The SR&ED (Scientific Research and Experimental Development) program distributes over $4 billion annually towards innovative R&D work in Canada, but there is a lot of confusion out there about the difference between R&D vs SR&ED. Due to the technical restrictions on the program, not all research and development qualifies for SR&ED tax credits. This blog is a deep dive into the difference between an innovative product and an innovative process, and why not all R&D qualifies for SR&ED.
If you want to know right away if your work qualifies for SR&ED, try our free 5-minute AI-driven SR&ED eligibility assessment tool here: https://demo.growwise.ai/.
What SR&ED Is (And What SR&ED Isn’t)
SR&ED is a sector-agnostic and industry-agnostic funding program. We have seen SR&ED projects for everything from the obvious lab work for a med-tech company to projects for performance improvements for a platform for a delivery company.
The CRA is much more focused on the actual work involved in the project versus the goal of the project or the mission of the company. To qualify, a project must be driven by a clear technical uncertainty or knowledge gap (the “Why”) and tackled through systematic testing, iterative experimentation, and well-documented progress (the “How”). That is the clear difference between standard R&D and SR&ED.
A typical research and development project may involve the research phase to understand the current solution, and then the development could involve a clear process and steps to take to address the problem. With SR&ED, the CRA likes to understand that the process to solve the problem was not obvious, but rather that you actually had to struggle through, iterate, learn and work through the discovery phase of the project.
We Say, “SR&ED Funds the Struggle”
If the solution is obvious, it is just about doing the 100 steps required to get there, that is not SR&ED. If you are approaching a problem in a hundred different ways, figuring out what works, and learning along the way, that is a great sign your project is SR&ED-able!
SR&ED projects must be focused on technical problems, not business ones. In large organizations, there can be hundreds of hours of R&D put into things like package design to attract customers or UI/UX to improve user experience. These problems are inherently related to attracting and retaining customers, not improving technical aspects of the product/process.
The great thing about SR&ED is that the project doesn’t have to be successful. If you have a project where you attempt to improve a manufacturing process, try to reduce inefficiencies in an algorithm, or unsuccessfully attempt to address performance issues on your platform, those are all great examples of SR&ED projects. You do not need to meet your goal, you just need to be able to show that you tried to, and you learned something.
One important thing to remember, if you are considering the work a “technical challenge” because you have chosen not to hire the required team member or contractor, that doesn’t count as SR&ED work. If you could simply hire someone to solve the problem, that isn’t SR&ED. The product, process or knowledge needs to be new and innovative.
Novel Solution vs Innovation
There are a million novel solutions invented every year. The newest and best sports gear, improved vehicle parts, the next best toothpaste tube. Okay, maybe that last one was a reach, but you get what I mean.
Just because a product is novel or innovative does not mean that the process required to create that product was innovative or, therefore, SR&ED-able. A completely “new” product could be created with standard manufacturing processes, with very little innovation required.
SR&ED is specific to projects, such as creating a new product – let’s say a new ergonomic keyboard. The product might be extremely innovative, but if the process, the specific day-to-day work and projects involved in creating this innovative product require very little iterative design work, product testing, or prototyping improvements, then there are probably no SR&ED projects.
For an example on the tech side, an extremely innovative AI solution could revolutionize our everyday lives, but if the process that the team took to build that product involved simply combining off-the-shelf products in a new way, this work is likely not eligible for SR&ED. If the process itself did not involve addressing any difficult technical challenges, where they had to muscle through, try many different solutions, then they might not have any SR&ED-able work.
So just remember, novel ≠ Innovative.
What Qualifies for SR&ED? Key Eligibility Criteria
This guide provides everything you need to know about understanding your specific SR&ED eligibility: https://growwise.ai/sred/is-your-project-sred-eligibile-2025-guide/
In general, you must be Canadian, addressing a knowledge gap through iterative problem-solving work while documenting everything you do.
Examples of R&D that don’t Qualify for SR&ED
We hope that these examples will give you a flavour of what may be considered R&D work, but that does not typically qualify for SR&ED. Even if you are not in any of these industries, you can still get a sense of the types of projects and work involved.
Software & Technology
- Building a website or app using off-the-shelf tools without addressing any technical uncertainty
- Customizing CRM software for a client, or hiring a consultant to do so
- Simple integration of APIs or third-party platforms
- Enhancing user interface (UI/UX) design
- Routine testing and functionality improvements to a platform.
Manufacturing & Engineering
- Installing new equipment that was designed and tested by the vendor
- Automating a process using commercially available machinery without modification or experimentation
- Changes to the visual design of a product for aesthetic purposes
- Troubleshooting equipment issues using known methods or manuals
Life Sciences & Health
- Performing routine analysis or testing using standard techniques
- Formulating a new product using well-established ingredient combinations
- Developing training protocols and procedures for lab staff
- Conducting literature reviews or compiling regulatory documentation
- Hiring a consultant to complete a study or test (routine work for the consultant)
Cleantech & Energy
- Installing solar panels or wind turbines using standard procedures with no design modification
- Conducting environmental impact studies or compliance reporting
- Implementing off-the-shelf automation tools to improve the efficiency of a process
- Modelling energy savings using known calculators or software tools
The gist of it is, if there is no struggle, no difficulty, no challenge to solve, there is no SR&ED.
Conclusion
The CRA did not make the SR&ED program simple to understand. That is why over 80% of companies hire SR&ED consultants to do the work for them.
If you still have questions about whether or not your work qualifies for SR&ED, let’s connect. Try our free SR&ED eligibility assessment tool now: https://demo.growwise.ai/ or book a call here: https://growwise.ai/intro/
