This track is for founders and early finance hires of a Canadian company that is loss-making or pre-revenue and is deciding whether, when and how to claim SR&ED. The enhanced rate of 35% on qualified expenditure up to the expenditure limit is for most Canadian-controlled private corporations (CCPCs) and eligible Canadian public corporations, and for most CCPCs at the enhanced rate, current expenditure is 100% refundable and capital expenditure 40% refundable, up to the limit. What changes for a startup is the list of things that can take the refund away: a funding round that ends CCPC status, government assistance that reduces the base, a contract that moves the credit to the payer, and a reporting deadline with no extension. The program is administered by the Canada Revenue Agency (CRA).
How the Canada rules change the program
| Module | What is different in Canada | Country page |
|---|---|---|
| Is it worth claiming | Enhanced rate of 35% on qualified expenditure up to the expenditure limit of C$6 million a year, for most CCPCs and eligible Canadian public corporations, for tax years beginning after 15 December 2024; basic rate of 15%. For most CCPCs at the enhanced rate, current expenditure is 100% refundable. | CCPC enhanced refund |
| Setting up from day one | No registration. Optional pre-claim approval has been available since 1 April 2026, to have planned work assessed before you incur most of the cost. Keep records made as the work happens, such as hypotheses, test results and time records, that show the systematic investigation. | Documentation |
| Funding interactions | Qualified expenditures are reduced by government assistance, non-government assistance and contract payments that the claimant has received, is entitled to receive or can reasonably be expected to receive. A contract payment received by a performer for SR&ED reduces the performer's qualified expenditures, so that the payer rather than the performer claims the credit. | Eligible expenditure |
| Your first claim | Complete Form T661 to describe the SR&ED work and calculate the expenditure; corporations calculate the credit on Schedule 31. Filed with the income tax return and no later than 12 months after its filing due date. The election to use the proxy method is made on Form T661 and, once made, is irrevocable for that tax year. | How to claim |
Forms and deadlines
| Form or step | Deadline or timing | Country page |
|---|---|---|
| T2 return | Within six months of the end of the tax year. The balance of corporate tax is due two months after year end, or three months for CCPCs meeting the small business deduction conditions. | Deadlines |
| Form T661 and Schedule 31 | With the return and no later than 12 months after its filing due date, 18 months after year end. Form T661 must contain all prescribed information by the reporting deadline; an amended Form T661 may add projects or expenditures before it. | Form T661 |
| Processing of a refundable claim | Service standard of 60 calendar days for claims accepted as filed and 180 calendar days for claims selected for review, from receipt of a complete claim. | CRA reviews |
Key rules to know
CCPC status is the whole refund. A Canadian-controlled private corporation is a private corporation that is a Canadian corporation and is not controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, public corporations or a combination, and whose shares are not listed on a designated stock exchange. The CRA considers de facto control and rights under agreements, so the terms of a round led by non-resident investors should be reviewed against this definition before closing.
Founders' pay. Bonuses and remuneration based on profits paid to specified employees are excluded, and a specified employee's salary is limited to five times the year's maximum pensionable earnings. In the salary base for the prescribed proxy amount, a specified employee's salary is limited to 75 percent of their salary or wages and to 2.5 times the year's maximum pensionable earnings. Salary or wages unpaid 180 days after the end of the tax year are treated as not incurred in that year.
Overheads by proxy. The prescribed proxy amount is 55 percent of the salary base, being the salary or wages of employees directly engaged in SR&ED, subject to the specified employee limits and an overall cap; it counts for the credit but is not an SR&ED expenditure deductible under section 37. Only 80 percent of arm's length contract payments and third-party payments for SR&ED are included in qualified expenditures.
What the CRA reads first. Work is SR&ED only where a scientific or technological uncertainty existed that could not be removed by standard practice, and the routine application of known software engineering techniques is not SR&ED even where the resulting product is new. Part 2 of Form T661 asks for each project the uncertainties, the work performed and the advancements, within fixed word limits.
Worked example
Illustrative example. Kootenay Robotics Inc., a hypothetical CCPC in British Columbia with no associated corporations, a tax year ending 31 December 2026, and founders who are resident in Canada and hold all the shares, is pre-revenue and loss-making. Its experimental development project has a documented hypothesis, test series and conclusions.
| Step | Figures | Result |
|---|---|---|
| Setting up from day one | Time records support C$400,000 of salary or wages of employees directly engaged in SR&ED (no specified employees); materials C$30,000; C$100,000 paid to an arm's length Canadian contractor | SR&ED expenditures identified by project |
| Proxy election | Prescribed proxy amount of 55 percent of C$400,000 | C$220,000 |
| Contract payment | 80 percent of C$100,000 | C$80,000 |
| Funding interactions | C$400,000 + C$220,000 + C$30,000 + C$80,000 = C$730,000, less a C$50,000 federal government contribution towards the salaries | Qualified expenditures C$680,000 |
| Is it worth claiming | 35% of C$680,000, within the C$6 million limit, all current expenditure | Refundable credit C$238,000 |
| Your first claim | Form T661 and Schedule 31 filed with the T2 by 30 June 2027; reporting deadline 30 June 2028 | If accepted as filed, paid within the 60 calendar day standard with the notice of assessment |
Kootenay receives C$238,000 in a year in which it paid no income tax, and can carry its SR&ED expenditure pool forward undeducted, remembering that the pool is reduced by the investment tax credit claimed in the preceding year. Had a non-resident fund acquired control in November 2026, the company would not have been a CCPC throughout the tax year: the same C$680,000 would have earned 15%, C$102,000, with no refund.
Related country guide pages
Self-check questions
Answer each question, then open it to compare.
A pre-revenue CCPC with C$500,000 of qualified current expenditures has no tax to pay. What does it receive, and roughly when?
A US venture fund is about to take a controlling stake. What happens to the SR&ED claim for the year?
The company received a C$50,000 government contribution towards development salaries. How does it affect the credit?
The tax year ended on 31 December 2026. What is the last day to add a project to the SR&ED claim?
A startup paid an arm's length Canadian contractor C$100,000 for part of the experimental work. How much counts towards qualified expenditures?
Official sources
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Educational content only, not tax advice. See the disclaimer.