SR&ED Claims: What CRA Is Looking for in 2024 and How to Survive an Audit

Key takeaways

• SR&ED (Scientific Research and Experimental Development) credits can be as high as 35% refundable for CCPCs on the first $3 million of qualifying expenditures
• The work must advance scientific or technological knowledge or resolve technological uncertainty — routine product improvement does not qualify
• Technical and financial documentation is critical — CRA auditors focus heavily on contemporaneous records
• CRA rejects approximately 20–25% of SR&ED claims in full or in part at the technical review stage
• T661 (Claim for SR&ED Expenditures) must be filed within 18 months of the corporation's tax year-end

The SR&ED program is Canada's largest single tax incentive, distributing over $3 billion annually to businesses. But CRA audits are common, and claims that lack proper documentation — or that include work that does not qualify — are routinely reduced or denied.

What qualifies as SR&ED

Qualifying work must be basic research, applied research, or experimental development undertaken to achieve scientific or technological advancement or to overcome a technological uncertainty. The key test is whether there was genuine scientific or technological uncertainty — a problem whose solution could not be determined by someone with standard knowledge and experience in the field.

Activities that do not qualify: routine testing of existing technology, commercial production and distribution after development is complete, data collection that does not involve experimental analysis, and social science or humanities research.

Documentation is everything

CRA technical reviewers assess whether the claim describes genuine SR&ED work. Contemporaneous documents — lab notebooks, design specs, test logs, project meeting minutes, version control records — are far more persuasive than after-the-fact reconstructions. The documentation should capture the hypothesis being tested, the experiments conducted, the results, and how they affected subsequent work. If your team does not document as they go, start now — it is the single most effective audit preparation step.

Financial and technical claim structure

The financial claim must reconcile to the financial statements. Salaries claimed for SR&ED must be supported by timesheets or allocation records. Contracts with third parties require the T4A and, if applicable, a collaboration agreement. Overhead is claimed using either the traditional method (actual overhead, requires detailed allocation) or the proxy method (65% of directly engaged labour costs). Most smaller businesses use the proxy method to reduce the audit surface area.