpoints:
- R&D Snapshotting: Brief, periodic check-ins between the developers and a GrowWise specialist to capture the “technical roadblocks” while they are still fresh. We have built AI automation to call you and your team to check in on a recurring basis to collect these details when they are fresh, to strengthen your SR&ED claims.
- GrowWise Insights: The strongest claims are created when our clients have proof of what failed. Showing that here was failure, that you didn’t reach the target at the first try, proves to the CRA that the problem was challenging to solve. The more information you keep about the failures, the stronger (and usually the larger) the SR&ED claim will be.
SR&ED for Software Companies – Summary
SR&ED is a phenomenal tool for fueling technical innovation for software companies. It can fund the core challenges that will build moats around your technology and business. When software companies understand the SR&ED program and track their work correctly, SR&ED can fund up to ⅔ of all technical costs, further fueling the growth and success of the business.
Why GrowWise is the SR&ED Consulting Leader in 2026 for Software Claims
At GrowWise, we simplify SR&ED for leaders like yourself. We use our proprietary AI-driven platform to scan your code repositories and project management tools, identifying eligible SR&ED projects that are often missed. We’ve built the technology to digest data directly from the source, to ultimately create stronger, larger, data-backed SR&ED claims.
Our systems save you and your teams time in filing SR&ED so that you can focus on your innovation, and we can focus on preparing your SR&ED claims. Our approach takes on average 2-4 hours of total time from you and your team.
Want to save time in filing your SR&ED claim, all while creating stronger, larger claims? Connect today for a discovery call to see if GrowWise can simplify your SR&ED funding.
Frequently Asked Questions
Does “failed” software development count for SR&ED?
Yes, failed software development projects can be SR&ED eligible. In fact, a project that failed due to a technical roadblock is often easier to qualify than a successful one, as it proves a “Technological Uncertainty” existed that you couldn’t overcome.
Can we claim software developers working remotely outside Canada?
No, you cannot claim workers located outside of Canada in SR&ED. Only the portion of the work performed within Canada is eligible. The employee must be taxed in Canada and paid a T4 salary to be considered eligible for SR&ED. Contractors also must be located in Canada and taxed in Canada to be claimed as a SR&ED expense.
Can we claim SR&ED for AI “Prompt Engineering”?
Generally, no. The CRA’s 2026 guidance explicitly categorizes routine prompt engineering as “Trial and Error” rather than “Systematic Investigation.” However, if you are developing a novel architecture to automate prompt optimization or using machine learning to reduce model hallucinations through structural changes, that work moves into the eligible category.
Does using GitHub Copilot or AI-coding tools disqualify our claim?
Generally, no. The CRA cares about the Technological Uncertainty of the system, not who (or what) wrote the syntax. If the AI tool is used to accelerate coding, the overarching “Architectural Uncertainty” remains with the human engineer, making the project eligible. Oftentimes, the challenging technical work still lies with developers, and the routine coding is done by AI agents, meaning the expense for the developers’ time would still likely qualify for SR&ED. This is a grey area, and an expert should be consulted to understand the unique situation.
