SR&ED is worthwhile for Canadian startups when they are incurring meaningful R&D costs, facing real technological uncertainty, and documenting their work as it occurs. It is typically less worthwhile for very early-stage startups with minimal spend or for companies doing mostly routine development. In practice, SR&ED claims tend to be more effective when eligible expenditures exceed roughly $40,000-$50,000, and documentation quality supports the technical work claimed. Smaller or poorly documented claims may offer limited benefit relative to the time and effort required to prepare and support them.
When SR&ED Is Usually Worthwhile
Before assessing “Is SR&ED worth it?”, a startup must first confirm if the work is eligible for SR&ED. If the work does not meet SR&ED eligibility criteria, it does not qualify for the program regardless of cost or effort.
SR&ED eligibility is generally assessed by answering three core questions:
- Is the company attempting to resolve a clear technological uncertainty where the solution could not be achieved using standard or publicly available methods?
- Did the work involve a systematic investigation, with experimentation, testing, iteration, and/or failed approaches, rather than a straightforward, off-the-shelf implementation?
- Did the work generate new technical knowledge or understanding of the topic?
If these criteria are not met, the work does not qualify for SR&ED. More on SR&ED eligibility here.
If the work qualifies for SR&ED, the question becomes whether or not SR&ED is worthwhile in practice. This depends on the scale of eligible expenses and what evidence and documentation exist to support the work.
SR&ED is typically worthwhile when eligible expenses such as employee salaries or contractor costs are substantial enough to justify the effort required to prepare and support the SR&ED claim. In general, when eligible expenses are in the scale of roughly $40,000-$50,000 or more per fiscal year.
SR&ED is usually worth it for startups when the technical project spans multiple months rather than one short sprint. If the project only lasts a few weeks or a month, it is unlikely that there are adequate expenses and documentation related to that project to make the SR&ED application worthwhile.
Lastly, SR&ED is typically worthwhile when companies maintain contemporaneous documentation that can support the claim in the event of a CRA SR&ED review/audit. As per the CRA’s annual SR&ED statistics, 10% of SR&ED claims submitted get audited by the CRA. If this happens, the company must prove that the work does indeed qualify for SR&ED. This requires showing proof of experiments, tests, failed iterations and lessons learned. If the company is not keeping a strong record of tests, failures, and lessons learned, there is an increased risk of the claim being reduced or denied in a CRA SR&ED audit.
More on CRA Audits here.
Practical rules of thumb
- If eligible SR&ED expenditures exceed roughly $40,000-$50,000 in a year, SR&ED often becomes more practical
- Documentation must be created as work happens to create strong, maximized claims
- The longer the project duration, the higher the likelihood that it will produce enough eligible costs and evidence to justify the SR&ED application
When SR&ED is Usually Not Worthwhile
A company must evaluate the time requirements to prepare and support the SR&ED claims versus the financial benefits of the SR&ED claim. If the SR&ED refund is going to be less than around $20,000-$30,000, it often provides limited net value once internal effort and professional costs are considered.
Use the SR&ED calculator now to quantify the SR&ED claim based on expenses.
SR&ED may be less worthwhile if the majority of technical employees are compensated through dividends rather than employment salaries. Dividends are not SR&ED eligible, and therefore won’t contribute to SR&ED claim amounts.
SR&ED is often less financially worthwhile if the people doing the technical work are founders or own part of the business. For SR&ED, these employees are considered “specified employees,” and they cannot claim more than 75% of their time as SR&ED-eligible. These limitations significantly reduce the SR&ED refund.
Early-stage startups may find less value in SR&ED when there is inadequate technical documentation of the experimentation, failures and lessons learned. Weak documentation reduces the strength of the claim and increases the risk of the claim being reduced or denied in case of a CRA SR&ED review.
If the company is not yet incorporated, it is typically less worthwhile to claim SR&ED. Refundable rates and overall credit value are generally lower than those available to Canadian-controlled private corporations (CCPCs), which can limit the practical benefit of filing.
SR&ED also becomes much less lucrative when companies are funding their projects through other government funding programs and grants. These funding programs reduce the SR&ED eligible expenditures and materially lower the resulting SR&ED refund.
If internal financial records, time tracking, or project costing are disorganized, it becomes very time-consuming to prepare the SR&ED claim, and it is often less worthwhile. Poor bookkeeping and incomplete or disorganized financial records significantly increase the effort required to prepare the SR&ED claim.
SR&ED Cost vs. Benefit Considerations
Filing an SR&ED claim, especially for the first time, does require effort and time from the startup team. If the refund is not adequately large, this effort is often not worth the financial benefits of the SR&ED claim.
To understand if the time is worth it, startups must understand the estimated size of their SR&ED refund. For salaries, companies can receive up to two-thirds of the salaries through SR&ED, and for contractors, capital and material costs, companies typically receive up to ~40% of the costs back through SR&ED. The exact amounts depend on the location and corporate structure of the company.
When filing SR&ED, roughly 80% of companies work with an SR&ED consultant. Most consultants have minimum fees, meaning that if the refund is not adequately large, the consultant may end up taking all or a large percentage of the refund to cover their fees.
When considering whether or not it is worthwhile for a startup to file SR&ED, the following factors should be considered:
- Internal time required to gather documentation and answer questions
• Consultant fees relative to expected credits
• Estimated SR&ED refund size
• Quality and strength of your internal project documentation
• Timing of refunds versus immediate cash needs
To understand your specific situation and what these factors mean for you, it is best to discuss the details of your business with an SR&ED consultant.
Example: When SR&ED Is and Is Not Worthwhile
Consider a growing software startup with a 3-person technical team (located in Canada) working to solve a complex platform scalability challenge. The work involves genuine technical uncertainty, multiple experimental approaches, and ongoing iteration over 6+ months. The team tracks development time, records failed attempts, and documents lessons learned. Eligible expenditures include over $80,000 in employee salaries towards this project over 6 months, and documentation is created as the work occurs. In this scenario, SR&ED is very likely worthwhile because eligibility, cost scale, and documentation practices are well aligned. This company could create a strong, well-supported SR&ED claim of roughly $52,000.
By contrast, consider an early-stage startup with one technical co-founder and one contracted developer. The two individuals are primarily implementing known tools or frameworks with limited experimentation. There is a 2-month project that addresses technical uncertainty in the security of the platform, and SR&ED eligible expenditures include $10,000 in salaries and $5,000 paid to the developer. SR&ED is likely not worthwhile in this case because the work is largely routine, and of the work that does qualify, the expected credit would only be roughly $7,500. With minimal documentation and a very small claim, the effort to prepare and support the claim would likely not be worthwhile.
Common Questions About SR&ED
Is SR&ED worth it for software startups?
SR&ED can be worthwhile for software startups when development involves technological uncertainty and systematic experimentation. Routine feature development or standard implementations generally do not qualify.
Is SR&ED worth it under $1M in revenue?
Revenue alone does not determine SR&ED eligibility. Many companies with no revenue still claim SR&ED every year. SR&ED depends on technical spend for employees, contractors, material and capital costs in Canada related to addressing a specific technical uncertainty.
Does claiming SR&ED increase CRA audit risk?
As per the CRA’s annual SR&ED report in 2025, 10% of SR&ED claims are reviewed annually. SR&ED reviews are completely independent from full CRA audits, and a CRA SR&ED review does not increase audit risk for your business. Strong, contemporaneous documentation reduces SR&ED review risk and effort.
Can startups claim SR&ED every year?
Yes, many businesses that claim SR&ED do so every year. As long as the company continues to execute SR&ED eligible work, and each year’s claim is supported by appropriate documentation.
How much money do companies get back from SR&ED?
Companies can receive SR&ED tax credits for up to two-thirds of their eligible SR&ED expenses. Eligible costs include employee salaries, contractor costs, material costs and capital expenditures.
Who is eligible for SR&ED?
A Canadian business is eligible for SR&ED if it is trying to solve a real technical problem where the answer was not obvious at the start, and it tested different approaches to figure it out. It does not matter whether the company is big or small, new or established, or whether the project ultimately succeeded.
In Summary
So, is SR&ED worth it? This funding program is worthwhile for Canadian startups when technical uncertainty, eligible expenditures, and documentation practices align. It is not automatically beneficial at every stage of growth or for every type of development work. Startups should assess both expected credit size and the internal effort required to support a claim before deciding whether to pursue SR&ED.
If you have specific questions about your SR&ED eligibility, contact GrowWise at contact@growwise.ai
