How to Claim SR&ED
A step-by-step walkthrough of the SR&ED claim process, from identifying eligible work to filing your T661 and receiving your investment tax credit.
Overview of the claim process
The SR&ED claim process involves identifying eligible work, documenting it, calculating expenditures, completing Form T661, and filing it with your corporate tax return. While the financial calculations are typically handled by an accountant or SR&ED consultant, the technical documentation requires input from the people who actually did the work.
The process can be broken into five main steps, starting well before the filing deadline.
Step 1: Identify eligible projects
The first step is determining which of your company's activities qualify as SR&ED. This requires reviewing the work done during the fiscal year and applying the three eligibility criteria: technological uncertainty, systematic investigation, and technological advancement.
For software companies, this typically means reviewing your development history, pull requests, architectural decisions, and technical challenges, to find work that went beyond routine engineering.
Key questions to ask:
- Did we face technical challenges where the solution was genuinely uncertain?
- Did we try multiple approaches or conduct experiments to find a solution?
- Did we generate new technical knowledge, even from failed attempts?
Step 2: Document the technical work
For each eligible project, you need a technical description that answers CRA's five questions:
- What technological uncertainties did you attempt to overcome?
- What hypotheses did you formulate?
- What procedures or experiments did you adopt?
- What progress did you achieve?
- What conclusions did you draw?
These descriptions go into Part 2 of Form T661. They are arguably the most important part of the claim, because they are what CRA uses to evaluate technical eligibility. Weak descriptions are the number-one reason claims are reduced or denied.
Good project descriptions are:
- Specific. They describe the actual technical problem, not the business goal
- Evidence-backed. They reference dated artifacts (code, tests, design docs) that corroborate the narrative
- Structured. They follow the five-question framework CRA expects
- Honest. They don't exaggerate the uncertainty or overstate the advancement
How SRED AI helps
This is where SRED AI delivers the most value. Instead of asking developers to recall months-old technical decisions from memory, SRED AI analyzes your GitHub pull request and commit history to generate structured T661 project descriptions. The output follows CRA's five-question framework and includes references to the specific development artifacts that support each claim.
Step 3: Calculate eligible expenditures
SR&ED expenditures fall into several categories. Your accountant or SR&ED consultant typically handles these calculations, but understanding the categories helps ensure nothing is missed:
Salary and wages
The portion of employee compensation attributable to SR&ED activities. This requires estimating the percentage of time each employee spent on eligible projects during the fiscal year. For most software companies, salaries represent the largest expenditure category.
Subcontractor and third-party payments
Payments to arm's-length contractors for SR&ED work. Only 80% of these payments are eligible. Payments to non-arm's-length parties (e.g., a related company) follow different rules.
Materials consumed or transformed
Materials directly consumed in SR&ED activities. For software companies, this is typically a minor category unless you're working with hardware or physical prototypes.
Overhead (proxy method)
Most companies use the proxy method, which automatically calculates overhead as 55% of the salary and wages of employees directly engaged in SR&ED. The alternative traditional method requires detailed tracking of actual overhead costs attributed to SR&ED, which is more complex but may yield a higher amount for some companies.
Step 4: Complete Form T661
Form T661 is the official SR&ED claim form filed with CRA. It has several parts:
Part 1: Claimant information
Basic company information, contact details, and general claim information.
Part 2: Project information (technical narrative)
The technical descriptions for each SR&ED project. This is the most critical section and where the five-question framework applies. Each project gets its own description with start/end dates, field of science, and the detailed narrative.
Part 3: SR&ED expenditures summary
Financial summary of all eligible expenditures: salaries, materials, contracts, and overhead.
Part 4: Additional information
Details about any government or non-government assistance received, payments to third parties, and other relevant information.
The T661 must be filed with your corporate tax return (T2) along with Schedule T2SCH31 (Investment Tax Credit, Corporations), which calculates the actual credit amount.
Step 5: File with your tax return
The T661 is filed as part of your annual corporate tax return. The investment tax credit (ITC) is then calculated on Schedule T2SCH31 and either:
- Refunded. Canadian-Controlled Private Corporations (CCPCs) can receive a refundable credit at the enhanced rate of 35% on the first $3 million of qualified expenditures.
- Applied against taxes owing. Non-refundable credits at the basic rate of 15% can reduce your tax liability. Unused credits can be carried forward up to 20 years or back 3 years.
For CCPCs, the enhanced refundable credit means you receive a cash payment from CRA, a significant benefit for startups and growing companies that may not have taxable income to offset.
Important deadlines
Filing deadline: The T661 must be filed within 18 months after the end of the fiscal year in which the SR&ED work was performed. This is a hard deadline, CRA does not grant extensions.
Tax return deadline: Your corporate tax return (T2) is due 6 months after the fiscal year end. You can file the T661 separately (up to the 18-month deadline) if your T2 has already been submitted.
Practical timeline: Most companies file the T661 with their T2 or shortly after. Waiting until close to the 18-month deadline is risky, it leaves no buffer for issues and delays the refund.
Who's involved in the claim
A typical SR&ED claim involves several stakeholders:
- Technical staff. Developers and engineers who performed the work. They provide the technical detail for project descriptions and are interviewed during CRA reviews.
- Finance/accounting. Tracks eligible expenditures, calculates the credit, and ensures the claim integrates with the corporate tax return.
- SR&ED consultant (optional but common). Specialized firms that help prepare the technical and financial components of the claim. Many work on a contingency basis (percentage of the credit received).
- Company accountant or tax advisor. Files the T2 and T2SCH31, integrates the SR&ED credit into the overall tax strategy.
How SRED AI helps
SRED AI reduces the burden on your technical staff by generating the initial T661 project descriptions from development artifacts. Instead of multi-hour interview sessions where developers try to recall what they worked on months ago, they review and refine a draft that's already structured around their actual pull requests and commits.
Common filing mistakes
- Missing the 18-month deadline. This is absolute. There is no appeal, extension, or workaround. Set a calendar reminder well in advance.
- Filing without supporting documentation. While you don't submit evidence with the T661, CRA may request it during a review. Not having it ready is a common problem that leads to reduced claims.
- Inconsistent project descriptions. The technical narrative should be consistent with the financial allocations. If a project description suggests two months of work but you're claiming six months of salary, CRA will notice.
- Not claiming all eligible work. Many companies under-claim because they don't recognize all eligible activities. Support work, failed experiments, and preliminary investigations are often overlooked.
- Claiming non-arm's-length contractors incorrectly. Payments to related parties follow different rules than arm's-length contractors. Applying the wrong rules can result in reassessment.
Stop reconstructing what your team built
SRED AI extracts technological uncertainties and experiments from your GitHub pull requests, giving you a T661-ready first draft in minutes instead of weeks.