Everything You Need to Know About R&D Tax Credits in Canada

Unlock 2025 R&D tax credits in Canada with our expert guide.

Apr 10, 2025

If you're investing time and money into research and development, you might be missing out on valuable tax incentives that could reduce your costs. Many businesses overlook qualified research expenditures and, hence, leave money on the table.

To avoid that from happening, we'll walk you through everything you need to know from eligibility to maximizing your tax credit claims. By the end, you'll understand how to structure your claims, avoid common mistakes, boost your return, and so much more.

As a BONUS, you’ll see how Chrono Platform simplifies the process, so you can focus on innovation instead of paperwork.

Let’s get started.

What Is the R&D Tax Credit in Canada?

The R&D tax credit in Canada helps you reduce costs by offering you financial support for qualified research activities that lead to innovation. The main federal tax incentive for R&D in Canada is the Scientific Research and Experimental Development (SR&ED) tax credit, which is administered through the SR&ED program.

This basically allows you to recover a portion of your R&D expenses through tax refunds or credits. This is a valuable source of financial relief, if you know how to get it. In fact, in the 2023-2024 fiscal year, 91% of SR&ED claims were accepted, either as filed or with minor modifications.

Federal vs. Provincial R&D Tax Credits

Federal and provincial are the two R&D tax credit examples in Canada. You can claim both, depending on where your business operates. This federal benefit applies across Canada and provides financial support for eligible R&D work.

Provincial programs offer additional incentives, which vary by region. Some provinces provide refundable credits, while others offer non-refundable ones that offset future tax bills. Understanding both levels helps you maximize your claim and boost your return.

Who Qualifies for the R&D Tax Credit in Canada?

If your business invests in research and development, you may qualify for tax relief through Canada’s R&D tax credit programs. Whether you operate as a corporation, partnership, or individual, you can claim credits for eligible R&D work that pushes technological advancements forward.

To qualify for R&D activities, your work must involve experimentation, problem-solving, or innovation. Examples include:

Experimental development to improve or create new products, processes, or software.
Applied research to develop new knowledge with practical applications.
Technological advancements in manufacturing, engineering, or software development.

There are also many sectors that rely on R&D credits to offset costs. This includes:

Software development (AI, cybersecurity, cloud computing).
Biotechnology and pharmaceuticals (drug research, medical devices).
Manufacturing and engineering (automation, product innovation).

Here are the percentages of total ITCs that were allowed by the field of science:

ALT: Bar chart showing the percentage distribution of total ITCs across various fields.

If your company engages in qualified research activities, these tax credit opportunities can help you lower your costs and encourage further innovation in your field.

What Costs Can Be Claimed Under SR&ED in Canada?

When you invest in research and development, you can claim several qualified expenditures under the SR&ED tax credit program. These costs cover the work, materials, and services directly related to your R&D projects. Here are the main expenses you can include in your claim.

Wages and Salaries of Employees Performing R&D

You can claim wages for employees directly involved in development activities. This includes engineers, developers, scientists, and technical staff working on innovation.

You have quite some tax deduction opportunities here.

In fact, businesses in Canada spent $20.7 billion on wages and salaries for employees performing in-house R&D in 2022. However, remember that management and administrative salaries do not qualify unless they are directly tied to the project.

Materials and Supplies Used in Experiments

Any materials used for R&D (whether in testing, prototyping, or experimental production) can be included as an eligible expense. However, materials that are resold or incorporated into commercial products do not qualify. In 2020, Statistics Canada reported that spending on R&D materials increased by $80 million, which marks a 4.2% rise from the previous year.

Besides, you can see this trend has continued during the following years, between 2021 and 2024.

Subcontractor Costs Related to Eligible Research

If you hire external contractors to support your R&D efforts, a portion of those costs can be claimed. These expenses must be directly linked to qualified research expenses and should be well-documented.

Cloud Computing Expenses for R&D Projects

With technology-driven R&D, cloud computing plays a key role. You can include cloud storage, processing power, and software costs if they are necessary for your research. These costs are especially relevant for innovative companies working in software development and AI.

And the demand for cloud computing isn’t slowing down.

According to Mordor Intelligence, the cloud computing market in Canada was valued at USD 38.59 billion in 2024 and is expected to grow to USD 46.29 billion by 2025. With an annual growth rate of 16.64%, the market is projected to reach USD 99.95 billion by 2030.

Pro tip: Only a portion of cloud computing costs directly linked to R&D activities is eligible for SR&ED, so you should reference the CRA guidelines on cloud computing expenses.

SR&ED Tax Credit Rates & Refundability in Canada

The SR&ED tax credit gives you a financial boost when investing in research and development. If you’re a Canadian-controlled private corporation (CCPC), you can claim a 35% refundable tax credit on eligible R&D costs. The government is considering raising this limit from $3 million to $4.5 million to give you even more room to claim back your costs.

Larger corporations can still benefit but receive a 15% non-refundable tax credit instead. This offsets taxes owed rather than providing a direct refund. These credits help reduce your income tax liability, so your business keeps more of its resources for future projects.

In addition to federal benefits, many provinces structure their business tax credit differently. Understanding both federal and local programs helps you maximize your tax benefit.

1. Alberta

The Innovation Employment Grant (IEG) provides up to a 20% refundable tax credit on eligible R&D expenditures for small and medium-sized businesses. The grant offers an 8% payment on base-level R&D spending and an enhanced 20% payment on expenditures exceeding the base level.

2. British Columbia

Offers a 10% refundable tax credit to Canadian-controlled private corporations (CCPCs) on qualified SR&ED expenditures up to an annual limit of $3 million. Non-CCPCs may receive a non-refundable credit at the same rate.

3. Manitoba

Provides a 15% tax credit on eligible R&D expenditures. For in-house R&D, 7.5% of the credit is refundable, while the remaining portion is non-refundable. R&D conducted under contract with qualifying institutes in Manitoba is eligible for a fully refundable credit.

4. New Brunswick

Offers a fully refundable 15% tax credit on eligible R&D expenditures for corporations with a permanent establishment in the province.

5. Newfoundland and Labrador

Just like New Brunswick and Manitoba, it provides a fully refundable 15% tax credit on eligible R&D expenditures for taxpayers with a permanent establishment in the province.

6. Nova Scotia

This province also offers a fully refundable 15% tax credit on eligible R&D expenditures for corporations with a permanent establishment in the province.

7. Ontario

Ontario has two noteworthy initiatives:

Ontario Innovation Tax Credit (OITC): Provides an 8% refundable tax credit for small and medium-sized CCPCs on the first $3 million of eligible expenditures.
Ontario Research and Development Tax Credit (ORDTC): Offers a 3.5% non-refundable tax credit for all corporations on eligible R&D expenditures.

8. Québec

Offers refundable tax credits ranging from 14% to 30% on eligible R&D expenditures, including salaries, wages, and certain fees. The rate varies based on the type of R&D activity and the size of the corporation.

9. Saskatchewan

Provides a 10% refundable tax credit for CCPCs on eligible R&D expenditures, subject to an annual limit of $1 million. Other corporations may receive a 10% non-refundable tax credit on eligible expenditures exceeding this limit.

10. Yukon

The Yukon Research and Development Tax Credit offers a 15% refundable tax credit on eligible R&D expenditures, with an additional 5% available for amounts paid or payable to Yukon University.

Note: Businesses operating in Prince Edward Island, Nunavut, and Northwest Territories without specific R&D tax credits remain eligible for federal SR&ED tax incentives. Additionally, other forms of support or funding may be available through territorial programs.

How to Claim the R&D Tax Credit in Canada

Claiming the SR&ED tax credit requires a structured approach to make sure you get the payable tax credit you deserve. The process involves identifying eligible research, tracking expenses, filing the necessary forms, and preparing for potential audits. Here are the key steps to successfully claim your tax credits.

Step 1: Identify and Document Eligible R&D Activities

You need to pinpoint the qualified activities within your company that meet the SR&ED program's requirements. Eligible work includes:

Experimental development to create or improve products, processes, or materials.
Applied research to solve practical problems with scientific methods.
Basic research focused on advancing knowledge without immediate commercial application.

Detailed documentation is critical. So, you should keep records such as project plans, test data, technical reports, and meeting notes. These prove that your R&D activities address real technological challenges.

Step 2: Calculate Total Qualifying Expenditures

After identifying your eligible projects, you need to determine the costs you can claim. These typically include:

Salaries and wages of employees directly involved in R&D.
Materials and supplies used in the research process.
Payments to contractors for R&D work done on your behalf.
Overhead expenses directly related to the project.

Accurate expense tracking is important since these costs impact your final income tax return. If you miss something, you could leave money on the table.

Step 3: File T661 Form (SR&ED Claim) with T2 Corporate Tax Return

To officially claim your credit, you need to submit Form T661 along with your T2 corporate income tax return. This form outlines your R&D projects and the expenses you’re claiming. You have 18 months from the end of the tax year to file, so don’t miss the deadline.

Step 4: Prepare Supporting Documentation for Potential Audits

The Canada Revenue Agency (CRA) reviews many claims, and being prepared increases your chance of approval. You should have:

Project records detailing your research activities, objectives, and outcomes.
Financial records like invoices, payroll details, and receipts.
Time tracking logs to document hours spent on R&D.

Following these steps allows you to confidently claim your provincial and territorial R&D tax credits and maximize your return without unnecessary stress.

How Far Back Can You Claim SR&ED?

You have 18 months from the end of your tax year to file an SR&ED claim. If you miss this deadline, you lose the chance to recover past R&D expenses. The Canada Revenue Agency (CRA) strictly enforces this rule, so keeping track of deadlines is crucial.

If your company’s tax year ends on December 31, 2023, your income tax return is due by June 30, 2024. This means your SR&ED claim must be filed by June 30, 2025. Filing on time allows you to claim credits that can reduce your income taxes or provide a refundable tax credit.

How to File Amended Returns to Recover Past R&D Expenses

If you've already filed your income tax return without claiming SR&ED, you can still amend it as long as you meet the 18-month deadline. Here’s what you need to do:

Prepare the required forms:
- Fill out Form T661 to report your SR&ED expenses.
- If you’re a corporation, complete Schedule T2SCH31 to calculate your tax credit.
Submit the amended return:
- File the updated tax return with the CRA before the deadline.

Acting fast allows you to recover your unused credits and maximize your SR&ED tax benefit before time runs out.

What’s the Maximum SR&ED Credit You Can Claim?

There’s no strict cap on how much you can claim under the SR&ED tax credit, but the amount depends on your eligible expenses and company size. If you're a Canadian-controlled private corporation (CCPC), you can claim up to 35% of qualifying R&D costs, while larger corporations qualify for a 15% non-refundable credit.

And remember that many provinces offer their own tax incentives. Here’s a brief overview of the provinces we mentioned earlier:

Alberta: Up to 20% refundable tax credit through the Innovation Employment Grant (IEG).
British Colombia: 10% refundable tax credit
Manitoba: 15% credit, with 7.5% refundable and the rest non-refundable.
New Brunswick: 15% fully refundable tax credit.
Newfoundland and Labrador: 15% refundable tax credit.
Nova Scotia: 15% refundable tax credit.
Ontario: 8% refundable tax credit
Quebec: 14-30% refundable credit.
Saskatchewan: 10% refundable credit for CCPCs (up to $1 million) and 10% non-refundable credit for amounts above that limit.
Yukon: 15% refundable credit, plus an extra 5% for amounts paid to Yukon University.

How to Maximize Your R&D Tax Credit in Canada

If you want to get the most value from your R&D tax credit, you need a solid strategy. Many Canadian companies miss out on refunds because they don’t track expenses properly or fail to claim both federal and provincial credits.

The good news is that there are ways to increase your claim and avoid costly mistakes. Here are the best ways to maximize your return.

Keep Detailed Project Documentation to Support Claims

The Canada Revenue Agency (CRA) expects thorough records to prove your R&D activities qualify for tax credits. You need to document:

Project objectives and technical challenges.
Experiments and development activities throughout the year.
Employee time logs showing R&D efforts.
Invoices and receipts for materials, subcontractors, and cloud services.

If you don’t keep proper records, you risk having your claim reduced or denied.

And if you want to reach your objectives, you need to emphasize structured project management and power skills—such as leadership, communication, and strategic thinking.

According to PMI's Pulse of the Profession, organizations that prioritize power skills achieve stronger results across key success factors. For example, 72% of their projects met business objectives, while only 28% experienced scope creep. Even in cases of failure, these organizations face a lower budget loss of 17%, which highlights the impact of these skills on overall performance.

Leverage Automation Tools Like Chrono Platform for Tracking R&D Activities

Tracking R&D expenses manually is a hassle, and missing details could mean losing part of – or all of – your claim. Chrono Platform simplifies the process by:

Automatically logging R&D activities in real-time.
Tracking employee hours spent on qualified research.
Generating audit-ready reports to support your claim.
Organizing expenditures in excess of standard costs to ensure compliance.

ALT: Chrono Platform dashboard showing time tracking, project analytics, and completion rates.

Using Chrono Platform allows you to spend less time on paperwork and more time on innovative projects.

Claim Both Federal and Provincial Credits

You can increase your refund by claiming both federal and provincial credits. Many businesses only apply for some benefits and miss out on additional savings.

Since each province has its own tax incentives, combining both levels of support helps you maximize your allowable expenditures and keep more money for future innovation.

Work with SR&ED Consultants to Optimize Claim Accuracy

If you’re unsure whether you’re maximizing your claim, working with SR&ED consultants can help. They can review your expenses, verify qualified activities, and help you file a stronger claim. With expert guidance, you avoid missed opportunities and potential tax policy errors.

"I learned early on that you don’t have to know everything yourself—just find the people who do and work with them." - Steve Wozniak, Co-Founder of Apple

Optimize Your R&D Tax Credit Claims in Canada with the Chrono Platform

Managing R&D tax credit claims can be overwhelming, but Chrono Platform makes the process effortless. With automation and real-time tracking, you can focus on innovation while ensuring your claims are accurate and audit-ready.

Here’s how Chrono Platform helps you: