This article from GrowWise Partners provides a practical introduction to SR&ED for startups and growth-stage companies. This blog covers what work qualifies, how to track eligible expenses, your filing options, and how to handle the process with as little effort as possible.
What is SR&ED?
SR&ED is Canada’s largest non-dilutive funding program for innovation. The federal and provincial Governments in Canada distribute over $4B annually through the SR&ED program. The program was created to invest in Canadian companies doing R&D locally, rather than offshore these expenses. The goal is to support innovation in Canada!
Despite the size of this program, many early-stage companies either don’t apply because they don’t know about or understand the program, or don’t take full advantage of the program, because they don’t know how!
The words “Tax Credit” often scare people away. This is a fancy way of saying that it is a funding program administered by the Canada Revenue Agency (CRA). Here is their official SR&ED site. You apply for SR&ED at the end of your fiscal year, along with your business taxes, and assuming you are a CCPC doing eligible work, the CRA provides a cash refund for up to ⅔ of your eligible costs.
Since the SR&ED program is an after-the-fact funding program, you must incur expenses throughout the year and then get reimbursed for those expenses after the fact. This is one way SR&ED differs from programs like IRAP or other innovation grants.
What is Eligible for SR&ED?
Eligible projects typically involve attempts to create new products or processes or improve existing ones, where the path forward isn’t clear at the start of the work. Companies do not need to succeed in solving the problem; rather, the focus is on the systematic approach taken to overcome technical challenges.
We say “SR&ED funds the struggle”.
Anytime there is a difficult technical problem to solve, and technical team members such as engineers, developers or designers need to spend time on the problem, that is likely SR&ED-able!
There are three “buckets” of expenses that can be reimbursed through SR&ED.
- Salaries: Up to 66% of your salary costs for technical team members can be refunded via SR&ED. This is specifically for the time your team members spend solving/addressing technical challenges related to a specific area of uncertainty.
- Contractors/Consultants: You can receive ~40% of contractor/consultant costs back, associated with expenses directly related to solving technical challenges.
- Materials: Get refunded for up to 45% of your expenses for any materials used, consumed or transformed in the process of testing, prototyping or solving your problem.
The core point here is that the expenses must be specifically for addressing the technical challenge, and the work must be done in a systematic way. The CRA defines a “systematic investigation” as a process including the following steps:
- Defining a problem
- Advancing a hypothesis towards resolving that problem
- Planning and testing the hypothesis by experiment or analysis
- Developing logical conclusions based on the results
If you are addressing technical challenges in a systematic way, with technical team members or contractors, you are likely eligible to get a good chunk of cash back from SR&ED for those costs.
If you want to estimate your SR&ED refund, try GrowWise’s SR&ED Calculator Tool for free in 2 minutes now.
Who is Eligible for SR&ED?
Any Canadian company that undertakes qualifying R&D work may be eligible for SR&ED, regardless of sector. The most common industries are tech (cleantech, agtech, biotech, etc.), pharmaceuticals and manufacturing, but any business in any industry is eligible. This article covers an in-depth analysis of SR&ED trends over the past 5 years.
Any business can apply for SR&ED, but Canadian-controlled private corporations (CCPCs) can access refundable credits, whereas non-CCPCS can only access tax credits that reduce their tax owing.
Pre-revenue companies can qualify, there are no requirements about the stage of the business. This is what makes SR&ED one of the most powerful non-dilutive funding tools available to startups in Canada.
Often, companies perform SR&ED-eligible work without realizing it. More information about specifically what is eligible for SR&ED is available here: Is Your Project SR&ED Eligible in 2025?
To determine eligibility, consider these two core elements:
- Technological uncertainty: Was there a challenge you couldn’t easily resolve with existing knowledge or tools?
- Systematic investigation: Did you follow a structured approach to test and validate possible solutions?
How to Track and Document SR&ED Work
Proper documentation is critical for a successful SR&ED claim. About 90% of claims pass through the CRA without scrutiny, but roughly 10% of claims get reviewed (sometimes known as an audit). More info about what that looks like is available here: How to Win with an SR&ED Audit in 2025.
In case of a review, the CRA wants to see proof of the work that happened, they want to understand the process your team followed, what challenges you encountered, and how you attempted to resolve those challenges.
To set your company up for success in case of an SR&ED review, it is essential to implement a consistent approach to time tracking. Technical employees should log their time weekly, clearly identifying which activities relate to SR&ED-eligible work. These logs should link specific hours to particular tasks or projects. Tools like Jira or even spreadsheets can be adapted for this purpose.
It is also important to maintain records about the technical obstacles you encountered, the hypotheses tested, the iterations attempted, and the results obtained. At GrowWise, we recommend that you save and document relevant materials such as code repositories, test results, version histories, whiteboard sketches, meeting notes, or sprint tickets.
It’s also prudent to review projects quarterly to identify potential SR&ED activities while the work is still fresh. The more detail you put into the tracking of SR&ED projects, the smoother the process will be at the end of your tax year.
Filing Options: Internal vs. Consultant
When it comes time to file your SR&ED claim, you have two main options: handle the process internally or work with a consultant.
Filing internally can be a good option if your team has prior SR&ED experience and the capacity to manage both the technical and financial documentation. You maintain full control and avoid consulting fees, but it can be time-consuming and carries risk if your team are not experts on SR&ED.
Consulting firms, such as GrowWise, specialize in navigating SR&ED’s complexities. Consultants can assist with identifying eligible projects, preparing all required technical documentation, and supporting in the case of a CRA review. This approach reduces the administrative burden on the executive team and increases the likelihood of a successful claim, especially for startups with limited internal capacity. The downside of this is that consultants cost money. Fees are typically charged either as a percentage of the credit or on a fixed-fee basis.
For more information about the pros and cons of preparing your SR&ED claim internally vs using a consultant, check out this resource: Pros and Cons of Preparing SR&ED Internally in 2025.
Timelines and Deadlines
SR&ED claims must be filed within 18 months of your company’s fiscal year-end. However, waiting until the deadline can be risky, especially if documentation is lacking or key personnel have moved on.
Once you submit your claim to the CRA, they typically process and refund you within 1-3 months.
Conclusion
SR&ED is a significant opportunity for Canadian startups and scale-ups to recover costs, extend runway, and reinvest in innovation. But to fully benefit, companies need to understand the program’s requirements and plan accordingly.
If you’re unsure where to start or want a second opinion on eligibility, GrowWise offers a free 15-minute consultation to help founders understand their potential claims and next steps. For more educational content and resources, visit https://growwise.ai/insights/.
