The Canadian Scientific Research and Experimental Development Tax Incentive Program (SR&ED) encourages research and development by offering support to businesses that conduct scientific research or experimental development in Canada. The SR&ED tax incentive program allows businesses to deduct SR&ED expenditures from their income and also provides SR&ED Investment Tax Credit (ITC) to reduce Part 1 tax.

Subsection 248(1) of the Income Tax Act (the “Act”) provides for the definition of SR&ED. In Northwest Hydraulic Consultants Ltd. v. Canada[1], the Tax Court of Canada interpreted the provisions of the Act and found a five step approach to determine if an activity is SR&ED:

  1. Was there a technical risk or uncertainty – an uncertainty that could not be removed by techniques, procedures and data that are generally accessible to competent professionals in the field?
  2. Was a hypothesis formulated for the purpose of reducing or eliminating that technological uncertainty?
  3. Were the procedures used consistent with established and objective principles of scientific method, including trained and systematic observation, measurement and experiment, and the formulation, testing and modification of hypotheses?
  4. Did the process result in a scientific or a technological advancement?
  5. Was there a detailed record of the hypotheses, tests and results kept as the work progresses?

The Canada Revenue Agency has since adopted the test provided for by the Tax Court[2].

There are further conditions for SR&ED credits even if the above test is satisfied. Other conditions include, but are not limited to:  the expenditures must all or substantially all be for SR&ED, the activity must be performed in Canada, and the activity must not be for commercial production.

In order to make a SR&ED claim, you should file Form T661, either Form T2SCH31 (for corporations) or Form T2038(IND)(for individuals) as well as supporting documentation.

If there are concerns regarding the SR&ED being claimed that is not resolved with discussions with the SR&ED staff at the CRA, then you should ask for an Administrative Second Review so that the Assistant Director of the SR&ED program or a person assigned by the Assistant Director will reconsider your case.

If the decision is maintained after the Administrative Second Review, then a Notice of Assessment will be issued. If you disagree with the decision, then a Notice of Objection must be filed within 90 days.

Our firm can assist persons going through the Administrative Second Review as well as the Notice of Objection stages.


[1] [1998] T.C.J. No. 340, [1998] 3 C.T.C. 2520 at para. 12

[2] SR&ED Policy Review Project December 12http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/srdplcyrvwprjctpdt-eng.html


This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact today.  +1 (613) 747-2459