The Complete Guide to
SR&ED & IRAP in Canada

Canada offers two of the most valuable innovation funding programs in the world: SR&ED (Scientific Research and Experimental Development) tax credits and IRAP (Industrial Research Assistance Program) grants. Together, they can return a significant portion of your R&D spend — often without giving up equity.

The SR&ED Tax Incentive Program encourages Canadian businesses of all sizes and sectors to conduct research and development in Canada. Administered by the Canada Revenue Agency (CRA), it is the largest single source of federal support for R&D — over $3 billion per year.

Eligible work is defined as a systematic investigation carried out in a field of science or technology by means of experiment or analysis. This includes basic or applied research, and experimental development in four categories: new products, new processes, improving existing products, and improving existing processes.

Credit rates (2025–2026)

• Canadian-controlled private corporations (CCPCs): up to 35% refundable federal credit on the first $3M of eligible expenditures, plus provincial credits in most provinces
• Other corporations: 15% non-refundable federal credit
• Provincial SR&ED programs (e.g. Ontario OITC, BC SR&ED) often stack on top of federal credits

CRA evaluates SR&ED claims against five core questions. Your project documentation should clearly address each one.

1. 1Technological uncertainty — Was there a problem that could not be solved using available knowledge (internal, suppliers, or public sources), where recommended solutions had failed?
2. 2Formulated hypothesis — Did you develop a specific idea, consistent with known facts, as a starting point for further investigation?
3. 3Scientific method — Did testing go beyond simple go/no-go trials and follow a systematic investigation including experiment or analysis?
4. 4Technological advancement — Was the purpose to generate new knowledge, understanding, or methodology?
5. 5Records — Did you keep contemporaneous records of hypotheses, progress, and results?

Additional requirements

• Work must not be achievable using standard practice alone
• Work must fall within the business context of your company
• Eligible activities are those you would not have performed if no uncertainty had been encountered
• Activities you would not repeat on a similar project (because you learned how) are strong SR&ED signals

Typical eligible activities

• Engineering, design, and technical discussions
• Operations research and mathematical analysis
• Computer programming and algorithm development
• Data collection, testing, and analysis
• Repetitive (and unsuccessful) attempts to overcome technological limitations

The line between eligible R&D and routine development is where most claims succeed or fail. Use this comparison to sanity-check your projects.

Features vs. technology

SR&ED has no direct link to product features — what the software or system does for users. It is about the underlying technological pieces required to deliver that feature and the technical problems encountered building them.

Innovation vs. SR&ED

Innovation and SR&ED are not the same thing. An innovation may not require resolving a technological uncertainty. Conversely, resolving uncertainty does not require creating something entirely new.

Using vs. developing technology

Using a piece of technology as-is is not SR&ED. Combining different technologies in a novel way, or improving an existing component to overcome a limitation, may qualify.

These are representative scenarios where Canadian software companies have successfully claimed SR&ED. Each involves genuine technical uncertainty beyond standard practice.

• Compression systems development to bypass DBMS limits — processing 150+ terabytes when MySQL, PDO, or Cassandra hit platform constraints
• Data processing and memory management methods for embedded or mobile devices — staying under 100KB memory budgets
• Load balancing and distributed database architecture experiments where the DBMS lacks native capability
• New memory management approaches for high-level programming languages
• Statistical models and algorithms for processing 10M+ records from non-normalized third-party data
• Queue and multi-task systems handling 1,000+ concurrent requests per second with data integrity guarantees
• Test, simulation, and re-engineering to achieve mean time between failure greater than one year
• New communication interfaces or libraries integrating disparate technologies without native hooks
• New or improved security protocols and encryption systems guaranteeing transmission integrity

Contemporaneous documentation is your best defence in a CRA review. Records created as work progresses are far more credible than documentation reconstructed at year-end.

Types of supporting evidence

• Notes, sketches, calculations, pictures, videos, and drawings
• Emails, meeting minutes, and internal memos
• Data collected, test results, and project reports
• Timesheets and invoices
• Source code control logs and comments

Recommended documentation structure

1. 1Source control logs, architecture diagrams, and technical design documents
2. 2Product or performance requirement specs and design meeting minutes
3. 3Project plans, schedules, resource allocation, and developer journals
4. 4Test plans, results, logs, and defect tracking records
5. 5Third-party documentation, white papers, and research references
6. 6Internal communications, source code, and prototypes — keep successive versions
7. 7Build plans, timesheets, and contractor agreements

1. 1Identify eligible projects — gather technical narratives and financial data (salaries, subcontractors, materials). Note any government grants that subsidized the same expenditure.
2. 2Complete Form T661 (SR&ED Expenditures Claim) for the correct fiscal year — technical leads prepare project descriptions; your controller or accountant handles financial schedules.
3. 3File with your corporate tax return — SR&ED claims must be filed within 18 months of your tax year-end.
4. 4CRA review — claims may be accepted as filed, reviewed with questions, or selected for a formal audit. Well-documented claims move faster.

Eligible expenditures

• Salaries and wages of employees doing eligible work (allocated by time)
• Materials consumed or transformed in R&D
• Subcontractor costs (at reduced rates depending on entity type)
• Overhead proxy or traditional overhead methods

The Industrial Research Assistance Program (IRAP) is delivered by the National Research Council of Canada (NRC). Unlike SR&ED, IRAP provides upfront grant funding and hands-on advisory support through Industrial Technology Advisors (ITAs).

Who qualifies

• Incorporated and profit-oriented Canadian small or medium-sized enterprise (typically under 500 employees)
• Commitment to innovation and growth through technology
• Capability to execute the proposed R&D project
• Sufficient financial resources to cover your share of project costs

What IRAP funds

• Salaries of employees working on approved R&D projects
• Contractor costs for specialized technical work
• Materials and equipment directly related to the project (varies by project)
• Projects in software, AI, cleantech, advanced manufacturing, and other innovation areas

Funding levels vary by project scope and company stage. Early-stage companies often receive $50,000–$150,000; larger or more mature R&D projects can exceed $500,000. IRAP typically covers a percentage of eligible project costs — often up to 80% for very early-stage firms and 50% or less for more established companies.

1. 1Submit an initial application through the NRC IRAP portal — describe your company, team, and innovation focus.
2. 2Meet with an ITA — if your profile fits, an Industrial Technology Advisor reaches out to discuss your R&D plans and funding needs.
3. 3Develop a project proposal — work with your ITA to define scope, milestones, budget, and expected technical outcomes.
4. 4Receive funding decision — approved projects receive a contribution agreement outlining funded activities, reporting requirements, and payment schedule.
5. 5Execute and report — deliver milestones, submit progress reports, and maintain records of expenditures.

Related NRC programs

• IRAP Youth Employment Program — wage subsidies for hiring young graduates into R&D roles
• AI Assist — targeted support for SMEs adopting or developing AI technologies
• Regional innovation networks — provincial partners that connect companies to IRAP and complementary funding

SR&ED and IRAP are designed to support the same type of work — Canadian R&D — but they operate differently. Many companies use both over a company's lifetime, and sometimes on overlapping projects, with careful planning.

SR&ED and IRAP are the foundation, but Canadian founders should also be aware of complementary programs:

• Strategic Innovation Fund (SIF) — large-scale projects with significant economic impact
• Canada Digital Adoption Program (CDAP) — grants to adopt digital technology and tools
• CanExport SME — funding to expand into international markets
• Provincial programs — Ontario OCI, BC Innovate BC, Alberta Innovates, and others often stack with federal incentives
• Scientific Research and Experimental Development provincial credits — separate from federal SR&ED in most provinces

If you are building technology in Canada, there is a strong chance you qualify for SR&ED, IRAP, or both. The companies that capture the most funding start early: they document as they build, separate R&D from routine work, and plan their funding stack before year-end.

1. 1Audit your last 12 months of development — identify projects with genuine technical uncertainty
2. 2Start a developer journal or weekly technical log for ongoing work
3. 3Estimate eligible spend (salaries are usually the largest line item)
4. 4Book a conversation with an SR&ED specialist and explore IRAP with an ITA
5. 5Build a 12-month funding roadmap that sequences grants and tax credits