Why SR&ED matters for startups
A startup often spends heavily on development before it has taxable income. SR&ED can then bring in cash rather than reduce a tax bill. According to the CRA, a Canadian-controlled private corporation (CCPC) can earn the enhanced 35% investment tax credit, and a qualifying corporation can have the unused portion of the credit earned on current expenditures refunded, even with no tax payable.
CCPC status is determined under the Income Tax Act. Foreign or public-company ownership can change it: have it checked before counting on the credit.
Is your startup's work SR&ED?
Building a product is not SR&ED in itself. The CRA asks that the work pursue a scientific or technological advancement and rely on a systematic investigation, by experiment or analysis. The starting point is technological uncertainty: it is unknown or uncertain that a result can be achieved, because of an insufficiency in the available knowledge.
A new feature, a better experience or a product that is unique on the market is not enough, according to the CRA's 2015 policy (archived). The CRA also excludes acquiring knowledge that already exists. An ordinary software project, built with known tools and methods, is therefore not eligible. A technical problem with no known solution, investigated through trials, can be.
Founders and their salary
Only the salary of people doing "hands-on" SR&ED work counts, and only for the time spent on that work. If a person spends 90% or more of their time on it, the CRA accepts their entire salary (the "all or substantially all" rule).
Founders who own 10% or more of the shares are "specified employees": their eligible salary is capped at five times the Year's Maximum Pensionable Earnings (YMPE), prorated, and bonuses or profit-based pay are excluded.
Overhead: the proxy method
Instead of calculating your actual overhead, you can elect the prescribed proxy amount method: 55% of the salary base. The choice is yours, but if you use it, you cannot claim actual overhead in the credit calculation.
Evidence, from day one
The CRA says documents created while the work is being carried out are the most common, and it lists software revision or commit logs, photographs, videos and artifacts. For a startup, that means: note the problem and hypotheses, keep failed trials, track each person's time on projects. Rebuilding all of this a year later is slow and uncertain.
What the credit can represent, and when
The enhanced credit is 35% of qualified expenditures, up to the expenditure limit, which rose from $3 million to $6 million for tax years beginning after December 15, 2024. The credit depends on your qualifying expenditures and your situation: it is never guaranteed.
Claims are filed within 18 months after the end of the tax year. The CRA states 180 calendar days from receipt of a complete claim to process refundable claims. Since April 1, 2026, an optional pre-claim approval also lets you get a determination within eight weeks, before incurring costs.
Having your project reviewed
If your team had to solve a real technical problem, a review is worth it, ideally before your year-end, while notes and logs still exist. At Hubvention, we help you see whether your work qualifies and structure the file. Book my diagnostic →