Overview
Building a successful SR&ED claim can be complex, especially when it comes to distinguishing eligible experimentation from routine troubleshooting and supporting your claim with the right documentation.
In this webinar, Jacqueline Martens, Senior Consultant – Innovation Funding at Leyton, breaks down the 4 E’s of SR&ED and explains how businesses can identify eligible R&D work, document experimentation, capture qualifying expenditures, and build strong evidence to support their claims.
From technological uncertainty and experimental cycles to salaries, materials, subcontractors, capital expenditures, and contemporaneous records, this session provides practical guidance to help businesses strengthen their SR&ED claims and maximize available tax incentives.
What You’ll Learn
- How to identify SR&ED-eligible work
Understand technological uncertainty, due diligence, and how to distinguish experimentation from routine troubleshooting.
- How to demonstrate experimentation
Learn how to document objectives, hypotheses, experiments, results, and iterations throughout the experimental cycle.
- How to identify qualifying expenditures
Explore eligible salaries, materials, subcontractors, capital expenditures, and the impact of other government funding on your claim.
- How to build strong supporting evidence
Discover how timesheets, project records, emails, messages, photos, videos, invoices, and other contemporaneous evidence can support your claim.
- How to strengthen your claim year after year
Learn how to integrate SR&ED documentation into your existing business processes without creating unnecessary administrative burden.
Who is this webinar for?
✔ Business Owners & Executives
Companies investing in R&D and innovation in Canada
✔ R&D and Technical Leaders
Engineers, developers, scientists, researchers, and technical teams conducting experimentation
✔ Finance & Tax Professionals
CFOs, Controllers, Finance Directors, and professionals responsible for tax credits and financial reporting
✔ Operations & Project Leaders
Professionals involved in product development, process improvements, testing, manufacturing, and technical problem-solving
Q&A
Below you will find the answers to the questions raised during the webinar, prepared by our expert Jacqueline Martens.
Please note that these answers are provided for general information purposes only and do not constitute legal, tax, or financial advice.
If you have questions related to your specific situation or that of your organization, we encourage you to contact us directly.
Is SR&ED only applicable to unknown interactions, or can it also apply when “it exists but I don’t know how to replicate it” and that becomes experimental development?
Absolutely, that can still count as SR&ED! The fact that something exists somewhere doesn’t necessarily mean the knowledge required to reproduce it is available to your company.
The important distinction is whether you’re simply learning or applying existing knowledge, or whether the available knowledge is genuinely insufficient to tell you how to achieve the result in your circumstances. If manuals, published information, supplier guidance, or an experienced professional can provide the answer, that’s generally not SR&ED. But if replication requires you to develop and test different approaches because the interactions, conditions, or method cannot be determined in advance, that work may qualify as experimental development.
How do we distinguish between routine troubleshooting and experimentation that could qualify for SR&ED?
A good question to ask is: “Are we diagnosing a known problem, or are we trying to generate knowledge we don’t currently have?”
Routine troubleshooting involves applying known solutions: checking the manual, changing standard settings, replacing a component, or following a supplier’s recommendations. Potential SR&ED begins when those known approaches are no longer sufficient and the team cannot determine whether or how the objective can be achieved.
At that point, the team may develop a possible explanation, test it, examine the results, revise the approach, and test again. That experimental cycle is what separates SR&ED from ordinary troubleshooting. Difficulty and failure alone don’t make the work eligible. The work must be investigating a genuine scientific or technological uncertainty.
Should we take photos/videos of our tests and trials? How should this evidence be submitted?
Yes, absolutely! Photos and videos can be excellent SR&ED evidence, especially when the experimentation involves prototypes, equipment, production trials, formulations, or physical failures.
The important part is context. Record the date, what was being tested, what changed, what you expected, what happened, and what the team decided to try next. A photograph of a failed prototype is useful; a photograph connected to a documented test and conclusion is much stronger.
You don’t normally submit all of this evidence with the initial claim. Keep the original files in an organized project folder so they’re available if CRA reviews the claim.
What about human operations such as business development, services, or back-office activities? Can improvements in these areas qualify as R&D when the company’s end product is a service?
A service company can absolutely conduct SR&ED. The determining factor isn’t what the company sells. It’s the nature of the work being performed.
Improvements to sales methods, staffing models, administrative workflows, or general business practices usually don’t qualify. Market research, sales promotion, and research in the social sciences or humanities are specifically excluded.
However, if the service is delivered through software, artificial intelligence, data processing, cybersecurity, telecommunications, or another technological system, experimental development within that technology may qualify. The business may want to improve its service, but the claimed work must attempt to advance scientific or technological understanding.
In Pharma R&D, what types of expenditures does CRA typically not allow?
Pharmaceutical companies can claim substantial SR&ED expenditures, but every cost still has to be connected to eligible work performed in Canada.
CRA will commonly exclude or adjust costs associated with routine quality-control testing, regulatory submissions, patent work, market research, sales activities, commercial production, and post-market monitoring that isn’t investigating a scientific or technological uncertainty. Foreign contractor costs are also generally excluded, and materials must actually be consumed or transformed during the experimental work.
Clinical-trial costs require careful examination. Participant fees and certain directly related clinical-study costs may qualify. However, CRA specifically identifies advertising used to recruit participants as an ordinary business expense rather than an SR&ED expenditure. The treatment ultimately depends on what the cost was for, where the work occurred, and how directly it supported the experimental investigation.
Should salaried employees keep timesheets? How should T4 employees’ time be allocated?
Yes, we strongly recommend it! The timesheet doesn’t need to be complicated. It should identify the project, the work performed, and the time spent on eligible activities.
For a salaried employee, the claim generally includes the portion of salary or wages that reasonably relates to SR&ED work. That allocation should be based on what the person actually did and the time they spent doing it, regardless of their job title.
The T4 can provide a starting point, particularly when the company’s year-end is December 31. However, adjustments may be required for a non-calendar year-end, bonuses, taxable benefits, unpaid amounts, specified employees, or other salary rules.
If we didn’t formally document a hypothesis or keep detailed timesheets, could we still have enough evidence to support a claim?
Yes, absolutely. Don’t assume the opportunity is lost simply because nobody created a document titled “hypothesis” or maintained perfect timesheets.
The hypothesis may appear in an email, meeting note, test plan, drawing revision, source-code history, or even the sequence of changes made during the work. Employee time may also be supported through project records, calendars, work orders, production reports, test dates, payroll information, and interviews with the people involved.
CRA recognizes that the type of evidence available will vary between businesses. You still need enough evidence to demonstrate what work occurred and how the costs were calculated, but imperfect documentation does not automatically make the work ineligible.
Under the proxy method, are other overhead expenses included?
Yes! That’s one of the main reasons companies use the proxy method.
Instead of identifying and allocating every actual overhead expense, the company calculates a prescribed proxy amount. This is generally 55% of the eligible salary base, subject to certain restrictions and an overall cap.
The proxy amount is intended to represent costs such as utilities, office supplies, general-purpose office equipment, and administrative support. Those actual costs aren’t claimed again as separate qualified SR&ED expenditures. Eligible salaries, materials, contracts, and other permitted costs are calculated separately.
For a $50,000 refund claim, what percentage would your fee be? Is there a minimum fee, or is it purely percentage-based? Also, are audit costs included?
Our fees are generally contingency-based, with a minimum engagement fee of $10,000.
Our standard engagement includes support if CRA selects the claim for review. The proposal confirms the exact fee and scope in advance.
What is the current CRA assessment trend? Typically, what is the success/acceptance ratio? For example, if CAD $100 is claimed, how much is typically allowed?
The current numbers are encouraging! For April 1, 2025 to March 31, 2026, CRA reported that 90% of claims were accepted as filed, 6% were accepted with modifications, and 4% were denied. CRA also reported $4.9 billion in investment tax credits claimed and $4.6 billion allowed.
That doesn’t mean every company should expect exactly 94%. These are program-wide figures and include claims that weren’t selected for a detailed review. Every result still depends on the work, expenditures, evidence, and specific facts of the claim.
Can you share the sample Excel file mentioned during the webinar?
Absolutely! We can provide the sample Excel tracking file to clients as part of our engagement. It gives a practical way to record projects, experiments, employee time, expenditures, and supporting evidence throughout the year. It isn’t a prescribed CRA form, so we can tailor it to each company’s operations and existing systems.
If staff members coordinate experiments, record results, and prepare all the materials for testing, can their salaries be included?
Yes, that work can absolutely be included when it is directly connected to the SR&ED investigation.
Eligible time can include technical coordination, testing, data collection, recording results, operating experimental equipment, and preparing or feeding materials required for a test. CRA also recognizes technical supervision and coordination where the employee is providing technical input.
The distinction is between direct experimental support and general administration. Routine scheduling, purchasing, clerical work, or unrelated material handling generally wouldn’t be treated as directly engaged SR&ED time under the proxy method.
If a qualifying SR&ED claim is rejected, is there an appeal process? If so, how does it typically work and is there a time limit?
Yes, there is an appeal process, and a rejection isn’t necessarily the end of the matter.
During a review, CRA normally provides its proposed adjustments and gives the company an opportunity to respond with additional facts, explanations, or evidence. In certain circumstances, the company can also request an Administrative Review before CRA closes the file.
Once CRA issues the Notice of Assessment or Reassessment, a corporation generally has 90 days to file a formal Notice of Objection. CRA Appeals then conducts a separate review. This process can take many months and, for complicated claims, may take years.
If the dispute isn’t resolved through CRA Appeals, the company can appeal to the Tax Court of Canada, generally within 90 days of CRA’s decision. At that stage, the matter becomes a formal legal proceeding involving Department of Justice counsel. The parties may continue discussing the technical and financial issues and can sometimes reach a negotiated settlement before trial. If they cannot, the Tax Court will hear the evidence and decide the matter.
Appeals can become lengthy and expensive, which is why it’s usually preferable to present the strongest technical explanation and supporting evidence during the original CRA review. The deadlines are strict, so any proposed rejection or reassessment should be addressed immediately.