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Many engineering firms and plants do SR&ED-eligible work every year and never claim it. They assume the program is for laboratories and software start-ups. It is not. A plant that cannot get a new formulation to scale, or an engineering team that writes software to control something no standard package can handle, may well qualify.
2026 made the program more valuable. The enhanced credit limit doubled, equipment became eligible again, and the CRA started confirming projects before the work begins. Budget 2026 proposes to widen it further. This article explains what qualifies in engineering and software, what changed, and how to estimate a claim.
What changed in 2026
| Change | Before | Now |
|---|---|---|
| Enhanced 35% credit limit | $3 million of spending a year | $6 million a year, for tax years starting after 15 December 2024 |
| Phase-out of the limit | Taxable capital of $10 million to $50 million | $15 million to $75 million, with an option to use revenue instead |
| Capital equipment | Not eligible since 2014 | Eligible again, for property acquired after 15 December 2024 |
| Public corporations | Basic 15% credit only | Eligible Canadian public corporations can earn the enhanced 35% credit |
| Certainty before you start | Pre-claim consultation, no binding answer | Pre-claim approval, from 1 April 2026 |
| Regulatory testing and IP costs | Not eligible | Proposed in Budget 2026, for tax years starting on or after 5 November 2026 |
The first four changes were enacted by Bill C-15, which received Royal Assent on 26 March 2026. The Budget 2026 changes are proposals.
What qualifies: the five questions
SR&ED is defined by the work, not the industry. The CRA asks five questions about each project.
The first question decides most claims. If a competent engineer could solve the problem with standard practice, published methods or known correlations, there is no technological uncertainty, however hard the work was. Difficulty is not uncertainty.
Engineering and process work: examples
| Likely SR&ED | Not SR&ED |
|---|---|
| Finding why a reaction that works at lab scale gives poor yield in the pilot plant, when published data do not explain it | Sizing a reactor, pump or heat exchanger with standard methods |
| Developing a new catalyst, membrane or separation step and testing variants systematically | Selecting equipment from vendor catalogues |
| Building a model to predict a property no correlation covers, and validating it against plant data | A HAZOP, a design review or a routine debottleneck |
| Trials to make a product meet a specification that existing processes cannot reach | Routine quality control testing and commissioning |
Our scale-up series describes the kind of work that often contains SR&ED: questions that only a pilot plant can answer.
Software work: examples
Software projects qualify when the uncertainty is technological: how to make the system do something, not what it should do.
- Likely SR&ED: a control algorithm that has to run within a time limit standard libraries cannot meet; a machine learning model where no known method reaches the required accuracy on your data, and you test alternatives systematically; integrating systems where the published interfaces cannot deliver the required performance and a new approach must be found.
- Not SR&ED: configuring an ERP or CRM, building a website or app with standard frameworks, connecting systems through their documented APIs, data migration, user interface design and routine bug fixing.
A useful test: if your team could describe the solution on day one and the rest was effort, it is probably not SR&ED. If they had to try things to find out whether it could be done, it may be.
Estimating a claim
Take a Canadian-controlled private corporation with a project that meets the five questions. In one year it spends:
| Item | Spent | Rule | Qualifying |
|---|---|---|---|
| Salaries of staff doing SR&ED | $600,000 | Time spent on SR&ED | $600,000 |
| Overhead (proxy method) | – | 55% of the salary base | $330,000 |
| Materials consumed in tests | $50,000 | Consumed or transformed | $50,000 |
| Contract testing by an arm's-length lab | $200,000 | 80% of contract payments | $160,000 |
| Test rig (capital) | $100,000 | Eligible again since December 2024 | $100,000 |
| Total | $1,240,000 |
At the enhanced 35 percent rate, the federal credit is about $434,000. Because the company is under the $6 million limit, the credit on current spending is refundable: it is paid out even if the company owes no tax. In British Columbia a further 10 percent provincial credit applies to SR&ED done in the province. Provincial credits reduce the federal base, so the combined figure is a little less than the sum of the two. This is a simplified example. Salaries of owners and specified employees, government funding received and many other rules change the result.
Pre-claim approval: worth considering
Since 1 April 2026, a business can ask the CRA to confirm that planned work is SR&ED before it starts the work or spends the money. The CRA describes the process this way:
- Request a case number, then apply in My Business Account for up to three projects.
- Meet a CRA SR&ED specialist within about four weeks.
- Receive a decision within about eight weeks of completing the application. An approval lasts up to three years.
Claims for approved projects that need an expenditure review are processed in 90 days instead of 180. The approval covers technical eligibility only. The CRA can still review the costs. To apply, the business must be in good standing, and the work must not have been claimed already.
Pre-claim approval suits a first-time claimant, a large project, or a project whose eligibility is a judgement call. It needs a clear written description of the uncertainty before work starts, which is good discipline in any case.
Records that make a claim stand up
- A short project plan at the start: the uncertainty, the hypothesis and the planned tests.
- Dated test logs, run sheets, lab notebooks, code commits and analysis files.
- Time records that tie each person's hours to the project.
- Invoices for materials and contracts, marked to the project.
- A note at the end: what was learned, including what failed.
Claims are filed with the tax return on Form T661 and the related schedules. The general deadline is 18 months after the end of the tax year. Late claims are not accepted.
Key points
- SR&ED is about technological uncertainty, not industry. Engineering, process and software work can all qualify.
- In 2026 the enhanced credit limit doubled to $6 million, equipment became eligible again, and the CRA began approving projects before they start.
- Budget 2026 proposes to add first regulatory approvals and IP protection costs.
- Keep records as you go. A strong claim is built during the project, not after it.
Not sure whether your project qualifies? Chmltech helps engineering teams describe the technical uncertainty in their scale-up and process development work, and plan the tests that resolve it. We work alongside your SR&ED preparer. Book a strategy call.
This article is general information, not tax or legal advice. Several measures described here are proposals that are not yet law, and the details can change before they are enacted. Confirm how they apply to your business with your accountant or tax advisor before you act on them.
Sources
- CRA: SR&ED investment tax credit policy
- CRA: Innovate with confidence, SR&ED pre-claim approval process (April 8, 2026)
- CRA: How to apply for pre-claim approval
- EY: Bill C-15 receives Royal Assent (March 30, 2026)
- Gowling WLG: Federal Budget 2026
- Government of B.C.: SR&ED tax credit
