If your team spends time figuring out how to make something work that nobody’s quite solved before (new software architecture, a better manufacturing process, a new material), there’s a decent chance CRA will pay you back a big chunk of it. That’s SR&ED, Canada’s largest R&D tax incentive. Lots of BC startups leave this money on the table because they think “research” means lab coats. It doesn’t.
On this page
- How Much SR&ED a BC Company Can Get Back
- What SR&ED Is and Who Can Claim It
- What Counts as SR&ED: The Eligibility Test
- Eligible vs Ineligible Expenses
- 2026 Changes: $6 Million Limit and Capital Expenditures Restored
- Federal and BC Credits Combined: Worked Example
- How to File: Form T661, Schedule 31 and the 18-Month Deadline
- Documentation CRA Expects During an SR&ED Review
- Why SR&ED Claims Get Reduced or Denied
- SR&ED Consultants on Contingency vs Your CPA
- FAQ: SR&ED for BC Startups
- Find Out If Your Projects Qualify
How Much SR&ED a BC Company Can Get Back
A Canadian-controlled private corporation (CCPC) in BC can get a 35% refundable federal tax credit on up to $6 million of qualifying SR&ED spending each year, plus a 10% BC refundable credit. That means a small BC tech company can often recover roughly 40 cents or more of every eligible dollar it spends on R&D, even if it isn’t profitable yet.
“Refundable” is the key word. You get cash back even if you owe no tax.
What SR&ED Is and Who Can Claim It
SR&ED stands for Scientific Research and Experimental Development. Any Canadian business can claim it, but the best rates go to CCPCs.
| Claimant | Federal credit rate | Refundable? |
| CCPC (up to the expenditure limit) | 35% | Yes, fully |
| CCPC above the limit | 15% | Partially |
| Other corporations | 15% | Generally no (reduces tax) |
| Individuals and partnerships | 15% | Partially for some |
What Counts as SR&ED: The Eligibility Test
CRA asks a few questions about each project. In plain English:
- Was there technological uncertainty? Could a competent professional in your field know how to solve it with standard practice? If yes, it’s not SR&ED.
- Did you work through it systematically? Hypotheses, testing, iterations, results.
- Did you aim for a technological advancement? You learned something new about the technology, even if the product failed.
- Do you have records? Commits, test logs, notes, design documents made at the time.
Often qualifies: developing new algorithms, solving scaling or performance problems no library handles, new process engineering, novel hardware prototypes.
Usually doesn’t qualify: routine coding, UI design, market research, testing for quality control, using existing tools in the normal way.
Eligible vs Ineligible Expenses
| Expense | Eligible? |
| Salaries of employees doing SR&ED work | Yes |
| Materials consumed or transformed in experiments | Yes |
| Canadian arm’s-length contractors doing SR&ED | Yes, 80% of the cost |
| Overhead (using the proxy method) | Yes, as a percentage of salaries |
| Capital equipment used for SR&ED | Yes again, for property acquired on or after December 16, 2024 |
| Owner’s dividends | No, salary only |
| Work done outside Canada | Generally no |
Small detail with a big impact: if you pay yourself dividends, your time won’t count. Owner-managers who do the technical work often pay themselves at least some salary for this reason. That ties into salary vs dividends planning.
2026 Changes: $6 Million Limit and Capital Expenditures Restored
- Expenditure limit doubled from $3 million to $6 million for the 35% refundable rate (tax years beginning on or after December 16, 2024). Maximum refundable federal credit: about $2.1 million a year.
- Higher phase-out thresholds based on taxable capital ($15 million to $75 million).
- Capital expenditures are eligible again.
- BC’s credit stays at 10%, with BC moving to match the higher limit and remove the credit’s old expiry date. Check the current BC rules when you file.
Federal and BC Credits Combined: Worked Example
A Vancouver software CCPC spends $300,000 on eligible SR&ED salaries in a year and uses the proxy method.
| Item | Amount |
| Eligible salaries | $300,000 |
| Proxy overhead (55% of salaries) | $165,000 |
| Qualified expenditures | $465,000 |
| BC credit (10%) | $46,500 |
| Federal base (BC credit reduces the federal pool) | $418,500 |
| Federal credit (35%) | $146,475 |
| Total cash back | About $192,975 |
This is simplified. The proxy calculation has limits and the credits are taxable in the following year, but it shows why SR&ED is worth a serious look.
How to File: Form T661, Schedule 31 and the 18-Month Deadline
You claim SR&ED with your corporate tax return:
- Form T661 describes your projects and expenses.
- Schedule 31 calculates the federal investment tax credit.
- Form T666 claims the BC credit.
Deadline: within 12 months after your T2 filing due date, which is about 18 months after your fiscal year-end. Miss it and the claim is gone for that year. No extensions.
Documentation CRA Expects During an SR&ED Review
CRA reviews a lot of claims, especially first-time ones. Keep:
- Project plans and hypotheses
- Git commits, tickets and sprint notes tied to projects
- Test results, including what didn’t work
- Timesheets showing who worked on what
- Contractor agreements
Records created at the time carry much more weight than a story written a year later.
Why SR&ED Claims Get Reduced or Denied
- The work was routine development, not uncertainty
- No contemporaneous evidence
- Time allocations look estimated rather than tracked
- Contractors or work outside Canada included incorrectly
- Owners paid by dividends counted as salary
SR&ED Consultants on Contingency vs Your CPA
Many SR&ED consultants charge 15% to 30% of the refund. Some add real value on technical write-ups. But your accountant needs to be involved too, because the claim flows through your T2, affects your tax and interacts with BC credits. Make sure whoever writes the technical side and whoever files the T2 are talking to each other.
FAQ: SR&ED for BC Startups
Is the SR&ED credit refundable?
For CCPCs within the expenditure limit, yes, fully refundable at 35% federally.
Does software development qualify?
Some does. Solving a real technological uncertainty qualifies. Building standard features with known tools doesn’t.
Can a sole proprietor claim SR&ED?
Yes, but at lower rates. Most serious R&D businesses incorporate.
Is the SR&ED refund taxable?
Yes. Credits received reduce your deductible expenses or are included in income in the following year.
How long does a refund take?
CRA aims to process claims within months, but reviews add time.
Can I claim if the project failed?
Yes. A failed experiment that taught you something technical can absolutely qualify.
