Canada's Scientific Research and Experimental Development (SR&ED) program is one of the most generous R&D incentives in the world — and in 2026 it got bigger. For software companies, it can return a significant share of eligible development costs as cash.
But SR&ED is also frequently misunderstood. Most everyday software work doesn't qualify, and claims live or die on evidence created while the work happens. This guide covers what changed, how the credit works, what qualifies in software, and how to set up your development process so a claim is straightforward.
What changed for 2026
The 2024 Fall Economic Statement proposed raising the enhanced SR&ED expenditure limit from $3M to $4.5M. Budget 2025 (November 4, 2025) went further, to $6M. Those measures became law when Bill C-15 received Royal Assent on March 26, 2026. For tax years beginning after December 15, 2024:
- the expenditure limit for the enhanced 35% credit rose from $3M to $6M;
- the taxable-capital phase-out range moved from $10M–$50M to $15M–$75M;
- eligible Canadian public corporations can now claim the enhanced credit;
- capital expenditures made after December 15, 2024 qualify again.
The Spring Economic Update on April 28, 2026 added no new SR&ED measures. Separately, CRA launched a voluntary pre-claim approval process on April 1, 2026 (Form T1322), with a decision within eight weeks — useful if you want certainty before you invest heavily in a project.
How the credit works
| Claimant | Rate | Refundability |
|---|---|---|
| Canadian-controlled private corporation (CCPC), up to the $6M limit | 35% | Fully refundable on current expenditures; 40% refundable on capital |
| CCPC, above the limit | 15% | Refundable at 40% for certain CCPCs |
| Eligible Canadian public corporation, up to the limit | 35% | Enhanced rate now available |
| Other corporations | 15% | Non-refundable |
Unused credits can be carried back 3 years or forward 20 years.
A simple illustration: a CCPC that spends $400,000 of eligible current expenditures on a qualifying project could receive a federal credit of about $140,000 (35%), paid out even if the company isn't yet profitable. Real claims also depend on which costs are eligible, overhead treatment, other government assistance and provincial credits.
Does software development qualify?
Since 2021, CRA's guidance frames eligibility around two requirements:
- Scientific or technological uncertainty — the "why." At the outset, it wasn't known whether a result could be achieved, or how, because the available knowledge and experience weren't enough.
- A systematic investigation — the "how." The team formed hypotheses, tested them through experiments or analysis, drew conclusions and kept evidence as the work progressed.
Whether the project ultimately succeeds doesn't matter. What matters is that the work set out to resolve a genuine technological uncertainty.
What typically doesn't qualify
CRA excludes market research, quality control and routine testing, commercial production, style changes, routine data collection and training. In software specifically:
- Programming counts only as support work that directly supports experimental development.
- Applying known practice — adapting established techniques when you're reasonably sure they'll work — involves no technological uncertainty.
So building a standard web app with a mainstream framework, integrating a well-documented third-party API or redesigning an interface usually won't qualify, however hard the work is.
What might
Work may qualify when your team hits a limit that existing techniques can't solve and has to experiment to get past it. Examples include achieving performance, scale or accuracy targets that known architectures couldn't meet, or developing new algorithms or models when published approaches failed on your data. Each case depends on the facts.
Outsourced development: what you can claim
If you work with a development partner, three rules matter:
- The work must be carried out in Canada. SR&ED performed outside Canada generally doesn't qualify.
- It must be performed on your behalf — typically under a contract where you own the results of the work.
- Only 80% of arm's length contract payments count as qualified expenditures, and the contractor can't claim the same work.
That makes contracts worth planning before the project starts: who owns the results, where the work happens, and how the contractor will document it.
What CRA expects to see
CRA wants records showing what was done, who did it, when, and how costs were calculated. Examples it lists include design documents, design, system architecture and source code, test protocols and results, meeting minutes and chats, and time sheets and payroll records. Evidence should ideally be dated and specific — created during the work, not reconstructed a year later.
The good news: a modern development workflow already produces most of this. A few habits make it claim-ready:
- Write the uncertainty down in the ticket or design doc before experimenting: "We don't know whether X can achieve Y because Z."
- Log experiments in pull requests or an engineering notebook: hypothesis, approach, result, conclusion.
- Tag time spent on experimental work separately from routine development.
- Keep failed attempts. Dead ends are some of the best evidence of a systematic investigation.
Filing: deadlines and form limits
File Form T661 (plus Schedule 31 for corporations) within 12 months of your return's due date — for corporations, 18 months after the end of the tax year. CRA can't extend this deadline, and costs claimed late are not treated as SR&ED.
Plan for concise project descriptions. T661 limits the project questions to 350 words for uncertainties (line 242), 700 words for the work performed (line 244) and 350 words for advancements (line 246).
Ontario credits on top
Ontario corporations may add provincial credits:
- Ontario Innovation Tax Credit (OITC): 8% refundable on up to $3M of eligible expenditures (maximum $240,000). The limit phases out as prior-year taxable income rises from $500,000 to $800,000, or taxable capital from $25M to $50M.
- Ontario Research and Development Tax Credit (ORDTC): 3.5% non-refundable, carried forward 20 years or back 3.
Ontario has not matched the federal increase to $6M, so the OITC limit remains $3M.
Planning your next build around SR&ED
If a project involves real technical unknowns, treat SR&ED as part of the plan rather than a year-end scramble. Define the uncertainty during discovery, structure the riskiest work as explicit experiments, capture evidence in the tools your team already uses, and get your advisor involved early — or apply for CRA's pre-claim approval.
Sources
- Canada Revenue Agency — SR&ED program updates and investment tax credit rates
- Parliament of Canada — Bill C-15 on LEGISinfo
- CRA — Guidelines on the eligibility of work for SR&ED tax incentives and what doesn't qualify
- CRA — Contract expenditures for SR&ED performed on behalf of a claimant
- CRA — Getting ready to claim and filing requirements
- Government of Ontario — Ontario Innovation Tax Credit and Ontario R&D Tax Credit
