Is Your Project SR&ED Eligible in 2025? Find Out Now.

SR&ED can be confusing. Naturally, the CRA has explained SR&ED in the most CRA – way, so no one actually knows what they mean. That’s where we come in. This blog explains everything you need to know about SR&ED eligibility and whether your company and projects qualify for SR&ED. We will be starting at the highest levels of requirements and getting more and more specific. 

SR&ED Eligibility Requirement #1: Canadian Only

You must be a Canadian company. Sorry to any US (or elsewhere)-based companies, but the SR&ED program is only for Canadian companies with a Canadian Business number. All employees, as well as any contractors that you pay to do SR&ED-eligible work, must be located in Canada. 

You can be located anywhere in Canada to qualify for the federal portion of the program, but the provincial programs are specific to your province, more information about the provincial programs is available here. Note that Northwest Territories, Nunavut and PEI do not offer provincial SR&ED tax credits.

SR&ED Eligibility Requirement #2: Spending Money – The Right Way

In order to receive SR&ED tax credits, you must be spending money. More specifically, you must be spending money on salaries (not dividends), contractors (located in Canada), and/or materials (used in testing). These are the three buckets of expenses that are eligible under the SR&ED program. If your company is not spending money in those ways, for example, you are a solopreneur, don’t pay yourself yet, and don’t yet have any contractor or material expenses; you are too early for SR&ED. 

It is important to note that salaries are only eligible for Canadian-based employees, specifically for technical employees, the ones who are doing the technical work. For each project, you have to list up to three key people involved in the project and their technical qualifications, experience and position title. The CRA puts a lot of value in having technically proficient individuals performing your SR&ED work, so it is important that the people being paid to do your SR&ED work have accreditations that substantiate their activities that relate to SR&ED. 

SR&ED Eligibility Requirement #3: The “Why” – Technical Problems

The core of the SR&ED program is the pursuit of solving technical challenges and closing knowledge gaps. In the CRA’s words, “The work must be conducted for the advancement of scientific knowledge or for the purpose of achieving a technological advancement.”

In plain language, that means tackling a problem where there is a clear technical unknown—a specific area you set out to understand better. What matters most is that the goal of the work is to generate new knowledge that moves the understanding of science or technology forward. The “why” behind all SR&ED-eligible work must be solving a technical problem. 

To make this requirement even clearer, here are some examples of projects that met the “why” requirement: 

• Manufacturing Process Improvements – Experimenting with a new manufacturing technique to improve efficiency and learn how best to address a waste problem. 
• Material Testing and Development – Testing different materials to create a stronger or more durable product and gaining knowledge about the ideal composition.
• Algorithm Optimization – Designing a new algorithm and experimenting to improve its accuracy, learning what structure works best for the specific application. 

The key takeaway: SR&ED isn’t about success—it’s about the pursuit of new technical knowledge. As long as your work is focused on solving a problem where the answer isn’t already known, it could be eligible.

SR&ED Eligibility Requirement #4: The “How” – Systematic Investigation

SR&ED funding is meant to support work that requires you to sit down, think about how you are going to solve the problem (hypothesize), then try various approaches, iterate, test and finally quantify your lessons learned. If you solved a specific problem or addressed a knowledge gap using standard practices and existing knowledge, it’s unlikely that the project will qualify for SR&ED.

SR&ED is meant for projects where you follow a “systematic investigation,” where you have to plan, iterate, change strategies, try new things, test and re-test. According to the CRA: A systematic investigation or search must include the following steps:

1. Defining a problem
2. Advancing a hypothesis towards resolving that problem
3. Planning and testing the hypothesis by experiment or analysis
4. Developing logical conclusions based on the results

So, not only does the problem have to aim to address a knowledge gap, but the approach to addressing that knowledge gap must be very structured, intentional, and analytical. 

SR&ED Eligibility Requirement #5: Not a Business Problem

Projects are only SR&ED eligible if they focus on a technical problem, not a business problem. Business problems include things such as market research and analysis, improving operation efficiencies through streamlining or better SOPs, developing a new business strategy, upgrading existing systems using off-the-shelf software or tools to improve output, and product design such as branding or packaging. Although there may be challenges, struggles and iterative work involved in these processes, if the core of the work is a business problem, the CRA is not interested in funding it through the SR&ED program. 

SR&ED Eligibility Requirement #6: Documentation

To substantiate your SR&ED claim, you must keep proper documentation. This can include a variety of formats of documentation, from time-tracking records, project planning documents, meeting minutes, testing data or results, prototypes or samples, records of trial runs, payroll records, photographs or videos including photos of whiteboards, contracts or agreements, purchase invoices, or any other related records. The documents themselves do not have to be formal typed-up documents. Handwritten notes, photos, physical pieces of scrap/prototypes, payroll documents, etc. can all provide proof and evidence of your SR&ED work. 

The important thing to remember is that regardless of the format of the documents, you must be able to show what work was done, who was involved in the work and what work they did, and how you calculated the associated expenditures (which is relevant for deciding between the Proxy vs Traditional SR&ED calculation method, more information available here).

In light of understanding your SR&ED eligibility, it is important to address the common misconceptions around eligibility.